Vehicle sales may have been waning in recent months in Alberta, due in part to the steep drop in the oil prices that fuel the region, but that’s not stopping AutoCanada from looking at expansion opportunities in the region.
Canada’s largest public auto group hosted its second quarter financial conference call last week, and the company’s executive chair Pat Priestner was clear he’s still interested in investing in the region his group calls home.
“We like out West. We like B.C. We like Alberta,” Priestner said. “Again I know some people will probably say, ‘Why are you buying in Alberta?’ We are looking long-term. This is not even long — mid- to long-term here, and we think that the value of the stores we will be able to acquire in Alberta in the next couple of years will be great for the company long-term. So obviously, we are still focused there.
“B.C. (we are) looking heavily in,” Priestner continued. “Saskatchewan a little bit, as well. Certainly Manitoba — we now have a bit of a presence. So if something were to come up, we are open. Ontario, obviously it is an area where there is a lot of room for growth, but again we are being very patient. We want to make sure we buy the right dealerships in that market, in all markets, but particularly in that market. So I certainly see some potential there and we are active right now looking at some stuff there.”
Tom Orysiuk, the group’s president and chief executive officer, also offered some good forecasts for used-vehicle dealers in Canada.
“But the used market, I think it is something long-term that is going to improve in Canada, and it’s going to be a good opportunity not only for us, (but) also for the entire dealer body as we see more used vehicles becoming available,” Orysiuk said. “You know it will be something that will gradually build over the next couple of years.”
AutoCanada held its second-quarter conference call on Friday, highlighting an impressive boost in revenue and gross profit — perhaps a direct result of the company’s aggressive acquisition strategy over the past year and into 2015.
Revenue from existing and new dealerships increased by 75.6 percent, or $351.8 million, to come in at $816.9 million in Q2. This is up from $465.1 million in the same quarter of 2014.
Gross profit for the quarter made a significant jump, as well, increasing by 66.8 percent to come in at $129.7 million for the second quarter, up from $77.7 million made during the same period last year.
And in some good news for shareholders, adjusted EBITDA ramped up by 24.2 percent, or $5.4 million, to $27.7 million in the second quarter.
Though when adding in the new dealerships revenue was up significantly, same-store revenue didn’t spell the same success. This metric was down by 2.8 percent year-over-year in Q2, while same-store gross profit dropped by 11 percent.
That said, some used-vehicle metrics for same-store stats were on an upward trajectory. According to the company, same-store used-vehicle retail revenue increased by 15.3 percent, or $9.3 million, to $70.0 million in the second quarter of 2015 from $60.7 million in the same quarter in 2014.
Same-store used-vehicles retailed were down slightly in Q2, with 2,604 vehicles sold, down just a bit from the 2,614 sold during the same period of 2014.
On the other hand, same-store parts, service and collision repair revenue was up by 4.5 percent, or $1.6 million, coming to a total of $35.6 million in the second quarter, up from $34 million during the same period of 2014.
And with the additions of new stores, used metrics went up considerably. Take this stat, for example. In Q2, overall used retail vehicles sold came in at 5,443, up from 4,891 sold during the same quarter of 2014.
Interestingly, the AutoCanada management team explained the increase in the Alberta tax rate from 10 percent to 12 percent, which went into effect July 1, negatively impacted net and comprehensive income for the period by $831 thousand, and basic and diluted earnings per share in the second quarter by $0.03, from $0.59 to $0.56.
"Although the second quarter and the Western Canadian economy in particular provided great challenges, as evidenced by declines in our gross margin percentages and earnings per share," said Tom Orysiuk, president and chief executive officer, "and same store sales revenues and gross margins were weaker than the previous quarter, we are determined to adjust to meet these challenges.
“We were pleased to see that our efforts in the quarter resulted in same store gross margin growth in both used vehicles and parts and service operations as well as significant improvements in operating expenses relative to gross profit. These gains notwithstanding, we are not satisfied and are working closely on a dealership by dealership basis to make the appropriate market sensitive adjustments to maximize all volume, gross and expense reduction opportunities,” he continued.
Interestingly, just after a Transunion study came out recently regarding the negative impact of dropping oil prices on oil-heavy regions, such as Alberta and Saskatchewan, AutoCanada management touched on the precarious economic situation in Western Canada during its Q2 analysis.
“Despite the economic situation in Western Canada, the Company has not seen significant adverse changes in the availability of either consumer credit or to commercial automotive financing. Employment rates have declined but remain at acceptable levels throughout Alberta,” the company reported. “However, consumer confidence continues to challenge the retail sector, especially for high priced retail goods including housing and vehicles and the company believes that current West Texas Intermediate crude prices have negatively impacted consumer confidence and further reductions to employee base or capital spending in the oil and gas sector could potentially impact the company.
