Dealers can expect similar demand for new and used vehicles in the months ahead.

As we near the end of the year, it is clear that used vehicles remain the go-to option for many consumers. And yet, new vehicle inventory is expected to continue to move forward in the new year as demand remains, giving dealers a ray of hope for 2024.

In an interview with Canadian auto dealer, Daniel Ross, Canadian Black Books’ Senior Manager of Industry Insights & Residual Value Strategy, said he expects new vehicle inventory and new sales volume to be higher in 2024. On the flip side, he does not see used vehicle supply as sufficient enough to support the demand coming its way.

“We’re probably seeing more of a stagnant or maybe a leveling off of MSRP increases on the new car side. So that might be a better story for new cars as they come back to the market. But used cars, we’ve already had three-plus years of less-than-perfect new car sales and that’s going to infiltrate on the returning vehicles to today’s market — or tomorrow’s market if you will,” said Ross.

He expects this issue will hamper supplies even more, while the used vehicle supply is anticipated to be a smaller portion of the overall volume in the market than it is today. This, in turn, should result in better retention on value and, possibly, still high residual values — particularly in the short term.

“That’s kind of going to illustrate what happens next year in terms of new cars moving forward in sales volume, but still incremental versus used cars being even more hampered on inventory, keeping those prices relatively high,” said Ross.

He suggested that dealers keep an eye on wholesale prices and how used vehicle volume will play out next year. Used vehicle supply is anticipated to worsen before it improves.

Ross also noted that new vehicle sales, lease trade-ins or lease maturities are not coming back to the market nearly in the fashion they used to.

“If a dealer is looking for good used vehicles to fill their lot, it’s going to be tough to do that next year as well. They can rely a little bit more on the new car side of things, but lots of consumers are looking for used vehicles. Two-to-six-year-old vehicles are predominantly what they’re looking for,” he said, adding that the result may create a tougher opportunity to buy, especially in open auctions.

A slow decline is also expected in 2024, though nothing extreme; it will be segment-specific due to changing consumer trends in favour of cars and smaller SUVs. “That’s kind of what I would incentivize dealers to sort of look at more carefully, in terms of their inventory levels and where they want to focus.”

As for electric vehicles, the demand appears to be weakening — slightly. But as EVs remain in the early stages of adoption, Ross said it will be interesting to see how the market fares in 2024, knowing that some key players will be introducing vehicles in certain segments of the Canadian market that are expected to sell well. “So that’ll be good,” said Ross.

The post Sales, trends and predictions for 2024 appeared first on Canadian Auto Dealer.

From physical threats to cyberthreats, dealerships are facing more risk on all sides. We look at what you can do to help reduce your risk.

Not a single player in the automotive industry, from OEMs to dealers, suppliers, and consumers, has been left untouched when it comes to physical and/or cyber security issues.

Towards the end of July, the Motor Vehicle Retailers of Ontario (MVRO) sent out an urgent notice to its members highlighting the importance of protecting dealership valuables after at least three stores in York Region, Ontario, were broken into.

“Thieves are finding new ways to target our dealer members and we need them to remain ever vigilant to protect their businesses,” said Executive Director Todd Bourgon at the time, in an interview with Canadian auto dealer.

Other dealerships in Mississauga, the Greater Toronto Area, and Brampton were also targeted around the same period. Vehicles and point-of-sale equipment were stolen. Bourgon said the thieves hacked into the POS system, stole money through chargebacks, and gained access to the cash register and keys.

Québec tops all other provinces when it comes to vehicle theft, with special attention given to Montréal. But Toronto is moving up the ranks, as a number of thieves from the French-speaking province now operate out of Ontario.

Data from Équité Association, a not-for-profit organization that supports Canadian property and casualty (P&C) insurers, shows that auto theft is up 48.3 per cent in Ontario, 50 per cent in Québec, 18.3 per cent in Alberta (following years of decline), and 34.5 per cent in Atlantic Canada — all year-over-year.

“Criminals are now taking advantage of the outdated standards,” said Bryan Gast, VP of Investigative Services for Équité Association, in a statement.

A 2023 survey conducted on behalf of the CAA Insurance Company found that a growing number of consumers in Ontario (47 per cent) are “very concerned” about the situation. That figure jumps to 57 per cent when considering respondents living in Toronto and within the GTA.

Some companies have released products to help improve physical security, such as Tag Tracking, an anti-jamming technology supplier. They have an anti-theft system that was designed and manufactured in Canada, and is described by the company as having an estimated deterrent effect of 99.82 per cent. The system is independent of the vehicle’s battery, which makes it more difficult to dismantle.

But physical security is only part of the problem, as cyber threats and attacks are also on the rise — and consumers are taking notice.

TransUnion Canada’s Consumer Pulse study for the second quarter of 2023 found that 80 per cent of respondents have concerns about cyber security, including credit card fraud (51 per cent) and identity theft (49 per cent). In fact, 48 per cent of consumers were targeted by a fraud scheme within a three month period, and 6 per cent fell victim to the same thing.

The most popular fraud schemes that target consumers, based on the report, are vishing — fraudulent phone calls — (46 per cent, up 3 per cent), phishing — fraudulent emails (45 per cent, down 1 per cent), and smishing — fraudulent text messages — (41 per cent). Identity theft (14 per cent) is up 4 per cent.

Most attacks stem from an actual person and relate to emails and other similar types of online communications. “It’s always or almost always how companies get screwed,” said Étienne Parent, Business Development Manager at MicroAge Québec, which offers cyber security services.

“The hackers remain on the client’s network infrastructure for many months. We’re talking about six, eight, 10 months, where the hackers stay inside the company digging, seeing what they are capable of doing, if they can delete the backups or infect the system.”

Once they do this, Parent said the hackers will launch a procedure to encrypt the data. “At this point, it’s a bit like the end. If we realize it at the right time, perfect. If we don’t realize it at the right time, well…”

This is where a number of solutions come in, such as bringing forth a much older backup, turning to insurance or, as some companies will do, paying the ransom in hopes of getting their data back. However, Parent said the latter option is never a certainty, since the company is negotiating with thieves.

Overall, cyber attacks are expensive, time consuming, and result in loss of confidence on the part of the company’s clients and employees. Hackers are also more advanced and modern in their approach now, including in their messaging, which is more in-line with what you would expect from the business or person they are mimicking.

