AutoCanada Inc. isn’t getting out of the new-vehicle business, but the dealership group that owns 83 franchised stores in Canada and the United States is leaning on the used side of its operation to grow sales and provide a hedge against ongoing turbulence in the new-car market.
The company is “beholden” to the automakers it represents for new-vehicle inventory, said AutoCanada Executive Chairman Paul Antony, but the “unconstrained nature” of the used-vehicle segment gives the company “wide-open runway” to grow.
“We want to become untethered to the constraints that we have on the new-car business, and [with] selling just new cars,” Antony said on the company’s latest quarterly earnings call May 4.
Used-vehicle sales growth has been a key aim for Antony and the Edmonton-based dealership group’s management team since taking over leadership of AutoCanada nearly five years ago, and one the company has made considerable headway on. In 2018, the company sold 0.62 used vehicles for every new vehicle driven off the lot. In the first quarter of 2023, that ratio had climbed to 1.72 used vehicles for every new sale.
USED 'OFF THE CHARTS'
Antony expects AutoCanada’s used volume, and the wider used market, to continue to strengthen as new-vehicle inventories remain “constrained for most brands.”
“Used is going to be off the charts for the next three to four years,” he said, pointing to restricted vehicle production due to the pandemic and microchip shortage.
“We’re short roughly nine to 10 million cars that weren’t built for North America in the last three to four years, which means that we’re short nine to 10 million used cars that haven’t been built.”
Customers are also feeling financial pressure because of recent interest rate hikes, leading many to seek vehicles with lower price points, which often means used, Antony added.
AutoCanada’s profitability fell in the first quarter of 2023, a result of the same interest rate pressures experienced by its customers, as well as poor performance at its U.S. dealerships. Its new-vehicle sales volume also declined, dropping to 8,771 units, 3.1 per cent lower than the same three-month period a year earlier.
But as new-car volumes dipped, the company’s used business continued to expand. It reported used-vehicles sales of 15,290 units for the first quarter of 2023, up 8.7 per cent from the same quarter a year earlier, and not far off its record for a quarter, set during the busier spring selling season.
USED HELPS PROFITABILITY
The used-car focus has also helped AutoCanada boost profitability in F&I departments, and its parts, service and collision repair business, Antony said. Gross profit within the two segments rose 5.8 and 19.7 per cent, respectively, compared to the same quarter a year earlier.
Among other steps to boost profitability within its used-vehicle sales wing, the company has prioritized reducing the amount of time it takes to recondition inventory.
In 2018, Antony said the company took about 48 days to prepare used inventory for sale. In the latest quarter, that figure was between 27 and 28 days, helping trim floor plan financing costs. But cutting reconditioning timelines remains a work-in-progress, with the industry average running between 10 and 14 days, he added.
An expanded partnership with online classified site Kijiji.ca, which lists 1.4 million for-sale-by-owner vehicles on its platform each year, represents another used-vehicle growth avenue, Antony said.
The deal, announced March 31, builds on a previous relationship between the two companies, and will give AutoCanada the ability to market its F&I products on vehicles sold on the platform, as well as purchase used vehicles from sellers on the site to add to its own used-car inventory, Antony said May 4.
Despite prompts from financial analysts on the earnings call, Antony divulged few other specifics of the Kijiji deal, but said the company’s opportunity with the online marketplace is “of an exclusive nature.”
AutoCanada would not make Antony available for an interview on the company’s used-vehicle business.
While Canada’s only publicly traded dealership group is increasingly dialled into its used-, as opposed to new-car operation, Antony said these customer relationships eventually come full-circle.
“We’re positioning ourselves to sell volume and to sell used vehicles in order to drive business through our shops and dealerships that we think is more sustainable. And eventually, that used-car customer — if we treat them right and service them well — they end up becoming a new-car customer.”
