A look back at the year that was, and a look ahead at what dealers can expect in 2024 for vehicle sales.

As we rapidly approach the end of 2023 and the start of a brand-new year, I thought the moment was right, once again, to go over the major economic trends surrounding our industry. Many of you are looking ahead at 2024 with a lot of optimism, hoping to build on the business momentum observed over the last few months.

Indeed, the last year has been extremely productive for automobile dealers across the country. The increase in sales was not only significant, but it was sustained! In fact, the auto retail industry managed to string together 12 straight months of positive sales compared to the year before.

This was possible because a lot of things have occurred at the same time that are, generally speaking, good for automobile dealers: demand remained relatively strong, manufacturers were able to provide dealers with the most sought-after models and buyers weren’t being entirely deterred by the current environment where high interest rates are the norm.

DesRosiers Automotive Consultants have also recently presented an extremely interesting nugget of information: the year 2015 is the last time where we saw something similar in terms of sustained year-to-year growth in automotive sales. At that time, the month of November saw the end of a 32 month growth streak.

This positive development also isn’t tied to one or two major economic regions, sales growth has been shared across provinces over the last 12 months. More often than not, sales increases observed in Ontario or Quebec do not necessarily translate to the smaller markets like the ones in Atlantic Canada. Usually, lack of supply dictates the dealership’s ability to meet demand which results in fewer sales than other bigger provinces.

Well, if we take September for example, that narrative has been flipped entirely with PEI showing an increase of 39 per cent year-to-date in new light vehicle sales. Nova Scotia recorded a 28.6 per cent increase and Newfoundland, while having the smallest sales increase of all Canadian provinces, still saw a 10.3 per cent increase for the year.

There are multiple variables that could explain this, but it is obvious that manufacturers have been progressively catching up in terms of overall production. There are even specific brands production targets that overshot the current market demand, resulting in more inventory being spread out across smaller markets.

Now, the real question is if we can expect this momentum to be sustained over the first half of the upcoming year? Well, underlying indicators seem to point to the fact that our economy is in a tip of the iceberg scenario and that a severe downturn is still very much in play.

The National Bank of Canada produced a report where it was determined that 43 per cent of the interest rates hikes still haven’t been felt on current consumption. As the effects of interest rate hikes keep being more apparent on consumer paychecks, important budgeting decisions will have to happen and this could very well reduce consumers’ interest in purchasing a new vehicle.

Many economists have been predicting such a scenario for months now, but we now have quantitative and Canada-centric data on the delayed effects of interest rate increases. When sales numbers are as positive as they have been recently, there is a risk for a disconnect to happen between economic forecasts and what is being observed on the ground. Automobile dealers have to be wary of that and plan ahead with a proper understanding of how — and when — interest rates can affect consumption.

Data also shows that Canadian retail sales in real terms have generally been going down since the start of 2023 with the sharpest sales drops occurring over the last five weeks.

While the auto retail industry has benefited from pent-up demand accumulated over the period where inventories were practically non-existent, it is fair to assume the auto market could quickly readjust towards a more balanced state where supply levels keep increasing and consumer demand stalls.

Finally, the Canadian economy has recorded a quick increase in unemployment rate of almost one per cent since Q2 of 2023 — which also should be seen as another factor driving demand and retail sales down.

This past year was a much needed one as there was shared impatience between auto dealers and consumers regarding the lack of inventories. The increased vehicle production allowed automobile retailers to catch-up and meet this pent-up demand. This positive sequence of events, however, has generated a short-term sales bubble for our industry that could start its deflation as early as Q1 or Q2 of 2023.

Being informed on the evolution of the market through quantitative economic forecasts will be crucial for automobile dealers that want to make decisions and plans ahead of this downturn instead of being caught in a tough situation after months of positive sales results.

REFERENCES

1  DesRosiers Automotive Consultants, Provincial Sales September 2023

2  National Bank of Canada, Canada :
Signs of weakening labour market continued in October, 2023

The post How is 2024 shaping up? appeared first on Canadian Auto Dealer.

Mergers and acquisitions firm focuses on discretion, integrity and face-to-face meetings with their dealer clients.

When it comes time to sell, a dealer principal wants to be assured he or she is dealing with a firm that understands them, will act on their behalf with discretion and integrity, while getting the maximum value for their store. Many buyers value that approach too.

Mergers and acquisitions firm Templeton Marsh says it does just that — partly because they really do understand what it’s like to be a car dealer.

Samir Akhavan, the company’s Co-Founder and Managing Partner, has been a dealer principal himself for more than two decades, and has more than 40 years experience in the auto retail industry. Akhavan bought Town and Country BMW in 1978, and in 1994 when he sold it as the Town and Country Group, it had grown to be one of Ontario’s largest auto groups.

In an interview, Akhavan said one of the things that sets his firm apart from others is their ability to keep deals confidential. “One of the things that fundamentally differentiates us is our extreme and almost paranoid insistence on discretion,” said Akhavan. “Integrity and discretion are very important to our business. It will take you 35-40 years to build a reputation and one conversation, one deal to totally screw it up. And we don’t want to do that — and we haven’t done that.”

He said if you visit the company’s website you won’t see a listing of any of the dealerships they have for sale. “The reason we don’t do that is because in my experience, dealers who are looking at potential lists can sometimes put two and two together,” he said.

That can pose a number of challenges for the selling dealer, including having other dealers call the store to try to lure key employees to their dealerships. “So by not having anyone know what we are doing, there is zero chance of poaching,” he said. “Our obsession about discretion and being tight-lipped has actually
done well for us.”

The company also doesn’t advertise when it makes a sale. “Our view is that if a selling dealer wants to let people know he’s sold, he will tell people and they’ll know. And if he wants to ride into the sunset quietly and doesn’t want to tell anyone —  then it’s not our place to tell people.”

