Automotive purchasing groups are helping dealers buy and also build for the future
We all hear about methods to make the shopping experience simpler and more convenient. One of them is the single source where you can buy just about everything you
need, a “one-stop-shop” if you will. For dealers this extends not only to their customers but also to their own buying needs. However, given the nature of products required to run a successful dealership, ranging from soap dispensers to uniforms, hoists, diagnostic equipment, car washes and paint products, the idea of purchasing such items can appear to be rather daunting.
That’s where co-operative buying groups come in. They provide a single source solution. Because dealers are also often members and shareholders, this helps drive their own profitability as well as providing the items they need. In Canada there are three such dealer buying groups that have grown to become hugely successful enterprises, with their members reaping the rewards. Canadian auto dealer talked with the CEOs of each of them about the benefits they provide and also how they’ve evolved alongside the dealers and industry which they serve.
TOM LANGTON
Co-Auto Co-Operative Inc.
Left to right, Peter Johnson, Tom Langton and Sandy Ligouri
Based in Woodbridge, Ont, Co-Auto was founded in 1979 when a group of General Motors dealers in the Greater Toronto Area decided to look for a better way in which to procure equipment needed to run their stores. “The idea was, that if a group of dealers could work together when it came to buying supplies, they could capitalize on their purchasing power,” says Co-Auto CEO Tom Langton. “The original concept was to create a purchasing system where items could be delivered from a warehouse straight to dealers. Back then most were sourcing equipment and materials through automotive suppliers that weren’t specifically dealer focused.”
No intermediaries
The Co-Auto model proved a successful one and soon, the program had expanded to include dealers from other brands, not just GM stores. And the more dealers who came onboard, the more purchasing power was able to increase, as was the level of savings passed onto the dealers. “We’re a true Co-Operative,” says Langton, “so we’re 100 per cent owned by our dealer members, so by our business growing, at the end of the day it helps the members. By serving as a warehouse distributor we also act as a jobber, so we’re able to eliminate the middleman and pass our savings on to our customers.”
Co-Auto currently has 1,200 members across Ontario, Quebec and Atlantic Canada and besides its own distribution centres, located in Woodbridge and the Ottawa area, also has a fleet of 10 trucks in southern Ontario that can ship supplies directly to dealers. “Having our own fleet enables us to fully control the process and improve efficiencies,” says Langton. “We’re the only buying group that does this.” Co-Auto’s fleet of vehicles will travel as far north as Huntsville, as far west as London and as far east as Ottawa. For dealers located beyond these boundaries, the company partners with major transport companies to provide next-day delivery service.
As it seeks to become the most effective single source provider of products and services to dealers in Ontario and the Atlantic provinces, ranging from collision materials to shop towels and uniforms, to hoists and garage equipment and even CRM tools and DMS systems, Co-Auto is always looking to improvements and a key part of that is having a board of directors that rotates every two years. “The board is essential in formulating a proper strategy and structure,” says Langton “and it’s an important consideration to bring fresh ideas to the table, which is why members rotate. It’s also very important that the board is in tune with new products and services coming to market and to find ways in which we can better serve our customers.”
One area where dealers have been able to reap significant benefits concerns the centralized billing process. “It’s all encompassing,” says Langton. “It’s a single source, with a single cheque. It not only saves time, but simplifies and reduces costs, plus it gives dealers a sense of security, that all the items they purchase are made through a business they own, since they are the shareholders and the more they buy the greater the savings they’ll be able to realize.”
Ever looking to the future, Co-Auto is always actively exploring new purchase alliances, such as those fostered with Quorum for DMS services, Nike for employee clothing and also CADA/HKMB Hub for a dedicated garage policy program. “Our job is to look after our customers,” says Langton. “If there is a way in which we can improve the product or service we provide, we will seek it out, our goal is to always be focusing on a CACI (Co-Auto Continuous Improvement initiative).”
MIKE REID
Western Dealers Co-Auto
Much like Co-Auto has grown to become a major group buying force in the East, it’s a similar situation in the West, where WD (Western Dealers) Co-Auto has built a strong business providing products and services to dealers in B.C. Alta., Sask. and M.B. “We currently have 870 members,” says CEO Mike Reid “and the numbers continue to morph.” As was the case with Co-Auto, the original premise behind WD Co-Auto was to buy goods and services in bulk through a dealer co-operative and pass those savings on to members in the form of a rebate.
