VW to launch ‘satellites’ into Canada’s retail space

Volkswagen Group Canada plans to expand its dealership network with 25 new Volkswagen “satellite” rooftops, part of an aggressive strategy to boost sales as the brand moves to electrify its product lineup.

The company is asking Canadian franchise owners to build the new locations in underserviced portions of the country, said Michael Ricciuto, director of network development for Volkswagen Canada. Nineteen per cent of the country’s 38 million people lack access to a VW dealership within an hour’s drive, according to the market-intelligence firm IHS Markit.

“You know the saying, ‘If you build it, they will come?’ ” Ricciuto said. “There’s a lot of truth to that.”

In March, Volkswagen Group of America announced that it plans to spend at least US $7.1 billion in North America through 2027 to build up EV production capacity. The company, the global headquarters of which is based in Wolfsburg, Germany, aims to introduce more than 25 new battery electric vehicles (BEVs) by 2030, the company said in a news release.

The ID4 electric crossover will arrive in Canadian showrooms this year, while the ID Buzz electric microbus is expected to be launched as a 2024 model. Volkswagen Group Canada manages the Volkswagen, Audi and Lamborghini brands.

MISSED OPPORTUNTIES

The Volkswagen brand has 145 dealerships in Canada, but there are gaps in many areas, such as portions of Vancouver Island, the Prairies and Atlantic Canada, Ricciuto said. Only niche brand Subaru has fewer dealerships across Canada (94). Mazda has 163, Toyota has 287 and Honda has 237.

Worldwide sales of VW and its affiliated brands — such as Audi, Porsche, Skoda and Seat — total more than 10 million vehicles a year. The company sold 98,757 Volkswagen branded cars and trucks in Canada in 2021, representing a 5.2-per-cent market share, according to the Automotive News Research & Data Center in Detroit.

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Before the COVID-19 pandemic, the company sold 110,781 Volkswagen branded vehicles in 2019, representing a market share of 4.1 per cent.

Volkswagen Canada is adopting a hub-and-spoke retailing model that has been used successfully in Europe, said Ian McIlravey, consulting associate director at data company S&P Global Mobility. Satellite operations are an ideal way to reach rural, low-population areas, McIlravey said.

“You have to have a presence in a market in order to make a car attractive to purchase,” he said, adding that after-sales service is a critical factor in the consumer purchasing decision.

“There’s potential for this model to serve Volkswagen very well,” he said. “They can increase their footprint in a responsible way that doesn’t overextend their investors.”

PROCESS

During an April 26 media roundtable in Toronto, Volkswagen Group Canada President Pierre Boutin said most of the new rooftops will be extensions of existing dealerships and dealership groups.

They know the brand and have solid relationships with the automaker, VW Canada’s Ricciuto said. Current VW dealerships and groups have committed to 24 of the 25 planned stores, he said.

The company initially targeted 2025 for completion, Ricciuto said, but that will likely take longer because dealers face lengthy processes to buy land, secure permits and find contractors and suppliers during a time of supply shortages.

The satellite rooftops will be associated with full-service “hub” dealerships – existing dealerships that are in closest proximity to each satellite, Ricciuto said. Cheaper to build and operate than a full dealership, the satellites will have about 30 per cent less floor space — 7,500 square feet (700 square metres) versus 11,000 square feet (1,000 square metres) — less administrative space and less staff, although those employees will often take on dual roles. For example, parts managers and general managers at the hub will oversee the satellites. Major repair work will also be done at the hub.

“Think of the hub store as the main operation,” Ricciuto said. With the satellite, “We’re just going to take a piece of that and move it.”

VW plans to make two of the satellite rooftops for electric vehicles only, he said.

COSTLY, BUT WORTH IT

Michael Eatson, dealer principal at Peterborough Volkswagen and president of Ontario’s Trillium Automobile Dealers Association (TADA), said starting even a small dealership “involves significant costs,” and dealers have to be convinced that the business plan is solid before committing to a satellite. Yet, Eatson favours the satellite concept because it increases proximity to more potential customers.

VW has also eased requirements for its full-scale dealerships to cut the investment costs, Ricciuto said. New guidelines set the size at 16 per cent smaller than existing dealerships, and expensive enhancements such as skylights are no longer required.

VW Canada expects dealers to divert those cost savings into enhancing online strategies, Ricciuto said. More customers shop online and “just want a place where I can pick up my car and get it serviced.”

Jim Garofalo, general manager of Maple Volkswagen, a dealership about 30 kilometres northwest of downtown Toronto, said he believes the expansion will help VW grow market share.

“There are some markets that are suffering [from a lack of representation], and we could use some presence there,” Garofalo said.

The Maple store, part of the 37-rooftop Zanchin Automotive Group, sells about 940 new vehicles per year, he said, making it one of VW’s highest-volume dealerships in Canada.

Both the Maple dealership and a Zanchin dealership in Milton, west of Toronto, will add nearby satellite rooftops, Garofalo said, although for competitive reasons he declined to say where.