Akhavan said before the company agrees to represent a seller, a member of their team will visit the dealership and get to know them better. This has taken Akhavan to far-flung places like Elliot Lake, North Battleford Saskatchewan, Thompson Manitoba and all parts in between.

“We will go there because that’s where our clients are, and that is where we get to meet them, get to know them and understand their business,” he said. “It is going to be difficult marketing a dealership if you’ve never seen it, if you’ve never met with your clients, if you haven’t had that personal face-to-face interaction over a cup of coffee or a hamburger.”

Once they get a feel for the opportunity, in consultation with their clients, they come up with a list of two to three buyers that they consider the best fit. “We take the deal to those buyers, and in the years that I’ve been doing this, with the exception of one deal where the OEM exercised their right of first refusal, we’ve actually closed every deal that we’ve done.”

He said that’s because the firm knows what they are doing, but more importantly they know what certain buyers are looking for. That’s because they constantly talk with them and ask them things like: Which brands fit your current portfolio? Which brands don’t? Where do you want to grow? How do you want to grow? What are you looking for in your next acquisition?

Akhavan said the smaller size of their firm allows them to customize their approach, and be a lot more nimble and able to adjust and adapt. “I take a very hands-on approach with my partners. I get involved in almost every deal.”

The firm also has a reputation for telling it like it is. “We take pride in telling our clients what needs to be said — not what they want to hear,” said Akhavan, relaying a recent story where he turned down a client’s offer to sell their store because he advised them it would be worth a lot more in a couple of years. He said when he returned home a few hours later he got a call from the dealer saying: “Samir, thank you. I appreciate the candor. I appreciate the approach you took to handling our business and our request to sell.”

Templeton Marsh has been operating across Canada for more than 12 years, and collectively their team has managed more than 100 buy/sell deals with more than $850 million dollars in total acquisition value.

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The start of a new year gives us a chance to introduce a new customer-focused mindset.

As 2023 moves to the rear-view, the automotive industry in Canada remains an unpredictable landscape. New car pricing and interest rates remain the top industry discussion topics across all segments and the four factors that affect pricing (vehicle supply, manufacturer incentives, dealer discounts and trade in values) have all seen major disruptions since the COVID-19 pandemic.

As reported recently by Cox Automotive, non-luxury vehicle prices have remained steady since January whereas luxury vehicle prices dropped by four per cent and EV by 19 per cent.

Notably, higher prices have caused consumers to consider more options when buying a vehicle and this is a crucial factor to bear in mind as we step into a New Year. So, what is in store for 2024?

Vehicle supply

Vehicle supply is improving, particularly for domestic brands such as Jeep, Dodge, Ram, and Chrysler with more than 100 days’ supply on the ground as of August.

These manufacturers have added excess inventory in anticipation of the Union Auto Workers Strike which began in September and negotiations rumbled on as I was writing this.

Imports are still struggling to reach pre-pandemic levels with Honda, Kia, Toyota, Lexus, and Subaru ranging from 28 – 44 days’ supply. However, the national average is 58 days which is close to the historical norm of 60.

New vehicle pricing

Elevated inventory levels should mean a drop in prices but with interest rates remaining undesirably high and a pent-up demand from lack of availability, many foresee new car prices to remain high throughout 2024. Increased supply has led manufacturers to re-introduce some incentives, making the market more competitive than we have seen in recent years. With so many uncontrollable factors impacting the industry, dealers can only be certain of one thing: continued uncertainty.

So as a dealer, how can you confidently compete? My advice is to focus on what you can control — your customer experience.

Shifting mindset

The effects of the pandemic undoubtedly made the automotive industry a seller’s market. Dealers became accustomed to selling vehicles at full price, even over MSRP in some cases.

They knew that if a deal was not made with one customer, another would come along and snap it up. Unfortunately, in many cases this meant that any quality sales process and customer experience went out of the window.

As vehicle supply continues to increase, manufacturer incentives make a comeback, and demand remains strong, dealers can no longer afford to circumvent the sales process. The power is back in the hands of the customer and providing an exceptional experience is one of the only tools dealers have to successfully compete.

This means shifting the mindset among your team and revisiting your sales process. Your sales team must work to build value for customers and work to earn their business.

They must assume that customers are shopping around and have options on which vehicle to purchase. For those newer to the business, remember that they have never encountered this landscape before.

Therefore, dealers must support their team in transitioning to a more competitive market and invest in training to ensure they have a good understanding of what makes an exceptional customer experience.

The power of exceptional experience

While a vehicle purchase for many is a practical decision regarding specific needs and budget, it is equally a very emotional decision. Customers need to feel connected to their dealership and feel valued by them. In recent years I’ve heard countless stories from friends and acquaintances about their experiences at dealers and few have been positive. If they did make a deal, it was due to the product rather than the experience and many have expressed that they would be hesitant to do business with the same dealer again.

As the industry becomes more competitive, we need to shift to a longer-term outlook and focus on providing an experience that will generate loyalty and retention.

The dealers that will succeed are the ones that focus on the customer over everything else, and truly understand what they want as individuals. They communicate with transparency, they build value, and they give the customer a sense of belonging at the dealership.

Doing so will enable them to build long-term relationships with their customers and keep their businesses thriving for years to come.

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A look back at the year that was in terms of dealership financial performance.

What a year it has been! This year will be viewed as an extraordinary one in history.

A recovery year from the dark times of the COVID shutdown. A year of sharply rising prices and soaring interest rates. A year of inventory shortages. A year of reinventing business models that have ruled the retail automotive space for hundreds of years.