“We always have to keep in mind that every email we open is potentially infected or an attack,” said Parent, adding that within the next 10 years he believes it is almost certain that all businesses in Québec will be attacked at least once. “It’s now a career to be a hacker,” he said.

People need to be on guard. Research released this year from NordPass found that employees of the world’s biggest companies from 31 countries use very poor passwords. They discovered this when exposing 10 of the most commonly used passwords in the automotive sector. Passwords such as 12345 and “password” made the top of the list.

Others used a variation of their company’s email domain.com: an abbreviation of the company’s name, part of the name, or the name combined with other words or symbols. And although NordPass has no data representing auto retailers specifically, they do assume the passwords of dealership employees would not be much different from the ones they presented for the auto sector.

“Same as regular internet users, people working in the automotive industry tend to choose easily-memorable passwords, namely number combinations (e.g., ‘123456’), keyboard sequences (e.g., ‘qwerty’), names (e.g., ‘Tiffany’), and similar,” said Emilija Gaivenytė, PR Manager at NordPass, in response to an email inquiry from Canadian auto dealer. “Based on the research, represented company names or their variations often end up in passwords people use to secure work accounts.”

The issue is not without solutions: creating a more complicated password does not take long, and dealerships can consider a security risk assessment. For example, the New Car Dealers Association of BC (NCDA) said it worked with HUB Insurance to offer a complimentary cyber scan to dealer members in British Columbia. That assessment is an external vulnerability scan, according to Rachel LeGear, Account Manager for Transportation, HUB International Insurance Brokers.

“They effectively ‘see what a hacker would see,’” said LeGear in response to an email inquiry from Canadian auto dealer. “Coalition passively collects external data on your organization’s Internet facing IT infrastructure.” She added that they do not perform active collection of information, including penetration testing against the organization’s networks, without explicit permission.

The NCDA also created a Cybersecurity Toolkit this year: a resource developed for its members in partnership with HUB International and with support from Clyde & Co (Cyber Risk). It contains a set of guidelines to help members manage cyber security strategically, since risk cannot be fully removed.

“The importance of having a plan in place to protect a dealership’s people, property, and profitability is vital and cannot be underestimated,” said the association’s president, Blair Qualey.

Last year, the average ransom payment reached $298,755, according to HUB and Coalition Insurance data.

The post Rise in theft & fraud poses risk to dealerships appeared first on Canadian Auto Dealer.

Better tools and equipment, workshop technology, and communication and training can save time, boost profits, and put a smile on your technician’s face.

Automating parts of a technician’s job to make life easier and free up time for other tasks is a surefire way of improving their environment, while also reducing the potential for job-hopping.

That may be top-of-mind for dealers eyeing their facilities as the technician shortage on the fixed ops side of auto retail remains an overwhelming concern, according to Pete Liebetreu, Vice President of Marketing at Hunter Engineering.

“Recruiting and retaining is really where a lot of their minds are at. They’re looking for solutions that help them in that way,” said Liebetreu in an interview with Canadian auto dealer. “When we talk about what’s important to technicians, it’s the same things that are important to any worker.”

Data from a 2018 Carlisle & Co. Automotive Technician Survey that is being used by Hunter Engineering highlights what those factors are. It is worth noting that not much has changed, post-pandemic, from this survey, which included 35,000 technicians from the United States and Canada with an average age of 40.

The report found that three of the top four areas of dissatisfaction for automotive service technicians is related to equipment. So while 79 per cent of technicians are dissatisfied with their pay plan, 75 per cent are none-too-pleased with diagnostic equipment, followed by workshop technology (73 per cent), and special tools and equipment (70 per cent).

“(Based on the survey, we found that) the ability of technicians to access diagnostic equipment, the workshop technology, and the special tools and equipment — in other words, the things they need to do their jobs — if those things are available to them and they are easy to use and they’re always working…then that’s a great (environment) to work in,” said Liebetreu.

Hunter specializes in these areas. They have products that do automatic wheel alignment, thread-depth measurement, on-site data analysis, vehicle identification that automatically determines OEM specs for most vehicles, and more. Its Revolution Walkaway can do a four-tire changeover 25 per cent faster when in semi-autonomous mode and compared to the manual process. 

“That’s both useful for your retention side of things and for the recruiting side,” said Liebetreu. “Time is really important. It’s obviously probably one of the things that we look at the most.”

The right tools

For Reynolds and Reynolds, the right technology can also give technicians the benefit of making more money. And that can make them happier or more satisfied with their job. They just need the right tools to both succeed and save time, according to Lance Alverson, Area Vice President of Sales for Central U.S. and Canada.

He said the company has a fixed operations specialist in Canada that helps them dig into how dealerships are operating to identify where their inefficiencies are.

“One of the things we found out that technicians get frustrated at is identifying work to be sold, and then the advisor not selling it,” said Alverson. “They have to have the tools to give the information to the advisor to sell that properly, which will in turn give them the work to continue and get those cars fixed.”

Doing this, he said, can also improve the level of trust between the technician and advisor, which would be a win-win for both — and also for the dealership and the customer.

Examples of the “right technology” include the ability for the technician to take photos and videos of the vehicle/work being done with their mobile device. That information would then be sent to the advisor, who in turn would review it and email or text the photos/video to the customer for approval. The customer can do this immediately, and electronically.

“I mean, everybody’s mobile today,” said Alverson.

Communication is key

The concept of saving time was also echoed by Elise Parsons, Manager of Account Services at PBS Systems. She highlighted three struggles that dealerships across Canada and the United States are dealing with: staffing, digital disconnect, and communication.

“Time is money. The old adage, right? And time really is a valuable commodity. When you have inefficient communication, you lose so much time going back and forth. So finding ways to leverage really efficient communication is key,” said Parsons.

Dealers know it takes time and money to train new staff, and lack of communication is one of the main frustrations that consumers have when inquiring about the status of their vehicle. For this reason, PBS Systems has an online academy so that whenever there is a lull in the day the technician can log-in.

Global training includes a live person leading sessions on specific topics. They also have knowledge bases that allow technicians to search for specific topics and review a ‘how-to’ with pictures in it.

“We can also leverage technology in terms of making the job require less input. So even if you have an experienced advisor coming from a different manufacturer, they don’t necessarily know your service intervals.”