Mike Reid
Driven by value
“The business grew very fast,” says Reid, “as dealers saw the potential of buying in and what resulted in terms of price differentiation and also profit margins.” However, he says that although business has grown, the industry has changed and the margins today aren’t what they once were. As a result WD Co-Auto’s objective is not necessarily to offer the lowest prices but to encourage dealer members to increase their share hold, the group essentially becoming the only link needed in their supply chain.
“The more they buy, the more they save and the bigger the rebate,” says Reid. Another is to really deliver perceived value. “Although we are a single, central buying organization, we have multiple sales and service reps that work with each department among our member dealers. The idea is to place those with relevant skills and experience to the right person at the dealer level. So for example, we have reps working with dealer principals, reps dealing with service managers and also reps dealing with paint and collision departments. On the collision side, three of the four representatives are ex-body shop managers, so they’re able to empathize with the client and work effectively with them to develop the right solution.”
Although collision still represents a sizeable portion of the business, Reid says that in Western Canada, the number of dealers that still maintain their own body shops is on the decline. “In the eight years I’ve been with the company, it’s dropped from 25 to around 20 per cent.”
Nevertheless, WD Co-Auto maintains a very active presence in the collision market, not only supplying related products and equipment but also by providing initiatives, such as the Western Dealers Collision Forum which took place in October in Vancouver. “The idea behind this is to provide an overview of where the industry is going,” says Reid. “We invited key speakers and put together breakout sessions as well as an insurance panel Q&A discussion. Insurance companies are taking an ever more active role in the business, so it’s important that changes and ideas are analyzed and discussed so the dealers don’t get left out.”
Although collision might be one area that’s on the decline, Reid says that overall, business has mushroomed. “It’s basically tripled in the last 30 years,” he says. This despite the fact that one growing industry trend was initially seen as a potential threat. “The emergence of multiple franchise dealer groups looked like it could pose a challenge to our business model,” he says. And yet the rise in such groups has proved to have a positive impact. “Many of these groups, even though some of them might have 30 stores or more, recognize the value we bring, because of the purchasing power 800 plus members provide.” Reid also says that another driver has been an attractive buy-in strategy for new members.
ROBERT ISSENMAN
LAR INC.
Leader Auto Resources (LAR) Inc. got its start in 1980, when a group of Montreal area dealers came together to form a purchasing consortium. However, compared with other dealer buying groups in Canada, LAR is rather different under the skin. Firstly, it works exclusively with new car and truck dealers (no independents) and secondly all members are required to be shareholders in order to business with LAR. “Our relationship with our members is not a casual one,” says CEO Robert Issenman. “Besides being a shareholder, for our people to bring members on board requires sitting down with the key decision makers, namely dealer principals, we don’t deal with department managers.” The result is a deep commitment from both parties which has helped LAR grow to become the largest single dealer buying group in North America (over 1,500 members).
Transparency in pricing
That commitment extends to a high level of transparency regarding pricing. “We are diametrically opposed to one-off pricing,” says Issenman. “Regardless of size or geographic location, pricing is the same for all members. That in part is what has kept us on the positive side of the balance sheet.”
Robert Issenman
Additionally, LAR goes to great lengths to ensure that dealer shareholders know what they will get back in terms of discounts and or dividends. “If we were to sell you a pen for a dollar,” says Issenman, “we will tell you that we will but that you’ll get 25 cents back for every pen you buy as a bankable discount. That is an important part in the way we do business, to be upfront and focus the interest on reducing cost within the dealership. It has helped us pay out more than $243 million and resulted in over 30 LAR millionaires through dividends. In the past, many dealer departments had cozy jobber relationships without knowledge of the dealer principal, so they would buy products and services whether or not they were needed, simply so the employee involved could win a trip to Vegas or a TV. LAR was originally created, to prevent that from happening and to bring control of the buying process back to the dealer principal.”
Also, unlike other buying groups in Canada, LAR also has a presence south of the border. Besides operating in the six eastern provinces, it is also active and expanding in the U.S. states of Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. In particular, LAR is expanding significantly in New York and has established a relationship with the New York State Automobile Dealers Association, which includes 1,000 individual dealer members.
Back in Canada, the company is also expanding aggressively in the Ontario market, particularly the Greater Toronto Area, the new plans aided by fairly recent recapitalization, courtesy of Blue Sky Equity. It also has developed a relationship with WD Co-Auto in Western Canada, and through TECAR International in Europe, where, through a network of some 12,000 dealers, has netted a combined purchasing power of $828 million CAD. The European connection has also enabled LAR to respond to changes in the market more quickly. “On the collision side, waterborne paints are a good example,” says Issenman. “Europe is often ahead of us when it comes to environmental issues.”