It’s harder than ever to run a dealership. Customers are demanding more, and OEMs are supporting less. Just getting your committed vehicle allocations seems to be a pipedream these days. Yet dealers survive. In fact, they are thriving and experiencing some of the most profitable years ever. But is this sustainable? What will the future look like? How have the economic conditions of today impacted the retail environment of tomorrow?

Let’s explore this together.

Inflation and average gross profits

In August 2023, the Consumer Price Index rose nearly four per cent. This is significantly higher than the two per cent benchmark set by the Bank of Canada every year. This means that the average consumer paid four per cent more for a “general basket of goods” than it did one year ago. Included in this basket are transportation items such as the cost of new and used vehicles. This statistic doesn’t surprise the average automotive dealer.

Dealers have been selling vehicles at prices never seen before, embedding huge gross profits, tons of accessories and a variety of F&I products in every deal. “We sell at the price the market bears” dealers often say. While this statement is true, the average Canadian consumer seems to be getting the short end of the stick.

History tells us that this won’t last forever. Canadian’s have seen this before and watched it normalize time and time again. As the Bank of Canada continues to raise interest rates and limit money supply, prices will decrease again. When? Who knows! But rest assured that sooner than later, dealers will find themselves struggling to earn even the smallest gross profit in every deal again.

Start preparing for this inevitability now.

Interest rate increases

Today, the overnight bank rate is sitting at five per cent, a significant jump from the .25 per cent it was sitting at in April 2022. To think of the speed and slope at which rates have jumped this last year, it is amazing that our economy isn’t sitting in a deep depression. And yet, the automotive industry is charging forward — people want more products and services than dealers can even deliver.

Is this sustainable? The economist in me says: no. The average Canadian today has an outstanding auto loan of $26,494 with an average term of 5.5 years. This is up 50 per cent from just 5 years ago. Interpreting this, the average Canadian has chosen to take on more debt than ever and has masked this fact by committing to lower monthly payments for longer periods of time. This isn’t good for anyone! People owe more than they own and it costs them more than ever to service this debt. Scary times for sure!

If interest rates do normalize, I fear that default rates on automotive loans will skyrocket. You are already seeing signs of this in the industry — BMO has recently pulled out of indirect automotive financing and there is chatter that others are going to do the same. The Sub-Prime lenders are becoming more active and winning more business now than they have in the last five years.

I fear the automotive ecosystem may be at an inflection point but time will tell how it will look in the coming years.

OEM support, allocation constraints and lack of warranty campaigns

These days, the general consensus amongst dealers is that OEMs aren’t playing their part in supporting the dealer network. Vehicle supply shortage and deferred warranty campaigns are major issues today.

OEMs need to start supporting the ecosystem. Dealers and customers alike are suffering, and their patience level is running thin. Solutions are needed now. Dealers can’t keep promising delivery dates to customers that can’t be met — it’s just not good business practice. Things need to change from the OEM side of the relationship. Customers deserve better, especially if dealers continue charging what they do.

I look forward to what next year will bring us. The future is unknown but history tells us that the automotive industry will survive and adapt. Dealers will figure out a way to succeed in whatever conditions they face.

Changing market conditions will not hold back the growth of this industry — stay the course and continue looking for opportunities. They are out there.

The post Things that impacted your dealership’s financial heath appeared first on Canadian Auto Dealer.

Being “green” means more than just selling more EVs.

In many respects, British Columbia is leading the country in green energy innovation and sustainability initiatives — and new car dealers are playing an increasing role.

As the face of BC’s electric vehicle rebate program, our members have an active part in transitioning consumers to zero emission vehicles, but what may not be as apparent is the number of additional ways in which we are demonstrating a commitment to sustainability.

For car and truck dealerships, sustainability is more than a buzzword; across British Columbia, as individual dealerships invest in renovating or developing new operations, we are seeing an increasing ‘greening’ of our dealerships — and it is occurring across all brands.

A perfect example is the Dilawri Group and Volvo Car Canada, recently opening North America’s first Volvo Retail Sustainable Experience (VRSE) facility in Richmond. The entire facility is powered by renewable energy sources, including hydro-electric energy and on-site solar energy generation and is LEED certified (Leadership in Energy and Environmental Design) — the most widely used green building rating system in the world.

Following environmentally-friendly practices makes sense from a number of perspectives; it can improve efficiency and be a wise business decision over the long term. Leadership in this area can impact attracting and retaining a new generation of staff who are increasingly conscious about the environment. And because dealerships are in many cases, pillars of the community, the adoption of environmentally sustainable practices sends a strong message to consumers.

A July poll conducted by Forum Research found that more Canadians identified the environment as the most important issue facing the country. It stands to reason that many consumers might place an emphasis on a store’s business practices when deciding where to buy a vehicle, just as they do with other retail purchases.

On a broader level, BMO recently surveyed more than 130 dealer principals and C-suite leaders across Canada and the U.S. to explore how they were tackling a reduction in their carbon footprint. Findings revealed that 39 per cent of dealerships have plans in place to reduce their carbon footprint over the next 18 months, by taking steps to optimize service bays to support electric vehicle repairs and/or installing charging stations.

In other cases, it may involve energy saving upgrades such as solar panels, LED lighting or high-efficiency heating to their operations.

With the future of the automotive industry looking more electric every day, new car dealers are showing an unwavering commitment to a more sustainable, eco-friendly automotive industry.

Clearly there is work we can all do to shape a cleaner, more sustainable future — but new car dealers are making progress, one innovation and one dealership at a time.

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Respect the past, but prepare for the future to provide a better experience.

While flash catches the eye, it’s the desk that captures the deal. We all understand the crucial role desking plays in the sales process. It’s where terms take shape, rates find their footing and down payments come due. With the salesperson in constant motion, bridging the spaces between wants and realities, it’s this central process that truly drives a successful sale.