Parsons said the company has technology that can prompt for recommended services based on the history of the vehicle. Any previously deferred services will prompt. “Even if you don’t know the customer of the car, the system’s doing the work for you to tell you what you need to sell. It’s making it easier to train staff and get them up to speed, and sell where they need to be selling.”

Training and a change in mentality

Training technicians to learn, understand, and use the technology they are being provided with is something KPI Dealer Solutions is focused on.

“Technicians are really in a situation where they have to keep up-to-date,” as the use of technology continues to increase, said Co-founder/Managing Partner Michael Giguère. He recognizes the breadth of technology, from tools to equipment to computer systems, that they must master on top of repairing vehicles.

The challenge today, he said, is keeping technicians up to speed with software, so that they can comfortably do their work in concert with the mechanical and customer service side of their job. Training is especially important because, while some technicians catch on quickly, others do not.

“What we see as the future is a team of expert advisers who will enable technicians to optimize their dealerships, both in terms of fixed operations…and also to allow them to have confidence in the performance of their daily tasks,” said Giguère.

However, even money and training may not be enough if the industry does not change the mentality it has towards technicians — something Giguère hopes to improve. He compares them to doctors, in the sense that they take care of our vehicles. And like doctors, keeping technicians in the long-run will involve valuing them for the work they do.

The post Optimizing your tech’s time appeared first on Canadian Auto Dealer.

The path forward for Finance and Insurance involves change, improvement, innovation, and surviving a more watchful regulatory environment.

Andy Mayers, Lender Solutions Strategist at Dealertrack/Cox Automotive, made an interesting comment when discussing the future of financing in a 2023 Reuters Events report titled The Dealer of the Future.

He said the ultimate goal is to make the experience of purchasing a vehicle like buying a pair of pants on Amazon, and to make auto financing like using PayPal. To do that may require, among other things, a more digital and automated process.

“We’ve built a digital path for credit applications and automated scoring and decisioning,” said Mayers in the report. “The credit application business has been an automated process. In a matter of less than a minute, most people get a decision back on their request.”

Furthering that notion, Rosa Hoffmann, CEO of DecisioningIT, said most OEMs want to move the consumer down the journey of purchasing their vehicle online. She told Canadian auto dealer that part of the journey requires getting potential customers pre-qualified or pre-approved for financing.

DecisioningIT, which uses predictive artificial intelligence, recently launched a widget that can do a pre-qualification in under a second. “Pretty much, it’s instantaneous and it’s nice because it does allow non-prime consumers to also get pre-qualified online.”’

The widget is brand new. “We’re actually working on a name for the widget right now — that’s how new it is. I’ve been working on this project for the last few years,” said Hoffman.

The Dealer of the Future report highlights the importance of digital, the omnichannel experience, and automation in F&I — things like contract automation and digital signing, which helps speed up the transaction process and eliminates errors. Or “lights-out funding,” which automates all steps of the funding process, also eliminates errors, and greatly reduces the risk to the dealer.

The regulatory environment

But as dealers evolve their processes to meet new post-pandemic expectations, they are also aware of an increasing scrutiny. “That translates down to the F&I space by specific government regulators,” said John White, National Director of Business Development with First Canadian Financial Group.

“With the provincial regulators, there’s more and more onus on things such as transparency, disclosure, and the type of insurance transactions for creditor insurance and things of that nature. So, a lot of noise there, and more so than there has been in the past,” he added.

White said that “noise” is apparent in some provinces and is expanding nationally. And although these situations are not all new, he does see them growing in prominence.

On the automation front, that “noise” can have a big impact on the adoption of automated processes being implemented by dealers and financial institutions.

A study that was included on the Organisation for Economic Co-operation and Development’s website found that regulation restrictiveness negatively impacts the adoption of technology.

“In particular, the higher the perception of regulation, the lower the probability that firms engage in digital automation,” the paper notes.

The September 2021 abstract, entitled Impact of Regulation on Digital Automation in Professional Services, was prepared for the European Commission. The study looks at the interactions between the regulatory environment and the adoption of automated processes for accountants, lawyers, engineers, and architects.

Overall, White said the industry is experiencing “normal” or “regular challenges” that involve keeping dealers trained and ensuring they have their processes in place — which he said is made more difficult by high staff turnover rates.

That turnover occurs primarily in customer-facing positions and the F&I world is no exception. The situation around what White describes as a “very dynamic workforce” has resulted in employees jumping quickly from one workplace to another.

“When you’ve got them, and you tie all this back in with what I described in the regulatory framework, you need to make sure you’re really on top of your game,” said White, adding that “it all ties together.”

The balancing act

That opinion is echoed by Jeff Schulz, Executive Vice President (EVP) of Marketing at LGM. He said many people in the auto sector have noticed that regulators are starting to pay more attention to how the consumer is treated. They are also focusing more on ensuring that dealers and suppliers are complying with the requirements.

“Québec with the AMF (Autorité des marchés financiers) has always been pretty stringent and very consumer-focused,” said Schulz. “I think all of us in this industry have learned — and if you’re in Québec, you know how to operate that way — and therefore, the dealers need to follow the guidelines and do things as the AMF requires.”

Other provinces are also starting to ramp up their scrutiny, including Alberta and British Columbia. Schulz said it will be important for dealers and suppliers to ensure their products are both good for the consumer and sold in a responsible way.

Part of that involves offering products that fit the current situation. For example, Schulz said more customers are buying coverage for their electric vehicles, including replacement insurance and loan protection coverage. As a result, the F&I combination is bound to be impacted and change how dealers need to talk to the consumer.

First time buyers in particular seem to have a lot of questions — like, is the home charger covered? “People are starting to think about how to adapt their lifestyle to their electric vehicle that has you plug it in at home. And if you’ve got a stage-two charger, there’s different requirements for those things,” said Schulz

Offering the right products, advising the customer about how their coverage can help protect their particular lifestyle/issue, and selling it all in a responsible way will be a big factor in F&I success. As Schulz put it: bad news travels fast, but good news does not travel as quickly. If the dealership experience is poor, a consumer may complain — and that complaint may climb up to the regulator.

“I think that’s going to be a continual theme in our industry, figuring out how to work with the regulators and do it in a way that is good for the consumer and still good for our business. That’s always a bit of a balancing act,” said Schulz.

He sees this area as something that will continue to evolve over the next few years as regulators find their “happy place” in terms of how much regulation to apply to the industry.

The post The road to a better tomorrow appeared first on Canadian Auto Dealer.

