But more than anything, the cost of land in most major cities in Canada could make it increasingly difficult for dealers to store several weeks’ worth of vehicles. Alizadeh said storing a single vehicle at one of his stores near downtown Toronto costs between $100 and $150 a month.
“The notion of inventorying hundreds of vehicles is probably going to be unrealistic on the part of [automakers],” he said. “I’ve looked at the broader [greater Toronto area] footprint, and I think the massive parcels of land anywhere in the major city centres in North America, it’s a myth. It’s not a possibility anymore. If anyone went out to buy a five-acre plot of land anywhere in the [Greater Toronto Area], you’d have to really re-evaluate your thinking.”
DAG did just that after it bought a five-acre plot in 2010 on Queen St. East in Toronto’s Riverside neighbourhood, just east of the downtown core. Alizadeh’s original plan called for building a traditional cluster of dealerships on the site for several of his stores to move into. But as land values in Toronto skyrocketed to as much as $25 million per acre, it soon became clear that the traditional dealership model would be unworkable on such valuable land, he said.
Diana Petramala, senior researcher at the Centre for Urban Research and Land Development at Ryerson University in Toronto, attributes spiking land values to foreign investors in Vancouver and domestic investors in Toronto, as well as generally high demand and low supply in both cities.
DAG, which owns 10 dealerships in Toronto’s core, eventually partnered with Streetcar Developments, a developer behind several real estate projects in Toronto, to build condos on the site, in addition to retail space for the dealerships and other businesses.
“The notion of partnering up with them on condo units became our objective,” Ailzadeh said. “We went along that path, and it worked out so that financially it brought the whole project to a realistic level that made sense not only us but for the [automakers].”
Alizadeh suggests a change in thinking when it comes to the end game of delivering vehicles to customers.
“The [automakers] have adapted their entire production process to a just-in-time process. I think it’s high time that the retail component looks at how it can adapt to the new realities of the marketplace and look at their partners on the OEM side and come up with a solution so we have a more pragmatic solution to inventory,” he said.
Dealerships could also be under pressure to downsize by municipalities as they look to make their central business districts more walkable and denser. A consultant’s report issued to Toronto suburb Mississauga’s planning and development committee in 2017 urged the city to reduce the number of dealerships it allows to be built in some of its major corridors. The report’s authors argued that dealerships, which take up an average of 4.4 acres of land, run counter to the city’s goal of densifying neighbourhoods surrounding new mass-transit routes.
DEALERSHIPS NOT WANTED