Operating a dealership these days isn’t for the faint of heart. Are you still in the game?
At this point in 2023, we find ourselves in a very crazy world.
Dealers have many outside influences to consider as they attempt to navigate the rest of 2023 and beyond. Here are a few thoughts:
Over these past few months, we have witnessed a dramatic increase in apparent climate related issues around the world. Severe hurricanes, large scale forest fires, unbearable heat across Europe and severe flooding are all front and centre on the nightly news. Air quality globally, including Canada has been affected as jet streams spread the impact of large-scale forest fires across far off lands.
Specific to Canada, firefighters from places like Korea, Australia, the U.S., and other places around the world are pitching in to try and control the situation. It’s a herculean task. As if there was not enough, flooding has caused incredible damage and dislocated residents and businesses. Eastern Canada has endured a hurricane, forest fires and severe flooding in recent months and other parts of Canada are battling constant forest fires.How will governments react to do their part to curb climate change. Is this even possible?
The labour unrest at the Port of Vancouver has delayed the process of economic recovery and is now a component of inflationary pressure as the supply and demand imbalance continues to drive up prices.
All this is happening as automakers at home and abroad look at alternative vehicle distribution models.
The Bank of Canada is continuing its battle with inflation by continuing to increase interest rates which in itself causes inflationary pressures.
Then there are still some supply disruption issues but thankfully these seem to be less and less every day.
We are all becoming aware of the risk of battery technology on safety. We are learning more every day.
The large shipping vessel headed to Japan from Germany, at the time of writing this article was floating off Belgium. Crew had to be evacuated and the ship was left to float on its own. The fire destroyed more than 2,850 vehicles of which 498 were reportedly electric vehicles. Early speculation is that EV batteries were to blame.
Apparently, CO2 is very effective in putting out fires on ICE vehicles but reported is totally ineffective with EV fires. It is reported that over 100,000 litres of water are needed per car to extinguish an EV vehicle fire. However, according to reports this risks sinking the ship. After reading this in GoAutoNews from Australia I could not stop thinking about the implication of a battery fire at a local dealership.
All this is happening as automakers at home and abroad look at alternative vehicle distribution models. Much has been said about the agency model. Most brands I have looked at seem to be cherry picking elements of pure agency and are attempting to inject these elements into their existing franchises.
Whether dealers continue to sell new vehicles as they always have or whether they earn a fixed commission or margin paid by their brand remains to be seen. Will dealers own new vehicle inventory for resale, or will they or customers draw directly from an OEM owned pool? Will there be two streams of vehicles, one electrified and the other internal combustion or will electrified vehicles seamlessly fit into the current mix of car, CUV, truck, SUV etc. framework?
Many dealers I have spoken to are concerned about their future considering the long list of uncertainties. Has the fun gone out of the car business? With less and less ability to manage their stores their way, dealers I speak to are concerned that their future will be increasingly dictated by their brand.
To that end, most if not all dealerships have customer orders waiting for delivery and have been carefully and painstakingly nurturing their customers as they wait month after month to take delivery of their chosen vehicles.
The problem today, however, seems to be that manufacturers are not delivering what the customers want. In the good old days, customers largely bought what the dealer had in stock or could secure via dealer trade. Possibly because of COVID, customers could be shifting their buying patterns and could be developing a desire to buy what they want instead of simply accepting what is available. Only time will tell.
Again, only time will tell whether customers are changing how they pay to access transportation.
In recent months, it was reported that the number of vehicles financed by leases has decreased. Leasing has been an important backbone of vehicle finance for a few decades now. We all know that leasing has been an important component of a dealer acquiring high quality used vehicles and a very important part of long-term customer retention.
Will car sharing and ride sharing finally live up to expectation and take market share? Will working from home change how customers access transportation? Will they drive fewer kilometers, retain their vehicles longer or sign up for a subscription that allows them to change vehicles on a regular basis?
I suspect it will be a combination of all the above with the only question remaining is market share. The cost of transportation has increased in recent years to the point where some families are spending more of their annual household budget on transportation than housing.
According to CADA, with only 7.6 per cent of all dealers owning more than 5 stores, where are the dealership buyers and related financing going to come from?
According to the CADA, 92.4 per cent of all Canadian dealers own between one and five stores each. Will up and coming second and third generation dealers be able to produce the lifestyle that their dealer parents have enjoyed? Do they possess the capabilities to operate multiple dealerships of multiple brands with multiple mutually exclusive brand processes, investment requirements and contractual arrangements?
Finally, dealership buy/sell transactions continue to take place. You cannot look at an auto retail-based publication without seeing significant ads by dealership brokers.
According to CADA, with only 7.6 per cent of all dealers owning more than 5 stores, where are the dealership buyers and related financing going to come from? How long will values hold?
There seems to be an element of fear of missing out that is driving the buy/sell market these days. If your children are not yet ready to take over and may or may not want to or more importantly be approved as a successor and future dealer, how long do you wait in these changing times? Is it time to hedge your bets?
Everyone looks at dealers with envy. They are the pillars in most communities, providing financial and human capital support for the greater good.
Very few of the general populous, however, truly understand the complexities of being a dealer in 2023. As the world and the business gets more complex with its far-reaching implication, successfully operating as a dealer in the crazy world is not for the faint of heart and not without significant risk.