By all appearances, automotive retail’s buy-sell market is similar to 2022 — with the exception that there is now a shift in dynamic.

Last spring the market was hot but interest rates were rising, signalling a major impact on financing transactions for buyers.

There were signs the market would tighten up, and that buyers would be more cautious in their decisions to acquire stores and in their valuations. But as we entered the second quarter of 2023 the market remained strong, according to DSMA Managing Partner Maxime Théorêt.

In an interview with Canadian auto dealer, he said the market is heating up even as lenders are more careful, taking more time and requiring more cash for deals. Active buyers, on the other hand, are “still very active and they’re still very motivated to close on transactions. So it’s still a very robust market right now.”

Of course the market was hot last year too, but this year future profitability concerns seem to loom (or loom larger) over decisions in a “post-pandemic” world.

Post-pandemic concerns

There is a question hovering above many dealers that is intrinsic to future profitability concerns.

“We are seeing that there may be a little bit more of a gap that is starting to be created between seller expectations and what the buyers are going to pay. And the reason for that gap is because the earnings were so high post-COVID,” said Théorêt.

He said many dealerships were posting high profitability for the months and years after COVID, which means the number one question for buyers on the market right now is: can I sustain those earnings?

Past profitability is meant to be a buyer’s number one indicator of future profitability. And as Théorêt put it, when a buyer acquires a business they are basically acquiring its future profitability. But the “post-COVID” world, which impacted dealers positively for many reasons, was not the norm. Théorêt said buyers now need to look strongly at the pro forma and consider the various scenarios going forward.

“That’s the dynamic we see right now, and we’re basically talking to buyers and sellers every day and educating everyone about that valuation aspect, which is a little more technical,” said Théorêt.

Other concerns and considerations

Peter Heasty, President of Baker Tilly Dealer Acquisitions, also noted that detail when discussing the state of the buy-sell market this year.

Although not a lot has changed since 2022, he said there is a general consensus that dealer profits from 2022 are not sustainable — and that margins will reduce as a result of increased supply.

“Conversely though, dealers’ general overhead has also reduced during the pandemic and for dealers paying attention to costs, these savings are permanent,” said Heasty. “In addition, increased volume should result in maintaining the overall gross profit level.”

To-date, Heasty said this has not had an appreciable impact on buy-sell multiples. He suggests keeping an eye out for higher floorplan interest this year — particularly for dealer franchises with inventory on the ground.

“This could result in some transactions being adjusted downward, to account for inventory costs several times more than in 2022,” said Heasty. “However, buy-sell transactions have a medium- to long-term horizon. One could argue that increased floorplan interest will stabilize as rates reduce in 2024 and 2025.”

Opportunity south of the border

Outside, or perhaps in extension to, the Canadian buy-sell market is an interest in looking south of the border to acquire stores.

According to Heasty, multiples have traditionally been lower in the United States than in Canada. For dealers in Canada wishing to do business in the U.S., that could translate into a higher return on investment.

“I think the stability of the Canadian market is the reason our multiples are somewhat higher,” said Heasty. “Canada, for the most part, has an air tight banking environment and is the reason it fared better than all other G7 countries during the 2008 financial crisis.”

Heasty said some of the reasons Canadian dealers are acquiring stores in the U.S. is because they are in a higher “snack bracket,” and the transaction size they are looking for is becoming more scarce in Canada.

“Our American friends have 10 times the market we do, and so there is more to choose from,” said Heasty.

“However, (the act of) Canadians looking south of the border does not affect the activity here. It is more a result of having access to a larger market rather than preferring the American market and pulling back on Canadian transactions.”

Opening up the market

DSMA’s Théorêt also noted that the U.S. environment is more dealer-friendly compared to some provincial legislation in Canada. And that deals in the U.S. are cheaper than in Canada, when comparing like with like.

British Columbia-based dealers Phil Alalouf and Todd Hewitt, both first-time owners, told Canadian auto dealer they felt it was more financially feasible to buy in the U.S., allowing them to invest less in the country and benefit from a greater ROI. They acquired a dealership in Southern California.

Théorêt said more Canadian buyers are looking at the U.S. for dealership acquisition prospects — not the other way around. And this is coming from both large and small dealer groups, including dealers that own one or two stores.

“We’ve got smaller groups that are very good with activities in the U.S., and it would just make so much sense for them to acquire dealerships south of the border so that they (can create) a platform to transit the cars through in the U.S.,” said Théorêt. “That’s a trend we’re seeing.”

Advice for buyers and sellers

Overall Théorêt advises dealers in the “buy” market to do their homework as the industry enters an environment where, potentially, the profitability of dealerships will be challenged. In other words, they need to ensure their cash flow will be “cash-flow positive” — that they can service their debt, that they have reviewed the different scenarios (including the possibility of a recession), and that they have looked at the pro forma.

For sellers, because of the current environment, the pandemic, and interest rates, Théorêt advises taking the time to understand the true value of their dealership(s) — and not just the profitability, but also the real estate right now and over the last few years.

But not everyone sees this as a trend. Samir Akhavan, Co-founder and Managing Partner at Templeton Marsh, wonders if it’s all simply a matter of press coverage.

“I am still not convinced that’s a trend, or a significant portion of our industry. It’s just that U.S. acquisitions garner bigger press coverage,” said Akhavan. “There are still lots of great acquisition opportunities here in Canada — for dealers that can write the cheque and will get approved.”

Even as future profitability concerns loom large for some, Akhavan said that, historically, what goes up must eventually come down. Dealers, he noted, have had 12 to 15 years of strong profits; now they may be due for some corrections. The challenge is to determine how long this instability will last.

“Dealers are now facing challenges on a number of fronts unlike anything most of them have seen before,” said Akhavan. “Dealers with strong balance sheets and good operating abilities will come out just fine.”

The takeaway

Overall, dealers will need to do their homework as the industry enters an environment where, potentially, the profitability of dealerships will be challenged.

Buyers will need to ensure their cash flow will be cash-flow positive — that they can service their debt, and that they have reviewed all the different scenarios. And sellers will need to understand the true value of their dealership(s) and not just the profitability, but also the real estate value as it is now and as it was over the last few years.

“An old saying in auto retail goes: there is an ass for every seat — there is a buyer for every opportunity,” said Akhavan.

The post Post-pandemic concerns loom over a hot market appeared first on Canadian Auto Dealer.

