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Dealers fear what the future holds and are selling their stores

Uncertainty about the future is a key reason auto dealers are considering selling their businesses, but those who ride out the disruptions could be in a position to thrive.

Farid Ahmad, president of Dealer Solutions North America, said about four out of five dealers his firm works with cite concerns over the traditional automotive retail model. Since 2012, Toronto-based Dealer Solutions has completed about 150 dealership transactions, as well as more than 600 valuations.

“Since the talk of autonomous vehicles and electrification of vehicles, those two things put the fear of God into a lot of dealers. I think some of them saw the beginning of the end,” Ahmad said. “In the last three years, I’ve seen a real spike in people’s concern level.”

Single-store businesses feel especially vulnerable, he said. “Dealer groups have a different spin on this,” he said. “They go, ‘if you dominate the market, no matter what happens, you’re in a good, dominant position.’ But, single-point dealers are very concerned with if they are too small to stay in the dealer network.”

Canada’s more than 3,200 new-vehicle dealers are at the centre of a debate over whether their current business model will survive technological changes that have upended traditional retailers, such as Sears. Fears are being fueled by studies predicting the end of the traditional dealership amid the rise of online shopping and ride-hailing services, growing popularity of a direct-to-consumer model as well as the advent of autonomous driving and electric vehicles, which require fewer parts for servicing.


One of the more extreme prognostications came from a 2017 study by San Francisco-based think tank RethinkX, which said dealerships would be obsolete within seven years.

Erin Kerrigan, founder and managing director of U.S.-based Kerrigan Advisors, said she started hearing from worried dealers early last year.

“We are seeing dealers who, in many cases, are running family businesses, are reading the headlines ... and they think about the future and are starting to consider a sale,” said Kerrigan, who, over the last four years, has represented sellers in 76 transactions in Canada and the United States.
Concerns about the future are surfacing amid at-or-near record-level dealership profits on both sides of the border, she said.

“Valuations are still high; if you’re thinking of exiting in the next 10 years, it’s probably best to consider it today.”

The current retail model will likely remain unchanged over the next decade, she said.

“Right now, we don’t have clarity on how the business model is going to change, so it’s not affecting valuations very much.”

But, the bricks-and-mortar dealerships should survive, said Ahmad, citing the ongoing need for service departments and the prohibitive costs automakers would face building their own direct-sales model.

“Everything changes, and ultimately the dealer network will change,” he said. “But regardless of whether it’s an electric vehicle or an autonomous vehicle, these vehicles will still need to be repaired, serviced, taken to the body shop.”

At November’s TalkAuto conference near Toronto, several prominent dealers said automotive retail had reached a fork in the road, and urged industry stakeholders to align their strategies as shoppers migrate online.

“There’s an argument to be made, as much as none of us want to hear it, that there’s perhaps less and less reason for our retail model,” said Shahin Alizadeh, CEO of Downtown Automotive Group in Toronto. “Yet everyone — manufacturers and all the others — proclaim that we are a part of their future. And I believe that. The question is we just don’t know how.
“So, if there is an alignment of basically all the players — [automakers], retailers and the consumer — I think we’ll do a lot better as an industry.”


Greg Warkentin, general manager at Bayfield Ford in Barrie, Ont., said the industry is in a state of flux.

“Certainly, we’re moving away from product-based ideologies to consumer-experience models, and it’s all about the relationship. Truly, brand loyalty today is gone. It’s all about the relationship you have with the client. The product is almost secondary. It’s really about relationships.”

That relationship will see dealers take on the role as educators of new technologies in vehicles, according some automotive CEOs.

“We think there’s going to be even more need for dealer handholding and education,” Toyota Canada CEO Larry Hutchinson said in an interview with Automotive News Canada. “We think it’s an even bigger role for the dealer. Anyone that says the dealer is going away in 10 years -I don’t know who’s going to service the 20 million cars on the road today if that’s the case. That just seems crazy.”

Hutchinson said that the majority of Toyota’s sales through 2025, will consist of gasoline-powered vehicles, with hybrids taking up a larger share of the market. Pure-electric and fuel-cell vehicles will remain a tiny portion of the market, while fully autonomous vehicles will still not be sold, he said.
“At 2025, you’ve got a [product] on the market of 20 years that needs to be serviced,” he said. “Even if everything switched over 100 per cent the next year, which it’s not going to, or even if it’s like 98 per cent [gas-powered] or something like that. You’ve got, from a dealer capacity point of view, 20 years of cars, out until 2040 that are still going to be serviced and maintained until then because cars are lasting until then pretty easily.”
Nissan Canada President Joni Paiva said customers will still want to touch and see their vehicle in person before making a purchase.

“And they need a physical space to do that,” Paiva said during a panel discussion at an industry event organized by the Automobile Journalists Association of Canada in October. “It’s a big investment from a customer’s point of view.”

Alizadeh said dealers, automakers and third-party vendors must evolve to meet customers “on their own terms.”

“How quickly can we get the vehicle to the consumer and how do you actually create that process, and who’s responsible for that process? Is it the retailer? Is it the manufacturer? Is it the distributor here in Canada,” he said. “There are so many layers that, unless everybody comes together, we’re going to have some confusion over the next 10-15 years.”

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