EXPLORING SOME OF THE BIGGEST OWNERSHIP TRENDS AND PREDICTIONS FOR THE YEAR AHEAD
At this time of year, media of all sorts, shapes and sizes offer predictions of what is possible in the year ahead. Predictions are subjective, and tend be both positive and negative.
Canadian consumers have driven new vehicle sales, seemingly entrenched in a steady roll, to multiple record level years. Vehicle companies are madly introducing new and refreshed products as they all chase their respective brand and competitive model targets in the zero sum game we affectionately call “market share.”
Whether 2016 sets another new vehicle sales record or not, dealers will still have to consistently keep their eyes on the ball and execute as flawlessly as possible, just like Blue Jays MVP third baseman Josh Donaldson.
I see a few opportunities and some speed bumps moving forward for Canadian vehicle retailers. There are certainly some green lights but there are also some yellow and red ones.
When I think of the dealership business and the influences thrust upon a dealer’s management challenges, I think of economic, political, brand, employee, ownership and customer influences. Some of these are in a dealer’s control, but not all of them.
I’m starting with the Canadian economy, which I give a yellow light.
Interest rates are low, house prices are relatively high, most commodity prices are depressed and our dollar has not shown any signs of recovery. All of those indicators are both positive and negative.
We do have regional disparity, with the economic story differing, depending more so on local factors rather than national ones.
From a provincial employment standpoint for the period September 2014 to September 2015, Ontario and British Columbia showed the largest provincial increase in the number of people employed. New Brunswick, Newfoundland and PEI showed moderate increases, while Alberta showed significant declines.
Shifts in employment levels have a direct impact on new and used vehicle sales.
Our political landscape changed in 2015 with the election of the Liberals federally and provincial elections in Alberta and PEI. We will have to wait and see what, if any, new policies and legislation will surface that affects our customers and our businesses. I give it a yellow light.
As brands go, so do dealer networks. All brands are currently bullish on the future with lofty market share targets.
With market share being a zero sum game, there will be winners and losers. All brands over the past few years have had the opportunity to participate in the increase in the overall Canadian new vehicle sales market.
Unless there are specific positive indicators in your market or your brand’s product portfolio, it would be foolish to project increasing new vehicle sales for your dealership in 2016
In recent years, it has been possible for a brand to increase new vehicle unit sales, but not market share.
Provided that increase in dealer counts does not outpace a brand’s new vehicle unit sales on a per dealer basis, average sales per dealer should be increasing. Many dealers in Canada have seen their new vehicle unit sales increase these past few years.
The November 2015 DesRosiers Automotive Consultants Observations report that many of us subscribe to broached the subject of the possibility a two million unit Canadian market.
The report indicates that under certain assumptions it might be possible, but not likely in the short-term. DAR is calling for a 2016 new vehicle sales market “somewhere give or take around 1.9 million units.”
That means for the first time since 2009, the 2016 market could be flat. Unless there are specific positive indicators in your market or your brand’s product portfolio, it would be foolish to project increasing new vehicle sales for your dealership in 2016. I give this a yellow light.
Brands, in some respect, control the dealer’s pocketbooks. In all likelihood, my gut tells me that dealers across the board will show a gross profit improvement for 2015; after all, record overall sales levels could result in many dealers reporting record gross profits.
This is good and is absolutely necessary since brands are asking dealers to spend more of that gross profit on training, advertising, technology, image and renovation expenditures, inventory and processes.
I don’t see that pressure ending anytime soon, so the higher gross profits of 2015 are really welcome. But for 2016, it is difficult to project an across the board increase in net profits, given the downward pressures on gross margins per unit and upward pressures on some key costs.
That being said, and assuming all the stars align, I give this a flashing green/yellow/red light depending on brand representation.
I believe 2016 will be an active year for dealership ownership transfers. I have been speaking to more dealers in the second half of 2015 regarding succession plans than I have in a long time.
I view this as very positive for both dealers and the brands they represent. In addition to ownership succession within the family, there is a steady discussion with both potential sellers and buyers.
Added to that is the fact that most groups have significant growth targets fueled by acquisitions.
These three factors will combine to make 2016 a significant ownership transfer year. This is clearly a green light.
Whether 2016 sets another new vehicle sales record or not, dealers will still have to consistently keep their eyes on the ball and execute as flawlessly as possible, just like Blue Jays MVP third baseman Josh Donaldson
The succession issue is an interesting one. For many dealers that have children in the business, the time has come to get those succession plans approved by their OEM.
OEMs are taking a keen interest in their future dealers. Some current dealers will be disappointed, others will have their plans delayed or will get the green light to move forward.
The critical point here is that many dealers must make a succession plan, and no further procrastination will be tolerated by the brands they represent.
I’ve also found, based on talks I’ve had with some OEMs, that many children who are planning to take over the family dealerships have not taken the time to get to know them.
Instant approval is most cases will not be possible.
Of course, education is a prerequisite these days. Programs like the new post-graduate level Automobile Dealership Management Program offered by the Automotive Business School of Canada are becoming minimum entry-level requirements for most OEMs to appoint new dealers.
Attracting people will continue to be a challenge in 2016. Be they employees or customers, we need to attract the right people to our dealerships.
From an employee standpoint, many good things are happening in our secondary schools and postsecondary schools right across the country to enhance the image and attractiveness of the retail automotive business.
Dealers are trying new human resource models, showing flexibility from traditional industry norms and attempting to attract employees from outside the automotive world.
From a customer standpoint, dealers are also making great strides in showing flexibility towards the various styles and demands of customers and prospects.
These initiatives are ongoing works in progress that recognize human interactions as a core skill for today’s modern vehicle retailers. I give this a green light.
Barring any major negative geopolitical socio-economic events that are completely out of our control, 2016 should be another solid year for retail automotive dealers.
But we must be ready to react to any and all surprises both in our business and personal lives to make sure our dealerships remain vibrant.