A great desking manager isn’t just a title or a role, but an art form, meticulously crafted over years of experience. Each decision adds depth to the process, while strategy gives it its unique contours. As important as it is to have a great desking manager there lies an underlying challenge in the very fabric of the job. The pressure to close a deal can sometimes tempt even the most seasoned managers towards the temptation of closing the deal on terms that don’t have a chance.

There are a number of reasons why this happens. Sometimes, it’s based on the belief that if they get the customer on paper with a signed bill of sale, even when the terms are a long shot at best, that will take the customer off the market, shutting down the shopping. This offers the dealership the opportunity to revisit terms at a later date if the application isn’t approved. 

On the other hand, sometimes it’s not about strategy but just an honest mistake. Most sales managers are not familiar with all the intricacies of lending rules, especially the ones about advances. So, without meaning to, they might set up a deal that’s just too deep in the red. 

Here’s where things can get a bit tricky. This approach effectively hands the baton of closing the sale over to the business manager, which is not their area of expertise. 

Their offices are typically busy and not equipped for the challenge of revisiting deals that need adjustments or even potentially switching out vehicles.  Sending these deals into the box puts the business managers in a tough position where they are suddenly being relied on to complete tasks they are often ill-equipped to do. Not only does this put the sale at risk, but it’s also not a great experience for our customers.

Remember, for most folks, auto financing is like a different language. Many customers approach dealerships with a touch of apprehension, unsure about terms and worried about making a bad deal.

So, when they’re told that the deal they shook hands on isn’t the real deal, it can feel like a breach of trust. And that feeling can stick making it harder for them to return to or recommend that dealership in the future.

The path forward requires two pivotal shifts. Firstly, an unwavering commitment to ongoing training and education, ensuring that sales managers are well-versed in dynamic lending rules. We are already seeing this trend appear in auto groups across the country who are investing in F&I training for sales management.

Secondly, it’s time to turn the page on old practices. Today’s customers are armed with more information than ever before. With an array of tools at their fingertips, they can access unprecedented levels of information, underscoring their demand for transparency.

To stay ahead in this fiercely competitive market, winning customer loyalty is key. And that loyalty? It’s forged through exceptional customer experiences.

So what’s the best game plan for a path forward? Continuous learning and adapting.

Let’s get our desking managers trained up on lending practices. Let’s ditch the tricks and treat our customers to honest deals they can drive home happy about. In a world where one bad review can travel faster than a Ferrari, trust is our most valuable commodity. Here’s to selling with integrity, closing deals that stick and driving our business into a future we can all be proud of!

The post The art of desking a deal appeared first on Canadian Auto Dealer.

The aftermarket is attempting to grow their business, but couched in consumer protection language.

The issue of “Right to Repair” has been more visible of late for a variety of reasons not the least of which was the passage of Bill 29 – An Act to protect consumers from planned obsolescence and to promote the durability, repairability and maintenance of goods in early October by Quebec’s National Assembly.

That Bill went from introduction at the beginning of June to Royal Assent at the beginning of October. In the world of legislative progress, that is lightning fast; even more so when one considers that the National Assembly was on summer recess for three months between those two dates!    

Federally, Bill C-244 An Act to Amend the Copyright Act (diagnosis, maintenance and repair):  a Private Member’s Bill — received 3rd Reading in the House of Commons on October 18th and was introduced for 1st Reading in the Senate on October 18th. It remains to be seen how long this bill will take to make it through the upper chamber, but it is not expected to face many challenges.

One of the reasons why the Quebec bill, and to a certain extent the federal bill, have received such apparent broad support from legislators — regardless of political party — is the basic premise of both bills.

Both have simple and compelling narratives around ensuring that consumer goods such as cellphones, computers and white goods should be able to be easily and inexpensively repaired by either the manufacturer or some other qualified individual to avoid the situation of having to scrap the broken device or appliance and purchase a new one.   

There is significant, and I would suggest appropriate, concern about products which could otherwise be repaired, ending up in the waste stream which adds unnecessarily to the quantity of waste and e-waste being produced. Who could possibly be against legislation to ensure goods can be repaired and to avoid unnecessary waste?    

A corollary objective to the Quebec legislation is right in the title of the bill, and that is legislating against manufacturers who purposefully manufacture items with built in obsolescence.

The ironic thing about both bills is that neither one of them was originally focused on the automotive industry. True to form, and I suppose credit where credit is due, the automotive aftermarket aggressively lobbied to ensure that at the end of the day both pieces of legislation were very much focused on the automotive industry couching their arguments in even more simplistic and emotive language around the “consumer’s right to repair.”   

What politician wouldn’t be swayed by a compelling (but incorrect) narrative that seeks to preserve the right for consumers to repair their own vehicles or to have their vehicles repaired wherever they want to?

I suggest that this narrative — as compelling as it may be — is incorrect because, in the first instance very few consumers undertake their own vehicle repairs anymore simply because of the complexity of modern vehicles as they have largely changed from mechanical devices to electronic devices or — to use an overworked phrase — “computers on wheels.” Most of us have a hard time figuring out how to add windshield fluid let alone contemplating the undertaking of any type of repair.   

In the second instance, the inference from the aftermarket is that consumers do not have the ability to have their vehicle repaired by whoever, wherever they want. The reality is that both aftermarket and the vehicle manufacturers in Canada worked in a collaborative fashion over a decade ago to develop the Canadian Automotive Service Information Standard (CASIS). This agreement ensured that manufacturers provided to the aftermarket access to the same information, tooling, equipment and training as was being provided to their franchised dealers.    

It was acknowledged at the time by both sides that this access was not to be for free, given that it has commercial value that is also part of a dealer’s franchise agreement with their manufacturer.

That said, the primary goal of CASIS is to “provide access to Service Information, OEM Tools and Training Information to Service Providers for diagnosis and repair at Commercially Reasonable Prices.”    

