Dealers discuss key challenges with supply shortages and their ripple effects, while also exploring how they are adapting to the situation.
In 2021, a dealer in Quebec City summed up the new and used vehicle inventory shortage in two words: “excessively brutal.”
Now early in 2022, those words from Charles Saillant, President of Ste-Foy Toyota and Co-president of Groupe Saillant, continue to aptly describe the situation many dealers across Canada are facing and can only hope will be short-lived.
“It’s never been as bad as it is right now,” said Saillant in an interview with Canadian auto dealer. “We may think the demand is not there, but it is there. It’s never been as strong. It’s the offer that’s not there.”
While the semiconductor shortage is a global issue with ripple effects on a number of industries and economies, for automotive it means OEMs are lacking the necessary chips and other parts to produce the vehicles they need to fulfill the customer demand.
In looking at the state of the Canadian auto manufacturing sector, DesRosiers Automotive Consultants (DAC) found that shifting production mandates to the introduction of electric vehicle assembly, pandemic-related issues, and the semiconductor shortage all helped pave the way for a decline in shipments, with the vehicle assembly sector down 16.8 per cent as of the end of November 2021, from 2020 levels.
It also decreased almost 50 per cent from five years ago, and shipment levels declined to the lowest level since 2009. Andrew King, Managing Partner at DAC, described the situation as “a period of fundamental structural change” on par with the shifts observed after the 1965 Auto Pact.
Not all manufacturers were impacted equally, however, and some dealers played the game a little better or safer than others. But as Saillant notes, no one escaped unscathed. And he believes the situation may not significantly improve before the second quarter of 2022, at the earliest.
He may be right. Just last year, by October 2021, dealer listing volume was down 35 per cent year-over-year, while new cars were down about 50.3 per cent, according to Canadian Black Book’s Director of OEM Strategy and Analytics, James Hancock. He said the issue was mainly due to the global shortage of semiconductors.
“We anticipate that throughout the next few months, this will worsen for dealers, as the supply chain tries to work through it. We don’t anticipate the supply chain to get back up to normal levels until the second half of 2023,” said Hancock.
As of October 2021, used car inventory was down 13 per cent YOY. CBB anticipates that this will worsen in the coming months, as they expect exports to increase throughout the year mainly due to the Canada-U.S. price difference.
Hancock referenced the currently high premium on cars in the United States as a reason, and said their vehicle supply is down even more. By October last year, they were already down approximately 75 per cent on the new car side, and 50 per cent overall.
As for what OEMs are doing, Hancock said manufacturers are strategizing on what vehicles to produce.
“They’re looking to produce their most profitable cars. And they’re also being a little bit strategic on where they send their supplies. They’re looking at markets that are highly profitable. And some dealers are being caught out there,” said Hancock. “If you compare Canada to the U.S. market, it is more profitable than the Canadian market for them.”
At the ground level, dealers are dealing with empty or near-empty lots and vehicle displays thanks to supply scarcity, long and uncertain delivery times, and thinning patience among consumers.
Hancock said many OEMs suggest vehicle delivery will be within six weeks to six months. He anticipates that most of the orders dealers have from consumers should be relatively solid, since it will be difficult for the consumer to source another vehicle and receive it within the timeframe they need it or expected to receive it.
We asked Saillant about the overall situation, to which he replied that yes, the sales are not there, but that it does not mean the demand is not there.
“In my four dealerships, I have never signed so many sales contracts,” said Saillant. “On the other hand, my deliveries, that’s another thing. Before, maybe the price was the most important thing. Now, it’s ‘when can you deliver my vehicle?’”
He said there is a lot of shopping around, as dealers know, even within the same make or brand, and that there remains a lack of awareness among many consumers about how the semiconductor issue is impacting dealers.
Many consumers still believe that if one dealership expects delivery in four months—that consumer might drive over to the next store a few kilometers away, selling the same brand, thinking they will deliver their vehicle in two months. As Saillant notes, this is not the case.
Canadian auto dealer reached out to Susan Gubasta, President and CEO of Mississauga Toyota, to compare the situation in Ontario. Offering a broad snapshot, she said that towards the end of 2021 her dealership lot/showroom was mostly empty and there were no vehicles on display.
“It’s very challenging to get the consumer to understand the supply chain issues. And it’s interesting because I was having a conversation with another executive and they asked the question: customers get it right? And I’m like—no, they don’t,” said Gubasta. “When they come in and see that our shelf is empty, they’re like, what’s going on? Where are your cars? And when you try to explain it to them, they think you’re lying.”
She said dealers cannot always assume the consumer knows what is going on. So when Gubasta managed to get her hands on four new vehicles, she decided to keep them in her showroom rather than sell them, so consumers could sit inside the vehicles or take them for a test drive.
“We live and breathe in this world where there’s a supply chain issue and so on,” said Gubasta. “Having said that, there are some people that just go about their day-to-day business, and until they’re looking for something very specific, they really have no idea. So we’ve lost customers as a result.”
She said a lot of sales contracts were signed, but they also had customers that had a vehicle on order for six months and the dealership was not able to fulfill the order during the anticipated timeline. This resulted in the consumer thinking the dealer was lying—that maybe it was sold to someone else.
“Unfortunately, not only do we as dealers suffer, but it’s hurting the brands because now customers look at our brand and say, well they’re not telling me the truth. They’re not being transparent. So I’m just going to go elsewhere and we’ve lost them,” said Gubasta.
Her dealership had a good run thanks to demand exceeding supply in the Toyota works, until about September 2021 when it really started to diminish for the OEM.
Gubasta said the important thing is to stay in contact with the customer and employees, and to keep that communication line open so everyone is aware of what is going on.
This is something that Paul Williams, Acting Dealer Principal at Centaur Subaru in Calgary, Atla., echoed in his comments, saying it all comes down to consistent communication with your staff and reminding them about the end goal.
“I find that when you have the staff engaged more and following up with their customers, they get more involved,” said Williams. “The hardest thing I think in working with some of the staff, is that there’s a lot of business coming in. And when I say a lot of business, there’s a lot of phone calls.”
He said there are many consumers looking for vehicles and dealership employees must educate them about the situation. They need to let them know that they will be added to a list for vehicle orders, without making the consumer feel like they are simply a number or a deal to be made.
Williams called it a different way of doing business, which means less instant gratification for the salesperson selling the vehicle, but high profits per unit. Although, while it is nice to have gross profit today, when the pendulum swings the other way—towards OEMs sending too many vehicles at once, the situation may not be much better.
But for now and looking ahead at the next six months, Williams said dealers will need to continue monitoring the situation—everything from the semiconductor shortage to parts manufacturing issues, COVID variants and related restrictions, and unforeseen challenges like the flooding situation that occured in British Columbia in 2021.
“I don’t think you want to make one plan for the next six months. I really think it’s a fluid situation,” said Williams. “The dealer body has always been good at survival and adapting to these different economic changes. I’m not sure that it’s going to be just one outcome over the next six months.”
Canadian auto dealer will continue to monitor the situation as it progresses, and connect with dealers to discuss how they are working through these unprecedented times.