The rise of electric vehicles and the trend of increasing popularity among consumers will have an impact on fixed ops—both the department and its profitability

As governments push for greater adoption of electric vehicles and automakers prepare to launch more electrified models, many dealers are wondering: how will this shift impact my fixed ops department and its profitability?

It is a worthy consideration among the mountain of questions dealers may have, because the rise of EVs is expected to have a negative impact on fixed ops revenue, according to AutoVerify’s Chief Operating Officer Keith Murray.

In an interview with Canadian auto dealer, Murray said dealers will ultimately see a decrease in revenue and profitability in this area of their business, as the “maintenance needs for EVs are different and the time between servicing is going to be longer.”

“Some of the service needs that are inherent with an internal combustion engine just don’t exist with an EV, and that is going to have a negative impact on service departments,” said Murray, adding that “the one caveat is the time horizon. I think it (the negative impact) will be seen, but it will be seen over a fairly long period of time.”

Murray said a large number of EVs will be coming to market within the next several years. A 2022 Cox Automotive update from Chief Economist Jonathan Smoke reveals that new products from Ford, Hyundai, Kia, Volkswagen and Volvo are driving solid growth in the United States. Nearly 1.5 million electrified vehicles (EVs, hybrids and plug-in hybrids) were sold in the U.S. in 2021—up 86 per cent from the 783,477 units in 2020.

However, as Murray notes, there are still millions of vehicles with internal combustion engines on the road today and this type of vehicle is not going away just yet. As a result, he foresees a slow decline in profitability within the fixed ops department—but a decline nonetheless.

How will EVs impact fixed ops revenue?

A 2021 Deepview True Cost Second Owner Study (SOS) report, which was published by We Predict, found that service costs for electric cars and light trucks are 30 per cent lower than their gas-powered counterparts at three years on the road, thanks largely to lower maintenance costs. The report states that repair costs are 22 per cent lower for EVs, because they have fewer mechanical parts than gas vehicles.

“While costs early in the ownership period are higher for EVs, they eventually become more economical—for both the owner and the manufacturer,” said Renee Stephens, We Predict Vice President of North American Operations, in a news release. “Over time, less EV maintenance offsets the higher year-one costs for diagnosis, repair and campaigns.”

So what can dealers do to mitigate this impact? Murray said auto retailers must seize opportunities to increase loyalty within their dealership, whether that means enhanced service programs, finance and insurance, gap protection, or tire/rim protection, to name a few. The need for these services will remain, which should help create a positive ripple effect on the fixed ops department.

“I think that by building loyalty within the front end of the vehicle sale, from selling the vehicle and building that loyalty, it will drive the service needs of the customer back to the dealership,” said Murray. “I think if we look at things that a dealership might be able to provide, that will enhance that service experience for the customer.”

This includes embracing digital capabilities, such as when booking an appointment and/or contacting the service advisor.

A 2021 Cox Automotive Service Industry Study further cements this point by indicating that dealership service centres that offer digital features have a more positive outlook from consumers. It also notes that consumers “particularly want the ability to schedule their appointment online, and it seems the dealer is striving to meet consumer needs there, with 74 per cent of dealers offering this option today.”

Dealership service centres that offer digital features have a more positive outlook from consumers.

Consumers “particularly want the ability to schedule their appointment online, and it seems the dealer is striving to meet consumer needs there, with 74 per cent of dealers offering this option today.”

Source: 2021 Cox Automotive Service Industry Study

“There’s an opportunity there to enhance that experience for a consumer, and that will drive loyalty and ultimately result in profitable interchanges with customers,” said Murray.

AutoVerify, known for its suite of digital retailing tools, plans to launch a product that focuses on the fixed ops department within the next 18 to 24 months, according to Murray. The company is aiming to get ahead of the curve, even if the EV rollout is expected to be slow.

How will EVs impact your fixed ops department?

To better understand how EVs will impact fixed ops and the physical department, Canadian auto dealer connected with Hunter (Engineering) Canada’s Managing Director, John Peron. He said there will be a need for lifts that can handle any activity that is required with an EV battery, and that current bay sizes in most dealerships are not conducive to handle this situation.

“The bays are going to have to be wider, and in some cases there’s going to be additions to buildings,” said Peron. “For the folks that are in their specific environment, there’s the possibility that they’re going to have a reduction in the number of bays if they don’t have appropriate space to handle it.”

As an example, Peron said traditional bay sizes may hover around 12 to 15 feet wide and roughly 30 feet long. But there are some EVs, due to their ADAS (Advanced Driver-Assistance Systems), that require an 18-foot wide bay and nearly 35- or 40-foot length in bay size. Dealers may need to review the footprint of their facility and potentially make changes to the current allocation of the base.

There will be a need for lifts that can handle any activity that is required with an EV battery, and current bay sizes in most dealerships are not conducive to handle this situation.

Tires, tire changing, wheel balancing are other elements to consider, and are a core part of Hunter Engineering’s business.

“We believe the tires are probably going to see more wear than a traditional combustion engine, because of the weight of the batteries and the vehicle, and because of the torque that will be required to move the vehicles,” said Peron.

Peron added the additional wear and tear on EV tires could create more of an impact from a wheel-service standpoint in service operations. As a result, dealers may need to staff their departments accordingly to better manage the situation.

Peron also said electric vehicles remove the additional noises that their gas-powered counterparts experience, allowing consumers to more accurately experience tire performance. This, he said, will be “critically important for technology that we have in road force balance.”

“We believe that there’s a significant opportunity for dealers to make sure that the aspect of the customer satisfaction, the quality aspect of those respective jobs that they’re going to be servicing, can meet what the demand or the expectation is,” said Peron.

In other words, diagnosing those tires is expected to become a significant element of a dealership’s business. And those that are not prepared for this shift may be shocked when the vehicles start coming in for servicing, or when that first tire changing season is upon them.

Brakes are expected to remain a critical aspect in servicing due to the amount of stress the tires will experience. And dealers may see more activity around cutting rotors or replacing brake pads.

Another key element for dealers to consider is the alignment of EVs and how that alignment is done when considering ADAS. Depending on the situation, Peron said, the rear thrust angle of the vehicle must be correct before a second alignment can be done, so that the ADAS radars can be put back to their zero position.

Overall, Peron said, the message he is trying to drive home to the dealers is that they can do everything under one roof, as long as they have a strategic plan to support it. “You don’t have to worry about shipping it out to another dealership. You don’t have to worry about shipping it out to a collision centre or a mechanical centre—you can do everything internally,” said Peron.