Despite this agreement however, some of the trade associations within the automotive aftermarket continued to lobby for “the consumer’s right to repair” even before the ink was dry on the voluntary agreement. One of the contentions from the aftermarket has been that CASIS is somehow deficient because it does not deal with security information such as keys and immobilizer systems, yet it was acknowledged by both the manufacturers and the aftermarket at the time that security related information was appropriately outside of the scope of CASIS. The direct wording from the agreement is as follows:

The Parties recognize that there is currently no uniform widely available secure infrastructure in Canada for making security-related information available to Service Providers as necessary to reinitialize ignition keys and immobilizer systems for Motor Vehicles employing integral vehicle security systems in a manner that ensures Motor Vehicle security. The Parties also recognize that vehicle security and integrity is of paramount importance to the Parties and to other stakeholders, such as the federal, provincial and municipal governments, law enforcement agencies, the insurance industry, and the owners and operators of Motor Vehicles in Canada.

The Parties will endeavour to find a mutually beneficial solution to this issue, such solution likely requiring the creation of a supporting infrastructure.

When one considers the current epidemic of auto theft in Canada you can appreciate the sensitivity around having broad access to key codes and vehicle immobilizer initiation data.   

Nonetheless, the aftermarket, largely through the personal initiative of the late John Norris did develop, and was the administrator for, the Vehicle Security Professional designation. This allowed some technicians in the aftermarket to be thoroughly vetted through a security protocol, developed in conjunction with Canadian Police Information Centre, amongst others.

These measures were robust enough to persuade a number of manufacturers to provide those with the designation the security information to aftermarket technicians so they could appropriately repair these functions in vehicles. Regrettably, with John’s passing in 2019 this system floundered, but John’s work demonstrated the willingness of both parties to develop and embrace a viable solution.

At the end of the day, the continued push by the aftermarket for legislation, the likes of which we have just seen introduced in Quebec has little to do with a consumer’s right to repair and everything to do with the aftermarket looking to enshrine in legislation their ability to continue to grow their majority share of the automotive service and repair business in Canada, regardless of the potential safety implications for Canadian vehicle owners arising from the legislative initiatives they are pursuing.

The post What’s behind the so-called “Right to Repair”? appeared first on Canadian Auto Dealer.

Is there even a new normal in the dealership world or is the business just in constant evolution?

Often when I speak with folks from auto retail, I often get the question “when do you think things will be back to normal?”

My answer to this seemingly simple question is not simple at all. If you are waiting for 2016 or 2017 to return, then you are going to wait an awfully long time.

If you are referring to an environment of constant change like we have had for the past 20+ years, then I’d say we are already there. Often, I find that folks are referring to new vehicle inventory levels and related new vehicle unit sales.

Other times folks are referring to new vehicle gross profit pools, to which I answer gross profit levels on new vehicles are very high and most dealerships are recording record department profitability. Other than sales volume, things are not all that bad. So why wait for the return of something that may never come?

Since I am writing this in October and the race to the World Series is in full swing, let’s go around the horn and touch all the bases to examine this return to normal concept. Think back to the Abbott and Costello bit. We will have customers at first, brands at second, employees at third and the economy at home.

Firstly, are your customers behaving the same way they used to? I would suggest that customer behaviour has changed significantly over the past few years in ways we would not have thought possible five years ago.

Shopping patterns for both the variable and fixed sectors of our businesses have shifted. Working with our customers has been both rewarding and challenging. It has been great to sell at list or above, but extremely challenging to deliver on customer expectations. As dealers we have lost much control because of inventory availability uncertainty.

Secondly, are brands behaving the same way they used to? Again, I would suggest that brand behaviour has changed. Brands have taught themselves many things they would have not thought possible five years ago.

Brands chasing vehicle margins to maximize corporate profitability have altered vehicle production and thus delivery schedules. Direct to consumer has led to hurried brand internal process changes and therefore, changes in a brand’s relationship with its dealers.

Brands are also in many ways being forced to electrify their product offerings to meet government mandates and are looking at new ways to bring that product to market to compete with newcomer single focused electric vehicle competition.

Thirdly, are dealership employees behaving the same way they used to?  Our employees survived pandemic stay at home orders only to come out with higher expectations for work from home options, many driven by childcare challenges, and in the process changing what they expect from their employers. Higher cost of living has fueled increasing wage and salary demands. On a broader scale, labour unrest is currently the norm.

Finally, is the economy behaving the same? How long will current economic conditions last? If inflation falls back to two per cent does that mean that prices will return to pre-pandemic levels, or does it mean that current prices are only increasing two per cent on a base of post-pandemic prices.

In general, post-pandemic prices are already conservatively 15 per cent to 20 per cent higher than pre-pandemic prices. The government’s target is to limit annual price increases to two per cent not reduce prices. On top of that the “R” word is being used more often and certain sectors are beginning to slack off. All this leads to headwinds in the near-term.

Thus far, I have only highlighted a few considerations. Normal has so many subcomponents to it that it is virtually impossible to return to normal.

More importantly however is the return to normal in the emotional connection we feel with customers, our staff, and our brands. This can only happen if we accept the reality that we are building a new normal on the fly.

This can only happen if we make sound business decisions using the factors under our control. This can only happen if we make the necessary changes in the way we operate our dealerships to keep pace with our local business environment.

It’s how we adjust and reset that will help us be winners in the longer run.  In reality, we must learn to partner with our brands, our customers, and our employees. The perfection of this partnership will help us build the emotional strength to be successful.

Part of building this new normal on the fly has to do with the impact of digitalization as the catalyst for change. I believe change is not solely about digitalization and digitalization is not the sole blame regarding change.

