AutoCanada hopes to use earnings from the Illinois dealership group it recently acquired to fuel more growth in the United States, CEO Steven Landry said.
“The important thing for us was to do an acquisition that was sizeable enough that this dealership group would have its own earnings, and those earnings would stay in the U.S. and be used to purchase more stores in the U.S.,” Landry told Automotive News Canada. “It’s really about biting the bullet and getting in here once and growing.”
AutoCanada, Canada’s only publicly traded dealership group, agreed to buy nine of the 10 stores in the Grossinger Auto Group of Chicago, Ill., in March, establishing its presence in the lucrative U.S. auto retail market.
The deal, which was to close in the second quarter, will add about $523 million (US $400 million) in annual revenue to AutoCanada and is one of the largest acquisitions by an international buyer of a U.S. dealership group. Terms were not disclosed.
General Motors is suing Grossinger over the deal.
Landry said further growth in the United States would likely occur close to the Canadian border, citing proximity to Canada and similarities in climate as reasons for not venturing further south.
“Would we jump to a place that's three hours away in the United States and start another group? Probably not,” he said. “But is there other synergy across the border between Canada and the U.S. where there are opportunities in cities close to the border? That makes more sense to us.”
The Grossinger acquisition comes as AutoCanada looks to expand in Canada, as well. AutoCanada, which reported net earnings of $17.1 million in the fourth quarter of 2017, will look to expand its presence beyond its traditional strong-hold in Western Canada, Landry said.
The deal gives the Edmonton-based group its first Toyota, Honda, Lincoln and Volvo stores, which Landry said is key to the company’s goal of diversifying its product offerings as well as geographic footprint.
Publicly held dealership groups are barred by many automakers, including Toyota, Honda and Ford, from fully owning Canadian stores.
“While establishing a new relationship with these OEMs in the U.S., it does not necessarily open up doors or change our relationship in Canada,” Landry said during a March call with investors. “It’s two different countries, and they operate independently, as they should.”
An auto mall with six brands — Audi, Mercedes-Benz, Lincoln, Subaru, Volvo and Volkswagen — is included in the deal. Landry said he sees the auto mall, based about two hours southwest of Chicago, Ill., as a potential template for future dealerships. “If someone's looking at an SUV, they might want to look at SUVs for three of the six brands that are there in that auto mall,” he said. “And so, I really think it’s part of the future. It’s up to the OEMs when they approve such buildings, because they're a deviation from the traditional big dealership with a big parking lot and everything.”
Jamie LaReau of Automotive News contributed to this report.