Despite high valuations, buy-sell experts and dealership group executives see no end to the trend toward dealership consolidation in Canada in 2023, with most predicting the rampant buying won’t ultimately end until only large dealership groups dominate the market.
“A lot of us come from a time when everybody had a single car dealership back in the ‘70s and ‘80s,” said Peter Heasty, president of Baker Tilly WM Dealer Acquisitions Inc.
“You know the old saying: ‘the only thing constant in life is change.’”
Heasty was among five experts to share their view on how the buy-sell business in Canada would shape up in 2023 and beyond at the 2023 Automotive News Canada Congress in Toronto Feb. 16.
None predicted a slowdown in dealership acquisitions.
Landon Robertson, director of operations and corporate strategy at Templeton Marsh said the past three years have been highly profitable ones for dealers, but with greater uncertainty ahead, as well as the looming threat of a recession, more dealers are considering the exit.
“Lots of dealers don’t want to have to go through that another time since [the] ’08 [recession].”
John Chisholm, vice-president of sales for Canada at Dealer Solutions Mergers and Acquisitions, said dealership valuations are “starting to taper off” from their lofty levels in 2022, but the demand remains unchanged.
“We’re not seeing a slowdown in the interest of acquisitions, or in the interest of divesting.”
Among other trends, Chisholm said, many aging dealers with a single or a small number of stores are looking to “write that last chapter of their success story” by cashing out.
Ted Lancaster, executive vice-president of mergers, acquisitions and business development for the 401 Group of Companies, an Ontario-based dealership group in acquisition mode, said he encounters many such prospective sellers.
Particularly among dealers 55-years-old and up, he said, the pandemic has prompted a rethink of priorities. They’ll say: “I’ve built this company into a really good entity, but I’ve got grandkids now, and life is fleeting.”
The 401 Group, fresh off the acquisition of seven stores last fall, is far from the only group seeing the chance to grow.
Christopher Pfaff, CEO of Pfaff Automotive Partners, said the dealership group continues to find “a lot of opportunities.”
The Toronto-based group was itself acquired in 2021 by Lithia Motors Inc. Now operating as the U.S.-based group’s Canadian arm, Pfaff Automotive continues to pursue further acquisitions “pretty much anywhere in Canada,” Pfaff said.
As groups such as Pfaff and 401 Group bulk up on dealerships, many others are heading in the opposite direction.
PLENTY OF REASONS TO SELL
Along with an aging body of dealers, Heasty said the auto retail business is also getting more sophisticated, with new technology and marketing tools becoming a necessity. This is encouraging many small and mid-size dealers to opt out, he added.
“If you’re someone with three or four stores, either you’re looking to expand, or you’re saying, ‘Look, I’ll just take a cheque.’”
And there is no end in sight for the trend toward consolidation.
Over the long-term, Heasty, Robertson and Chisholm predict most of Canada’s more than 3,000 new-car dealerships will fall under the control of large groups.
How many dealership groups will be left post-consolidation is “yet to be determined,” Chisholm said, while Heasty speculated about 25 groups could come to dominate roughly 80 per cent of the market. Local players that control smaller markets could comprise the other 20 per cent, he forecasted.
Lancaster said much the same.
“I think you’re going to have a number of large groups, but I think you’re always going to have some that are somewhat independent — smaller, two [or] three stores [in] local markets.”
Exactly how consolidation will play out “depends on the OEMs,” Robertson said.
“They have a set number that they allow certain dealers to own in a certain market. So, if they start loosening that,” it will open the door to several large players controlling the market.