From my perspective it’s about how we choose to implement digitalization in our dealerships. Digitalization is simply a set of tools. It’s how we each accept and choose to use these tools that sets us apart. Most are not there yet and naturally digitalization is an easy target.

Automotive retail is still and likely always be a people business, run by people for people. It’s how we use the tools we chose to employ to help us along our journey that supports our emotional connection with our customers, our brands, and our employees. The business has evolved well beyond tracking how many. It’s evolved to be more of a focus solely about the how.

So, looking ahead to 2024 and back to the original question “when do I think things will be back to normal?” The answer is never!

In 2024 we will continue our collective efforts at building a new normal on the fly each and every step along our collective journey forward.

The post Will 2024 be a return to normal? appeared first on Canadian Auto Dealer.

Focus on mastering basic rules of business to improve your bottom line.

The following four rules of business can act as a template for charting and planning overall performance improvement for your variable and fixed operation.

As a dealer principal or general manager, consider writing the following four rules on a wall-sized whiteboard in your office or meeting room. Divide the whiteboard into four vertical columns or “buckets” with each rule.     

In each vertical bucket, list all of your ideas and initiatives to increase dealership performance. Documenting these visuals will allow you to decide which one of your buckets is current priority and opportunity. From the list of initiatives within each bucket, you can then prioritize your top three.

RULE #1: Keep your customers

Improve your lease penetration.

Set a target penetration and ensure that your sales consultants, sales managers and financial services managers all understand the inner workings, build, terminology, benefits and presentation of a retail lease. Reward sales consultants for increased lease penetration.

Focus on Portfolio Management of Finance, Lease and Cash customers (not just lease).  Use both people and technology (CRM, equity tools) to establish a contact schedule for connecting with customers throughout their ownership/lease experience (phone, e-mail, text).

Establish call scripts that have a purpose. Contacting lease customers three months prior to maturity is far too late — set lease maturity contact benchmarks at 12 months (latest). Give customers incentives for visiting the dealership for an Options-Review Meeting (free vehicle detailing, free oil change, etc.).

Plan and schedule upgrade sale events throughout the year. There are numerous companies that specialize in planning complete three- to four-day marketing executions and sale events; scraping and contacting the dealership’s customer database via direct mail, web, e-mail, text and phone.

Implement monthly or quarterly Service Department Car Care Clinics for both new and used vehicle customers that have taken recent delivery of a new(er) vehicle.

Implement Service Department appraisal campaigns.

Each day target four- or five-plus-year-old vehicles in the Service Department that may be entering an equity position. Provide a no charge Pre-Appraisal or Market Analysis with an offer to upgrade the customer’s present vehicle to a new one.

Plan exclusive customer appreciation events such as BBQs, fishing tournaments, off-road events, Jeep club, performance driving schools, car rallies, wine tasting, a Broadway musical, Hell’s Kitchen cook-off, etc.

Implement a dealership/dealer group rewards program for sales, service, parts, accessories and collision.

RULE #2: Get new customers

Marketing has become much more complex. Some dealerships/groups have an internal marketing department while others partner with established agencies (e.g.: my editor/publisher, Universus Media Group).

However, if your group has an internal marketing department, what is their specialty and expertise? Digital? Radio? Television? Sale events? Customer appreciation events?  Community events? Sponsorships? Social media? Artificial Intelligence? Non-prime?

Few marketing departments have expertise in all; doctors, lawyers, accountants have specialties.

Many progressive dealer groups have established a marketing department and a separate social media department that work hand-in-hand or have outsourced to experienced, reputable and proven agencies.

At the very least, as social media continues to exert flex (and now Artificial Intelligence), it may be time for a dealer principal or General Manager to take a deep dive into social media and to really gain a first-hand understanding and appreciation of its capabilities; some have spent their time and money to enroll in two- and three-week training programs in Silicon Valley.

Each sales consultant should also have a minimum of one (ongoing) prospecting initiative to bring in new customers. Initiatives can be divided into high tech or low tech. High tech includes marketing through personal social media, YouTube, Facebook Marketplace, etc.

Low tech prospecting includes initiatives such as joining clubs and associations, sponsoring community festivals and events, visiting local businesses, contacting companies with preferred manufacturer preferred pricing, etc.       

RULE #3: Maximize every transaction

Do your dealership and sales consultants provide a purchase experience that builds value and excitement in the brand, the vehicle, the dealership and the sales consultant?

Have you justified the price of your new or used vehicles and earned it? Has your dealership provided credible reasons for charging the MSRP that make customers feel more at ease (e-mail me if you would like an example of such a document)?

Have you provided customers with market comparables on used vehicles to hold your price? Does your dealership explain the trade-in appraisal process; the combination of trained appraisers, market-scrape technology and nationwide online auctions?

Does your dealership have the appraiser present the trade-in value with confidence and expertise to the customer? Does your sales manager meet every customer within the first 10 minutes of them visiting your dealership?

Have you provided a payment-based proposal (multiple payment options) to every single customer that has selected a vehicle? Have you included (and disclosed) an OEM extended warranty or vehicle protection package in your payment options? Have you offered and suggested vehicle accessories to personalize the customer’s vehicle or outfit it for their work or weekend living?

Does your sales manager attempt to secure more money from the customer if the deal is below MSRP or below asking price? At time of vehicle delivery, are customers properly introduced to the service department to secure the first service appointment?

Do you have a dealership/dealer Group rewards program for all departments that incentivizes customers to continue to do business with your company?

RULE #4: Improve efficiency

Improving efficiency with dealership processes and customer flow ultimately enhances the first three rules and tremendously improves the customer experience.

