Making predictions in this uncertain climate is a mug’s game, here’s a snapshot of what unraveled in 2011
Late in 2010, I was fortunate to participate in an event sponsored by Canadian auto dealer that looked at predictions for 2011. We dubbed it the “Over-the-Hill Gang.” Some of you may have seen excerpts of the video series we produced on the Canadian auto dealer website.
(www.canadianautodealer.ca)
We were all predicting a flat year, perhaps up slightly and expressed concern about supply issues given the growth in emerging markets.
Guarded optimism for 2011
Little did we know that in many ways the world would continue to unravel. We did see signs for cautious optimism. After all dealers were fresh off the lingering effects of the financial crisis and market collapse of 2008. We all know the negative impact on consumer credit and thus spending. This led to the collapse in North American and global auto sales.
We did see cause for cautious optimism. The wild card, in our minds, was reduced global production and would Canada be able to secure the inventory it needed to match increased sales demand. If other regions of the world recovered quickly, we believed that Canada could face a supply shortage.
Tsunami and earthquake
The tsunami and earthquake in Japan that took place in early 2011 cemented the supply shortage issue more than anyone could have imagined. Just like the eye-opening impact of the Lehman Brothers bankruptcy had on the global financial market in 2008, the interruption of supply caused by the tsunami and earthquake in Japan was felt all over the world and across most brands serving to highlight the interdependence of the supply base in our industry.
Some brands are still in recovery mode at the time of writing this article.
Unstable financial markets
As if this was not enough, the global financial markets stumbled and the fear of a global recession or a double dip has become a reality. Countries in the European Union sounded alarms about defaulting on debt payments. Even the continuation of the Euro has been reported as being on jeopardy.
Back in North America, the U.S., led by political motives, came within hours of defaulting on its debt obligations and closing down the government.
Debt payment concerns
2011 will be seen at the year that reality shock hit the global financial community. After many countries engaged in billion and trillion dollar bailouts by injecting funds into their economies in 2008, 2009 and 2010, the reality that these funds had to be paid back from a base of declining tax revenues finally became an issue. Unfortunately the final chapter of this story has not yet been written and in fact many more chapters might be required as this story unfolds in the years to come.
Stock market volatility continued causing an aging population, increasingly dependent upon stable investment returns, to hunker down and reduce spending.
Cautious consumers
In many parts of the country, especially rural Canada, real estate transactions are down significantly as homeowners and potential homeowners sit on the sidelines looking for signs of stability. Don’t get me wrong, there are some bright spots but those are largely limited to major urban growth centres.
Employment numbers have not been encouraging, adding to the unsettled feeling. Remember that Canadians normally require a vehicle to facilitate employment. Canadians are cautious and sitting on their wallets.
Canada holding its own with high incentives
Surprisingly, new vehicle sales in Canada have held their own thus far in 2011. We never experienced the downward spiral of other countries, namely the U.S. Our banking system continues to lend money to worthy consumers. To the end of September, this year’s new vehicle sales are up 1.5%, even though the national dealer count is down by approximately 200 from 2009 levels. If these numbers hold, Canadians will have purchased 1,575,000 new vehicles in 2011. A respectable number given all that has happened globally to knock us off track. Underlying this, however, are huge incentives driving down the acquisition price of most new vehicles. How this can continue is anyone’s guess. How we can return to normal is also anyone’s guess.
Dealer consolidation
On the dealer acquisition front, groups continue to grow. 2011 has been very active for strategic and opportunistic dealership transactions. Network development arms of most brands have been busy papering ownership transfers. What is interesting are the buyers and the prices. Dealers seem to be increasing their penetration in their core brands, acquiring more of the brands they know best. This trend is fueled by certain OEMs that prefer firstly to transfer ownership to existing brand dealers.
Demand for luxury brands has never been hotter and where there have been transactions, the prices being paid are astronomical. 2011 has seen the segmentation of brands and value. Top tier brands are in high demand and low supply, thus driving up price.
With the GM and Chrysler situations working themselves out and with the Japanese brands running into supply issues, Korean and European brands have aptly picked up the slack, most posting double digit YTD September new vehicle unit sales increases.
Here comes social media
2011 was also the year that social media made its big breakthrough into automotive retail. For some dealers it has become mainstream, while for others just getting the hang of e-mail — confusion is running high.
Social media dominated conferences and trade journals, including the NADA event in San Francisco and provincial association conventions. There is still much confusion amongst dealers on how their individual stores can benefit. OEMs have embraced the new technologies as a real brand builder and brand message reinforcement tool. Early adopting sales staff have embraced this new technology and progressive dealerships are pushing to new limits.
First baby boomers turn 65
2011 saw the beginning of the baby boomer population band turn 65. Much has been said and written about changing retirement patterns and longer working lives. For many, the image of retirement does not mean stopping work and starting a new life of leisure but rather many need to continue work to afford to cover living costs during their expected 20 year lifespan of “retirement age.” This will have a significant impact on dealerships as we move forward this decade.
NADAP
2011 witnessed the negotiation of a new NADAP agreement. Given the challenges that dealers faced in the last few years, I suspect these proved to be interesting negotiations. Factory dealer disputes are a normal part of business these days as dealers and brands jockey for competitive positioning and market performance.
Canadian politics
There were no fewer than eight elections during 2011, one federal and seven provincial. This no doubt will have an impact on our business as the ever-changing federal and provincial political landscape unfolds over the next four years. At least we have a few seasoned auto dealers in key political positions who have a deep knowledge of our industry and issues.
As we look back, 2011 was certainly an interesting, exciting and challenging year. Next issue we will look at what can be expected for 2012.
Since this is my last article of 2011, I would like to wish you all the best for a safe and happy holiday season!