Dealers that have a strategic approach will be better positioned to cover and capture all of the opportunities that come with these new vehicles.

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Ontario-based DealerAI launched an AI chatbot that aims to achieve automation with customer service and provide timely, accurate, and consistent answers to consumers

Canadian auto dealer talked with Baris Akyurek, the Director of Marketing Intelligence at AutoTrader, which released first quarter 2022 research in April, which suggests consumer searches for electric vehicles are surging primarily due to soaring gas prices. This is not surprising, though interest in EVs is not constant across the country, suggests the survey of 1,000 prospective buyers.

AutoTrader research suggests gas prices and government incentives combine to drive consumer interest in electric vehicles, but where incentives are lower, there is a corresponding drop in interest. BC and Quebec lead the way in consumer online searches for electric vehicles, due to higher incentives, but for Canadians in general, 68 per cent are considering an electric vehicle for their next car, which is up five percent from last year. Two thirds of respondents cite rising fuel prices as the reason behind looking at EVs.

Xu said they can also help dealers make more deals with higher grosses, which the company is able to achieve by automating the customer experience with timely, accurate, and consistent answers in the customer’s language.

“When we look at our data, we see searches for electric vehicles specifically are up 89 per cent from last year, with a 560 per cent increase in leads to dealers,” says Akyurek, “so there’s been huge interest since gas prices have gone up.” With over 300,000 vehicles on the AutoTrader site, the average price for both new and used cars has gone up about 33 per cent since the beginning of the pandemic.

“From a demand perspective, COVID really increased interest in owning a vehicle, and this was reflected in AutoTrader searches across the country,” he says. In the Prairies and Ontario, which have only the $5,000 federal rebate for EV buyers, 30 per cent of buyers say they would need more than $10,000 in incentives to make them consider an EV over an ICE vehicle.

Of EV buyers surveyed, their number one reason for choosing an EV was high fuel prices, followed by the environmental benefits of owning a zero emission vehicle, and the number three reason  was the lower maintenance costs of owning an EV over time.

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A Canadian F&I warranty provider aims to improve the vehicle ownership experience through the chemical products it blends and manufactures.

Dealers may remember the story of an F&I warranty provider that, during the early stages of the pandemic, retooled its Scarborough assembly lines and chemical blending processes to supply hand sanitizer to dealerships, first responders, and local hospitals.

That company is Diamond Kote, a more-than-meets-the-eye provider owned by IA Financial Group, and best described as “where the rubber meets the road.” It aims to enhance the vehicle and ownership experience for consumers through the chemical products that it manufacturers.

“We’re the only Canadian manufacturer in the F&I industry that produces our own chemicals, so we have that vertical integration,” said Jill Kleovoulos, Marketing Director at iA Dealer Services-Ancillary Products. “Our detailing products, our paint protection products, our interior protection products—these are the types of services we offer to dealers.”

Kleovoulos said that enhancing the ownership experience through the company’s products, services, and warranty programs can help customer vehicles look new for a longer period of time, and it can help protect them from the high costs associated with collisions or misfortunes that can happen along the way.

Diamond Kote was founded in Vancouver, B.C. by Chuck Walker. He originally worked in dealerships in the Western regions of Canada before launching the company in 1968. In 1971, he introduced automotive extended warranty programs as part of the services offered to help cover parts missed by some of the traditional manufacturer warranty programs.

The company partnered with Toyota in 1995 and has since worked with several other OEMs—including Honda, Acura, Lexus, General Motors, and Ford. iA Financial Group acquired both Diamond Kote and parent WGI Manufacturing (which produces the chemicals) in 2020, placing it squarely under the Industrial Alliance umbrella.

The overall goal of the company is to ensure their customers have a “really great” experience, whether that means through the dealership, or during an event resulting in a chip in the windshield or a tire hitting a pothole.

That manufacturing connection is important, as Kleovoulos said one of their areas of focus is to ensure the chemical formula relations going into the products are environmentally stable. “We have a research and development team that’s trying to improve those products to make them better for the environment, and make them better for the customers as well,” she said.

The overall goal of the company is to ensure their customers have a “really great” experience, whether that means through the dealership, or during an event resulting in a chip in the windshield or a tire hitting a pothole. “We want to make sure that the customer has a really positive customer experience when it comes to the claims,” said Kleovoulos.

To dealers, her message is simple: Diamond Kote is like Amazon on the go, in that they are flexible and adaptable, which is part and parcel with being vertically integrated and having the ability to control every step of the process along the way. As Kleovoulos notes, the company does its own blending and chemical manufacturing, it has its own warehouse facilities (in Toronto, Calgary, Vancouver, and New York), and it has the ability to supply chemical products (in some of its services) within 72 hours of processing.

“We really do have good warehouse fulfillment and an operations team that does pretty good forecasting,” said Kleovoulos. “I think it’s important because, and especially now, two and a half years into COVID, we’re starting to see that supply chain really bottleneck. So we’ve been keeping on top of it to make sure that we do have enough products on our shelves to supply the dealers so that they don’t feel that pinch.”

As for what is coming up in the pipeline, Kleovoulos said Diamond Kote plans to launch two new chemical products this year: a shine refresher product meant to refresh the “brilliance” in a vehicle’s vibrancy, and a matte ceramic product that is part of a growing trend. Both products are set to launch this spring.

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Digital Air Strike released its ninth Annual Automotive Customer Experience Trends study at the 2022 NADA Show in Las Vegas, Nevada, offering dealers, lenders, OEMs and providers information that they can use to improve the vehicle ownership experience.

The company said its report offers “compelling insights” on the impact of the vehicle inventory shortage, online interactions that help move the customer journey forward, and the importance of the online and digital communication experience for consumers, along with the platforms that they prefer to use.

“The vehicle researching, buying, and ownership processes have changed exponentially since the onset of the COVID pandemic,” said Alexi Venneri, Co-founder and CEO of Digital Air Strike, adding that “the data has consistently proven to be helpful for our dealers and the industry as a whole.”

The report shows that a third of consumers felt significantly impacted by the inventory shortage. Of those that were affected, 21 per cent went to a different dealership, 8 per cent asked the dealer to order a new build from the factory, and 21 per cent had to wait for the vehicle they really wanted.