How often is a showroom customer staring at white walls? This is an expression we use as a training organization when we observe showrooms that operate inefficiently;

• E-leads are forwarded to the sales manager first where they sit in their inbox too long while customers have already been replied to from a competitor;
• The sales consultant makes too many, unnecessary trips to the sales manager’s office for consultation while customers sit at their desk staring at “white walls”, sometimes for extended periods of time;
• Vehicle key fobs, dealer plates and the vehicles themselves are not set up for quick and easy access for presenting and demonstrating new and used vehicles;
• Trade-in appraisals are completed toward the end of the sales process instead of the beginning. Long after the demonstration drive, customers (and sales consultants) are forced to wait an additional half hour or more for the appraisal to be completed. This is one of the worst misuses of a customer’s time;
• Sales managers often take too long to create payment-based proposals, finishing a text or e-mail, talking to other staff members simultaneously, etc., again while customers stare at “white walls”;
• Customers often wait too long to transition to the financial services manager when a vehicle is sold.

Using the simple four rules of business as a template creates simplicity and clarity and allows you to more easily focus on your current areas of opportunity.

The post Consider the 4 rules of business — and prioritize appeared first on Canadian Auto Dealer.

New tools and techniques like omnichannel marketing, leveraging AI, data and CRM are gamechangers. Can dealers adapt?

Technology is quickly changing the automotive industry. The way cars are marketed, sold, tracked and analyzed today is very different than they were just a few years ago. It is an exciting time to be in this ecosystem — that’s for sure.

Below are a few examples of how retail automotive has evolved, and the related strengths, weaknesses, opportunities and threats that they bring to the table. Dealers must determine how each will create additional revenue streams or cost savings. They should also consider brand, geographical region, target market, staffing capabilities and willingness to invest in new technologies when analyzing these areas.   

Omnichannel marketing

The marketing strategy of a dealer group is their single most important success factor today. The benefit of having a well thought out, and professionally structured, “marketing wheel” includes better customer experience, increased loyalty, customer retention with lifetime value and world-class brand recognition.

By definition, the “Omnichannel approach” represents an organization’s presence across various marketing channels including: Websites, Apps, SMS, social media, email and traditional marketing campaigns like in store events, mail outs and flyers, AutoTrader, etc.

This approach is no longer optional — it is a critical success factor. The real discussion for retailers today is understanding how it fits into its current processes. That is, which of the elements should be maximized and minimized while considering cost, outreach, ROI, impact on brand and customer experience. Retailers can’t have everything. They have to figure out what the best balance is for their brand and customer base.

Artificial Intelligence (AI)

Artificial Intelligence (AI) is perhaps the most heard “buzzword” today. Dealers can leverage this technology to create a real competitive advantage against their peers. Imaging bolting on machine learning and technology to automate the omni channel marketing experience — talk about an opportunity!

Today, the initial customer interaction is managed through your BDC or your group’s marketing team. Customers often feel that the information they receive is fragmented and this significantly hinders the customer experience.

Separate humans are interacting with customers on a daily basis and the weakness in most groups is that different messages are being delivered to the world. Inconsistency in your marketing message is a significant threat to the automotive experience. 

AI can solve this. Machine learning can decide how to interact with the world based on customer specific preferences and actual dealer specific information like current inventory, wait times, service availability. That means, AI can turn this weakness into a tangible opportunity very quickly!

Imagine if your AI based BDC and marketing teams work proactively to scrape data off lease portfolios and automatically contact customers who are coming due, offering them selections of vehicles coming down their pipeline and trade value and equity position using up-to-date market data — this is all possible with the right AI tool.

The benefit of having a well thought out, and professionally structured, “marketing wheel” includes better customer experience, increased loyalty, customer retention with lifetime value and worldclass brand recognition.

This technology can respond to customer queries in an interactive and fun way (i.e. the “Chat GPT” tool that actually speaks). Customers ask questions and AI provides real time answers using data pools built by dealers (i.e. extracted from DMS systems, CRM tools, accounting data, search history, geographical specific data). This could revolutionize the way we do business and have a monumental impact on profit lines and customer experience for years to come. 

Data warehouses

The key to bringing the above noted theories to life is having a warehouse of clean, up to date, usable, flexible and leverageable data. It should be extracted from your CRM, DMS, and various other sources for customer and market information. It must live in a functional warehouse (i.e. SQL server) that can be sliced and diced and have a user interface that is easy to use.

The inherent cost of this aspect is the most prohibitive, with cost >$100K on the low end. The problem is that most dealers (especially the smaller ones) are not actually willing to invest into this concept. They “talk the talk” but don’t “walk the walk.” It is very much an unknown territory for most dealers and the ROI has yet to be proven.

Overall, we may be closer to this reality than we think. The technology already exists today. The real threat is that car buyers claim to be forward thinking tech people but, as we saw during the pandemic, are not willing to alter their buying approach for big ticket items like cars.

For this to actually become reality, new generations of buyers must replace the old ones and OEMs must fully buy into this new way of doing business. 

Time will tell what the future of retail automotive will look like. The only guarantee is that it will be different than it is today.

The post The future is coming appeared first on Canadian Auto Dealer.

Some jurisdictions are preparing to power EVs and others are lagging.

The adoption of zero emission vehicles (ZEVs), especially in BC, is seen as an increasingly important factor in reducing greenhouse gas emissions and creating a cleaner environment for future generations.

There are several factors that will continue to influence consumer decisions. Canadians need to have access to clean energy vehicles at various price points. They also require a comprehensive charging system that will keep pace with ZEV sales — in rural and remote areas of the country, along major transportation corridors, and where drivers live, work, and socialize.

To achieve true environmental success, however, it is critically important that the power grid is clean. In the U.S., electric vehicles are drawing their power from a grid that typically includes a mix of fossil fuel and renewable power plants — but the good news is most countries, including the U.S., are now pushing to clean up their electric grids.