"Consequently the economic climate in Western Canada continues to be a challenging environment.”
But AutoCanada doesn’t seem to be too concerned, as it said it remains well positions to continue acquiring dealerships and consolidating the retail automotive industry. Management said it still plans to meet its aggregate guidance of adding six to eight new dealerships to its lineup by May 2016.
"We continue to follow a prudent course on acquisitions seeking to capitalize on those opportunities which provide the best long-term value," stated Patrick Priestner, AutoCanada executive chairman. "We believe that the changed economic circumstances, particularly in the Alberta, demands an even more critical, and calculated approach, which we have adopted. Due to certain due diligence and related matters, we have not closed two acquisitions within our originally anticipated timeframe. Nevertheless we are very confident that we shall achieve our acquisition guidance of six to eight stores by May, 2016."
Editor’s Note: For more information on AutoCanada’s pre-owned success and acquisition plans, check out Auto Remarketing Canada’s recent interview with Tom Orysiuk, president and chief executive officer of AutoCanada. And stay tuned for more analysis on AutoCanada’s Q2 performance.
The Ontario Motor Vehicle Industry Council reported recently it has caught another curbsider, or business acting as a motor vehicle dealer without registration.
This is a violation of the Motor Vehicle Dealers Act, and Zhijun Wang of Toronto was recently fined $11,000 after pleading guilty to curbsiding charges.
He also plead guilty to breaching the Consumer Protection Act by committing an unfair business practice.
The charges were the result of an undercover investigation conducted by OMVIC.
Taking an undercover approach, OMVIC investigators posed as consumers and responded to advertisements places in online marketplaces by Wang, according to Terry O’Keefe, OMVIC director of communications.
What they found included dramatic rolled back odometers.
—For example, one advertised vehicle was a 2007 Camry with an odometer reading of 95,860 kilometers, when in fact the OMVIC investigation showed the actual distance the vehicle had traveled was approximately 201,283 kilometers.
But that’s not all.
—A second OMVIC investigator responses to an ad for a 2009 Infiniti sedan with an odometer reading 67,000 kilometers, but the true reading turned out to b approximately 179,615 kilometers.
When the investigators inquired about the vehicles, there were invited to view the units at a plaza on Sheppard Avenue East in Toronto.
Further incriminating himself, Wang provided a false name to the undercover shoppers and also provided a false ID in one instance. Furthermore, neither of the cars was actually registered in his name.
“Often the vehicles they (curbsiders) sell are not registered in their name or have only been registered in their name for a short period of time. And commonly the vehicles sold are rebuilt wrecks with undisclosed accident repairs or rolled-back odometers,” O’Keefe said.
“Only when vehicles are purchased from registered dealers are the buyers protected by OMVIC, Ontario’s consumer protection laws and the Motor Vehicle Dealers Compensation Fund. When consumers purchase vehicles privately and encounter problems, they are, unfortunately, on their own with little recourse other than the courts,” he continued.
To date this year, 29 individuals/businesses have been convicted for curbsiding. And 70 additional cases are currently before the courts.
Dilawri Group of Companies — the largest dealer group in Canada — announced this week that the Automotive Properties Real Estate Investment Trust has completed its initial public offering of 7.5 million trust units at a price of $10 per unit.
It was announced earlier this summer that Dilawri, who currently touts 57 dealerships across the county, had created the REIT, which will focus on speeding up consolidation and acquiring dealerships in Canada and potentially the U.S.
Dealership consolidation has been on the mind of many in the industry as the dealership population ages, with many choosing to sell to third-parties, such as the larger dealer groups like Dilawri, AutoCanada and others, rather than organize succession plans.
This first public offering is the culmination of a preliminary prospectus for an initial public offering reported in June.
“Management believes the REIT will represent a unique alternative for automotive dealership operators considering a sale or recapitalization of their business, as the REIT will be the only publically listed vehicle in Canada exclusively focused on automotive dealership properties,” the company said in the regulatory filing earlier this year.
According to this week’s release, the offering raised gross proceeds of $75 million, and the trust units began trading Wednesday on the Toronto Stock Exchange. TD Securities Inc. and Canaccord Genuity Corp. are the co-lead underwriters in the offering.
It was also announced that in connection with the closing, the REIT used the proceeds of the public offering — as well as the drawdowns under the REIT’s credit facilities — to acquire through Automotive Properties Limited Partnership, from subsidiaries of Dilawri or entities related to the company, 26 income-producing dealerships. The total purchase price came to approximately $354.2 million.