Of this particular group, 71 per cent waited up to three months, while 27 per cent waited up to a year, and 50 per cent paid a $500 (or more) deposit. Also worth noting is that 20 per cent of consumers said the dealer did not keep them informed about the status of their vehicle.

And again, among consumers affected by the vehicle inventory issue, 32 per cent did not get their first-choice vehicle, and 17 per cent bought a used vehicle instead of a new one.

The study advises dealers to present alternative options to consumers, including new and used vehicle options. Some dealers also offered important information in their communication to consumers about the vehicle delivery time, delivery process, and the car’s features.

“Dealers need to ensure their pre-order process includes a plan for ongoing communication to keep their customers updated and to retail vehicle deposits,” said Digital Air Strike in its report.

As for the online environment, some of the main reasons consumers did not contact a dealership when researching their vehicle include a lack of special offers (40 per cent), high prices (35 per cent), a lack of dealership photos (26 per cent), there was no easy way to contact the dealership (11 per cent), bad reviews (8 per cent), and a lack of COVID-19 protocols (3 per cent).

Consumers expect to access accurate information on the first page of their search results—not outdated information, the report notes, adding that dealerships should have an updated Google Business Profile with one place to browse reviews, receive their frequently asked questions, see the store’s photos, and find special offers and announcements. There should also be an easy way to contact the dealer on that page.

“Online sources continue to be the most dominant resource in reaching consumers when making a purchase decision, while ads on streaming networks are close behind traditional media sources,” reads the report. “Without a solid online presence, consumers are more likely to select another dealership for their purchase or service.”

Without a solid online presence, consumers are more likely to select another dealership for their purchase or service.

The study shows that consumers select dealerships based mainly on online searches and reviews—at record levels. It notes that 93 per cent of consumers that purchase a vehicle (up from 88 per cent in the previous year’s study), and 87 per cent of service customers said online review sites helped them select their dealership.

Based on consumer rankings of their top source for dealership research and reviews, Google slots number one with 60 per cent (up from the last study), followed by Kelley Blue Book with 17 per cent (down from the last study), Vehicles.com with 17 per cent (down), VehicleGurus with 13 per cent (down), and Autotrader.com with 13 per cent (down).

“Because of the inventory shortage, consumers don’t have as much time to research because vehicles are being sold quickly. Eighty-six per cent of sales (down from 93 per cent in the prior study) and 51 per cent of service (down from 74 per cent for the previous study), researched a few days or more before selecting a dealership,” said Digital Air Strike in its report.

On reviews, 58 per cent of consumers said the dealership did not ask them to write an online review about their sales experience, while that percentage jumps to 71 per cent for service. Thirty per cent of service customers said a dealership’s response is the “most important” part of a review. For consumers overall, a four or five star rating can impact their decision when selecting a dealership.

It is also worth noting that most reviews written by consumers are positive (81 per cent for sales and 88 per cent for service), and that 58 per cent of consumers find these review sites helpful.

Overall, the report lists five key takeaways for dealers to consider:

• Engage in online interactions that can improve the customer journey.
• Communicate with effective and timely messaging.
• Increase lead conversion and protect your online presence with reviews.
• Turbocharge your marketing game.
• Improve your online experience.

Digital Air Strike surveyed more than 2,300 vehicle buyers and more than 2,700 service consumers from transactions conducted over the last six months for its study. These consumers were between the ages of 25-54, a near-divide of male (57 per cent) and female (43 per cent), had no pre-qualification criteria other than those transactions, and they were not predisposed to be online shoppers.

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There is some good news for dealers in the federal budget that was released on April 7 by Chrystia Freeland, Deputy Prime Minister and Minister of Finance, which includes important measures on moving zero-emission vehicles (ZEVs) forward.

Some of these measures in Budget 2022: A Plan to Grow Our Economy and Make Life More Affordable include more than $3 billion in funding to make ZEVs more affordable, while aiming to build a national network of charging stations and investment in priority critical mineral deposits.

“Our plan is responsible and considered, and it is going to mean more homes and good-paying jobs for Canadians; cleaner air and cleaner water for our children; and a stronger and more resilient economy for years to come,” said Freeland in a government news release.

Some good news

The report, which spans more than 300 pages, mentions extending the Incentives for Zero-Emission Vehicles (iZEV) program until March 2025 by providing $1.7 billion over five years to Transport Canada. The federal government also aims to broaden eligibility under the program so consumers can buy more vehicles—including more vans, trucks, and SUVs—to make ZEVs more affordable.

The budget also indicates that the Canada Infrastructure Bank will invest $500 million in large-scale urban and commercial ZEV charging and refuelling infrastructure. And the federal government aims to provide $400 million over five years to Natural Resources Canada to fund more ZEV charging stations in sub-urban and remote communities. This would be done through the Zero-Emission Vehicle Infrastructure Program (ZEVIP).

Also worth noting is a proposal to provide $547.5 million over four years to Transport Canada to introduce a new purchase incentive program for medium- and heavy-duty ZEVs, which would also benefit fleet owners.

Another $199.6 million over five years would be provided to Natural Resources Canada (along with an ongoing $0.4 million) to help decarbonize vehicles already on the road. This would be done by expanding the Green Freight Assessment Program, which will be renamed Green Freight Program and is meant to support assessments and retrofits of more vehicles and a broader range of fleet and vehicle types.

On critical minerals, the federal government aims to develop a domestic ZEV value chain, which includes batteries, permanent magnets, and other electric vehicle components. One of the measures proposed in the budget is to provide up to $1.5 billion over seven years towards infrastructure investments around the development of critical mineral supply chains.

The downside

Dealers may be less enthusiastic by the federal government’s plans to introduce a sales mandate to ensure that at least 20 per cent of new light-duty vehicle sales in Canada will be ZEVs by 2026, along with 60 per cent by 2030 and 100 per cent by 2035. The Canadian Automobile Dealers Association (CADA) suggested the government implement certain key elements to help it reach its ZEV goals—some of which is reflected in the budget. More information on CADA’s suggestions are available here.

Finally, it appears the government plans to move ahead with a luxury tax on new luxury cars with a retail sales price over $100,000. The tax was supposed to be implemented in January.

“The tax would be calculated at the lesser of 20 per cent of the value above these price thresholds or 10 per cent of the full value of the luxury vehicle, aircraft or vessel,” said the government in its report. “On March 11, 2022, the Department of Finance Canada launched a public consultation on draft legislative proposals to implement the proposed tax framework.”