In British Columbia, much of our electric supply is already generated from renewable sources and BC Hydro has been planning for increasing demand. The corporation anticipates there will be approximately 350,000 zero emission vehicles on BC roads by 2023, which in itself will add an additional 1,050 gigawatt-hours of electricity load per year.

As governments encourage Canadians to make the transition to zero emission vehicles to reduce greenhouse emissions, there also needs to be a concerted effort to ensure our electric grid can handle the increasingly extra load, and in a manner that is affordable and reliable, and ensures future energy bills are not out of touch for the average Canadian.

Reports from the International Energy Agency and Canadian Climate Institute suggest our country will need to double or triple electrical grid capacity by 2050 if Ottawa is to meet its net-zero greenhouse emission targets.

Construction on BC’s Site C project began in 2015 and remains on-track to have all six generating units, in-service by 2025. Once complete, Site C will provide the equivalent amount of energy needed to reliably power about 450,000 homes or 1.7 million electric vehicles per year in BC, according to BC Hydro.

Next spring, BC will also issue its first call in 15 years for large new utility-scale projects and aim to have new sources of electricity by 2028. It is seeking renewable projects only, such as wind and solar.

In August, when Ottawa announced new regulations to get Canada’s grid to net zero by 2035, federal government modelling suggested a staggering $400 billion will be required to replace aging facilities and expand generating capacity in the country’s electric grid. This investment they say, will be required to respond to the pressure placed on the system from electric heating and cooling systems, electric vehicles and population and economic growth.

Reports from the International Energy Agency and Canadian Climate Institute suggest our country will need to double or triple electrical grid capacity by 2050 if Ottawa is to meet its net-zero greenhouse emission targets. Both suggest it’s doable, however, because government modelling and established targets for zero emission vehicles will help create some level of predictability.

OEM Associations and CADA (in its Road to 2025 report) agree, if Canada is to achieve the target for all new light-duty cars and passenger trucks sales to be zero-emission by 2035, more ambitious federal and provincial government action is required to enhance consumer incentives.

Also required are ongoing investments in convenient, accessible and fast charging infrastructure across Canada, consumer education, and development of an electric vehicle battery supply chain.

The post Can our electric grid handle anticipated growth in EV adoption? appeared first on Canadian Auto Dealer.

Exploring some of the key findings from CADA’s first-ever Data Report.

A few months ago, CADA published its first annual Data Report for the year of 2022. The goal of this report was to gather — in one place — some of the most important economic insights we have on auto dealerships in Canada.

With the current economic situation, there is a building interest behind the market and the financial mechanics driving the entire automotive industry in Canada and in North America.

While some of you might have read this report, I thought it would be interesting to go back over some of the more insightful and interesting tidbits that CADA uncovered and analyzed. We will also come back next year and compare these results to see if there are any trends that auto dealers and consumers should be aware of.

I want to touch on the financing and leasing side of dealership activities. The reason why is simple: by far the piece of information from the CADA report that generated the most media interest was the dichotomy between the general decrease of leasing percentage over the years with the steady increase of the average interest rate.

Indeed, consumer leasing of new vehicles has moved from almost 32 per cent in 2018 to less than 23 per cent in 2022 while the average interest rate has doubled over that time.

Many consumers, much like dealerships, are feeling the pressure from multiple sides and have had to make decisions negatively affecting other areas of their debt portfolios.

For a lot of journalists involved in the auto sector, high interest rates should drive leasing percentage as consumers get weary about purchasing vehicles in this increasingly difficult economic context.

In fairness, next year’s data could align with this assumption but it is also evident that the late 2022 and early 2023 market has been warped and distorted by a cumulation of many variables such as: a higher saving rate than pre-pandemic, uncertainty about where interest rates are going, consumer impatience after a severe supply shortage, low inventories for used vehicles, etc. This unique combination of factors had led consumers to act in a way that might very well be, to some, counterintuitive.

On the other hand, there is also a lot of data on financing and leasing for 2022 that corroborates a more common and widely shared understanding of the market: vehicles have become more expensive since the pandemic and interest rates hikes are starting to have an effect on many consumers.

The average loan term in months has grown since the pandemic by almost four more months and, during the same timeframe, the average amount financed went from $42,359 to $53,023.

The costs of producing these new, often electric and high-tech vehicles have for sure played a significant role in the growth of the amounts being financed, but there is no doubt that the average Canadian is being affected by the widespread rise of overall cost of living.

In fact, real world information confirmed this trend when BMO announced recently that they are officially shutting down their indirect retail auto finance business division.

As for the rationale behind this decision, BMO has indicated that the rise in delinquency rates were now higher than in the pre-pandemic economic environment. Many consumers, much like dealerships, are feeling the pressure from multiple sides and have had to make decisions negatively affecting other areas of their debt portfolios.

This evolving market dynamic is of interest for dealers because it could very well be one of the first “dominos“ to fall — for the automotive industry — and confirm that we are indeed entering a period of economic hardship.

For many months now, the worrying things and predictions that were said about the Canadian economy didn’t seem to fully translate to the dealers with overall retail sales number being positive compared to 2022 (10.5 per cent rise in parts sales and 9.1 per cent increase in new vehicle sales¹).

This economic momentum very well could be maintained in the second half of 2023, a tested, proven and steady level of consumer resilience being the main reason why it could happen. Only the next few months, however, will allow us to determine if this story of resilience and positive sales remains a thing during what appears to be a looming economic recession.

Over the next six months, keep a close eye on the movements of the financing and leasing activities of your auto dealership. It could quickly become one of the most reliable indicators of what is to come and how to prepare for it.

REFERENCE: Desrosiers Automotive Consultants, Retail Sales Continue to Climb in the First Half, September 1st 2023.

The post Data insights on financing and leasing: what to expect? appeared first on Canadian Auto Dealer.