Dealers must adapt to changes in demographics
North America is going through a rightsizing that is based on economic realities. In recent weeks, the U.S. government came woefully close to defaulting on its debt payments. They did not escape a downgrading of their credit rating and this sent shock waves right across the globe.
The U.S. downgrade caused many analysts to question the credit worthiness of many European countries. This sent even deeper shockwaves through the global financial system and created incredible instability in the global stock markets.
In recent years, our industry has been asked to withstand the pressure from the global financial crisis resulting in the bankruptcy of GM and Chrysler in the U.S., more strict banking regulations, a prolonged seemingly never ending recession, even natural disasters like earthquakes, tsunamis and floods. The obstacles have been plentiful.
Aging population
The real issue facing all of us, however, is the demographic change within the Canadian population and the resulting impact on retirement. Quite simply we are getting older. Why should we care? Let me explain.
Under medium growth scenarios, Canada’s population will increase from today’s 34.5 million to 43.8 million by 2036, a 27 per cent increase over the next 25 years.
We are approaching for the first time in our history a time when the number of Canadians over 65 will outnumber Canadians under 15. In fact, in the not too distant future Canadians 65 and older will account for almost 25 per cent of the total population. A decade ago that number was 14 per cent and three decades ago that number was 8 per cent.
According to Statistics Canada, during 2010, there were 382,000 births versus 251,000 deaths for a net natural growth of 131,000. In 2010, the Canadian population grew by 375,000. 65 per cent of that growth therefore came from net migration. When you compare that to 20 years ago, migration accounted for 41 per cent of Canada’s 326,000 population growth and natural growth rate was 59 per cent. In just 20 years there has been close to a 20 per cent shift.
This means that our working age population will decline. There will be fewer workers. An older population puts tremendous pressure on the economy. The older we get, the more we take and the less we put back. Yet someone
has to pay.
Burden on the young
Canadians below 65 will need to take on an increased burden over and above what the now 65 and older group experienced. This over 65 group believed that their support demands were very heavy. The under 65 group will find the burden even greater. This has tremendous implications for taxation levels, social assistance payments and other social programs as well as elder care programs. A declining workforce and an escalating support demand does not spell good things ahead for the working age population.
Governments will have no choice but to raise taxes, cut back program spending and change some of the untouchables we have come to expect. All of this will be on the shoulders of the under 65 group. Retirees are not exempt from this change since there is no guaranteed that the rules to the game will not change.
Much will be written about the impact of our aging demographics in the years ahead but what can we as automobile dealers do now?
The increasing population points towards increased vehicle demand in the future. This is a good thing. Increase vehicle demand also increases the fixed operations opportunity. This is also a good thing.
As dealers we are under constant demand from the brands we represent to invest. We need to invest wisely. Although new vehicle demand should increase as the population increases, what is demanded might change. Up until now consumers have sought ownership of vehicles. In the future, because of escalating vehicle transaction prices and lower disposable family incomes for the working age population, consumers may favour access over ownership. This is a subtle but fundamental shift.
It has implications for the facilities we will need in the future and also what services we will offer. Our workforce will change. It will become even more difficult than it is today to find young employees to work in our industry. When we do find a pool of younger workers, our labour costs will likely be higher since to attract young workers we will need to pay a very competitive wage.
Dealers already pay much higher wages than general retail establishments, however our demands are also higher due to the complexity of operations in a vehicle retail dealership over operations of a general retail concern.
Many of our current employees will choose not to retire at normal retirement age. The need to continue to work will be based on individual family economics and physical and mental health.
Living longer
In 2006, the life expectancy of a male was 78 years and a female was 83 years. By 2036 the ages are expected to increase to 84 and 87 respectively. When these same individuals started their working careers life expectancy was approximately 8-10 years younger. Pensions and savings plans were designed for a much shorter life expectancy than we are currently experiencing and forecasting, thus creating a very real scenario that many Canadians will outlive their retirement funds. One way to combat this is to work longer.
The Freedom 55 vision, marketed to us for the past two or more decades painted a picture that many of us are not really interested in. For many, it will be important to their health and well being to remain active. Granted some will choose to be active with leisure activities but many more will want to remain productively active, choosing to work rather than play.
Plan for the future
Many governments have done away with the concept of mandatory retirement believing that employees and employers can best decide the right time between them. Governments also wisely know that the additional income taxes, sales taxes etc….will be needed and that active individuals will likely draw less from the system, thus giving governments a double dip, higher revenue and lower expenses.
So as dealers we must always keep an eye to the future. In my opinion, many dealers have over-built some facilities beyond their economic value. We must be careful in the future to invest wisely and resist the temptation to over build. We also must retain good workers. This will involve a more formalized dealership staffing plan built around retention and training. Our dealership staff will get older and we must learn to embrace that.
Our business has always been challenging. The present is extremely challenging for many of us. The future promises even greater challenge. With challenge there is always opportunity. Keeping our eyes on the future will give each of us a leg up to be in a position to maximize on those opportunities.