Subject to Parliamentary approval, the luxury tax is anticipated to come into effect on September 1, 2022.

The full budget report is available here.

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Quebec rebates for electric vehicles have been reduced, while more funding is being provided for charging stations and to help support the development of minerals for EV batteries, according to the province’s 2022-2023 budget report.

The report shows that Quebec’s Roulez vert program will cover the period of 2022‑2023 to 2026‑2027, pulling funding from the Electrification and Climate Change Fund. The program provides rebates when purchasing several types of EVs, as well as when buying and installing charging stations at home, at work, and in multi-unit buildings.

The government announced that the maximum rebate granted for the purchase of and EV under the Roulez vert program as of April 1, based on its revision of the maximum rebate “according to the evolution of the market,” will be:

• $7,000 for new fully electric vehicles (originally $8,000);
• $5,000 for new plug-in hybrid vehicles (originally ranging from $500-$8,000); and
• $3,500 for used fully electric vehicles (originally $4,000).

“This adjustment reflects the reduction in additional costs of electric vehicles on the market relative to comparable internal combustion models, while encouraging the acquisition of vehicles with greater electric range and GHG emission reduction potential,” said the government in its report.

They add that details regarding these EV rebates, for the period after fiscal year 2022-2023, will be announced at a later date. Additional information for dealers and manufacturers is available on the government’s website.

The Government of Quebec will also implement other actions to boost EV adoption. As part of its 2022-2023 budget, Montreal will receive $117.2 million to finance “concrete measures” to fight climate change. One of those measures will be to deploy 800 public EV charging stations. Quebec City will receive funding as well, to install 95 stations.

And close to $1.5 billion will be set aside in the budget to support innovation and research, such as the development of minerals and innovation in the mining sector. The government said it is setting aside an additional $15 million over three years to increase the support offered in the “piloting and demonstration of processes and processing designed to make optimal use of CSMs (critical and strategic minerals).”

“This initiative will speed up the completion of mineral transformation projects in Québec and foster the development of the industries necessary for energy transition, including renewable energy and battery (manufacturing),” reads the report.

The full report is available here.

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(Left to right row one): Huw Williams, Director of Public Affairs, CADA and Tim Reuss, President and CEO at CADA. (Left to right row two): David Adams, President of GAC and Brian Kingston, President and CEO at CVMA.

The heads of three major automotive trade associations in Canada came together on April 1 to discuss the federal government’s recent announcement around a zero-emission vehicle sales mandate, along with key elements needed in the federal Budget to achieve these targets.

Huw Williams, Director of Public Affairs at the Canadian Automobile Dealers Association (CADA) moderated the virtual ZOOM press conference, which considered elements of the 2030 Emissions Reductions Plan announced by Prime Minister Justin Trudeau on March 29. That plan mentions the development of a regulated sales mandate, and an interim target of at least 20 per cent of new passenger vehicles sold in Canada being ZEVs by 2026.

“Whenever somebody tries to mandate what consumers can or cannot buy, consumers will not necessarily just follow instructions,” said Tim Reuss, President and CEO at CADA. “They will do whatever’s best for their daily, private, and business life and business needs.”

Reuss provided the example of electric pickup trucks, which are currently not yet available in the marketplace. What is generally available are smaller vehicles and passenger cars, but the Canadian and American marketplace generally leans more towards sport utilities and pickup trucks when it comes to consumer preferences.

“There are quite a few jurisdictions around Canada where buying a pickup or a large SUV is a necessity. It is not a life choice. It is a necessity. People need the pickup for their work and their private lives,” said Reuss. “What is a person to do that is looking for that vehicle and it’s either not available or not incentivized? Is he now all of a sudden supposed to buy a subcompact car?”

Brian Kingston, President and CEO of the Canadian Vehicle Manufacturers’ Association (CVMA), said regulating the vehicles that consumers buy involves two key factors that will enable them to want to make the switch to electric: consumer incentives and infrastructure.

“You can regulate that Canadians need to buy EVs, but if the infrastructure is not there to meet the daily driving needs of a vehicle purchaser, they will not make that shift,” said Kingston, adding that “with one third of Canadians living in multi-unit residential buildings—where you don’t have access to charging in your parking stall (and) you may not have access to accessible street parking—it’s very difficult to convince someone in that situation to move to an EV.”

There are numerous garage orphans in Canada that either do not have a garage, or the underground parking in their condo/residential unit does not include or allow for this type of charging, and/or there is no available charging infrastructure nearby. But as Kingston notes, this infrastructure, along with the consumer incentive, are prerequisites to electrification that need to be in place before a higher level of EV uptake can happen.

On the cost of EVs, David Adams, President of the Global Automakers of Canada (GAC), said the sticker price is currently more than that of conventional internal combustion engine (ICE) vehicles, but that this will change in the future. However, that future may be a little farther away than previously imagined.

“At the current moment, we need to have some significant incentives in place to encourage consumers to make that switch,” said Adams, adding that “what the government also needs to focus on a little bit more, is looking at fleet operators that actually have an incentive to transition to zero-emission vehicles, because they do look at that total cost of ownership (and) your average consumer.”

He adds that “The reality is, when we look at the numbers that the government wants to have on the road, we need to be putting shovels in the ground now to build out the infrastructure, so that we’ve got that infrastructure built out well ahead of the adoption curve.”

Adams said consumers will not wait an hour and more for a DC fast charger to charge their vehicle, nor will they wait for someone else to charge their vehicle.

CVMA’s Brian Kingston said there are a number of examples around the world of mandates that have been put in place and have been unsuccessful, due perhaps to a lack of investment from the government in things like charging infrastructure and incentives.

“If you look at the Northeast U.S. states, a number of which have sales mandates, ZEV adoption is sitting at below 5 per cent in all of those states. So it’s not a policy that’s shown to be successful in this transition,” said Kingston. “There’s really only two countries that are out in front of other jurisdictions: Norway and Iceland.”

He said Norway reached nearly 75% per cent of EV sales and Iceland sits at around 50 per cent. Both countries do not have a ZEV mandate, but they do have a large focus on infrastructure and a range of incentives.

“This policy isn’t proven to work. We know what works, and that’s why we’re recommending to the government that they really come out with a detailed strategy to address these very well documented barriers to EV adoption,” said  Kingston.

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