The 26 properties include stores such as Porsche Centre Vancouver and Calgary BMW, and represents approximately 958,000 square feet of gross leasable area in Ontario, Saskatchewan, Alberta and British Columbia, the release stated.
“Affiliates of, and entities related to, Dilawri are the REIT's only tenants as of closing, occupying approximately 87 percent of the REIT's gross leasable area, and will be its most significant tenants for the foreseeable future,” the release stated.
Upon closing, Dilawri, together with its subsidiary 2243718 Ontario Inc., indirectly owns, controls or directs an approximate 57.0 percent effective interest in the REIT.
Dilawri has explained to the REIT that its current intention it to retain a significant interest in the REIT for the foreseeable future and may purchase additional securities of the REIT in the future. That said, the company has no present intention to do so.
Furthermore, in connection with the closing, Dilawri has entered into a number of agreements with the REIT, entities related to Dilawri and other parties, including an underwriting agreement, a voting trust agreement, an escrow agreement and an exchange agreement.
See below for the full list of Automotive Properties REIT Dealerships:
British Columbia: Porsche Centre Vancouver (Vancouver) Audi Sales Downtown Vancouver (Vancouver) Infiniti Vancouver (Vancouver) North Vancouver Nissan Infiniti (North Vancouver) Burrard Acura (Vancouver) Langley Acura (Langley)
Alberta Locations: Hyundai Gallery (Calgary) Calgary Honda (Calgary) Distinctive Collection (Calgary) Calgary BMW (Calgary)
Saskatchewan Locations: Regina Honda (Regina) Regina Hyundai (Regina) Honda Used Car and Regina Collision Centre (Regina) Dilawri Acura (Regina) Dilawri BMW (Regina) Triple 7 Chrysler (Regina) Dilawri Nissan Infiniti (Regina) Dilawri Mitsubishi (Regina)
Ontario Locations: Dixie Auto Mall (Mississauga) Oakville Honda (Oakville) Meadowvale Honda (Mississauga) Frost Chevrolet Buick GMC Cadillac (Brampton) Bolton Toyota (Bolton) Markham Honda and Ford (Markham) Agincourt Mazda (Toronto) Markham Acura (Markham)
It was announced this week that AutoCanada has joined a number of other Canadian dealer groups who have adopted SiriusXM Canada’s pre-owned vehicle program.
Just last month, the growing OpenRoad dealer group also joined the satellite radio program for used vehicles.
AutoCanada will now be offering complimentary three-month SiriusXM subscriptions with all used vehicle purchases equipped with satellite radio.
AutoCanada, touting more than 3,400 employees, sold approximately 57,000 new and pre-owned vehicles last year.
"Having AutoCanada join our pre-owned vehicle program is further validation that SiriusXM Canada provides great value to dealers and car buyers across the country," said Mark Redmond, president and chief executive officer at SiriusXM Canada. "With its continued approach to dealership growth, a high volume of domestic vehicle and light truck sales, and industry recognized customer service, AutoCanada is a strong partner for SiriusXM and through the pre-owned program we will be able to provide their customers with an unmatched audio entertainment experience."
With the addition of the country’s only publicly traded dealer group, SiriusXM is positioned to better target Canada’s used-vehicle market. An important goal as SiriusXM Canada estimates that by the end of fiscal 2015, there will be more than seven million satellite radio equipped vehicles in the country.
"We are very pleased to join SiriusXM Canada's pre-owned vehicle program," said Tom Orysiuk, president and CEO at AutoCanada. "Our dealer network is focused on improving our customer experience. Having access to this program allows our dealers to promote a three-month trial of SiriusXM content to potential vehicle buyers, providing even more accessible value to customers right at the point of sale."
Mercedes-Benz Canada recently announced the completion of its brand new flagship retail facility: Mercedes-Benz Thornhill.
The corporately owned store has a whole new look and is located in the upper northwest quadrant of the Greater Toronto Area at 228 Steeles West in Thornhill, Ontario.
Mercedes-Benz Thornhill originally opened in 1988 and after sustaining growth, the store expanded in 1996.
But again in 2013, the rapidly expanding local community created the need for an ever bigger rooftop.
A ground-up rebuilding project began, culminating into a more than 130,000 square-foot facility, which follows the Mercedes-Benz proprietary Auto Haus design concept.
The design features over 40 showroom vehicles on display, 32 service bays, six detailing bays, a six-vehicle service drive-through as well as dedicated AMG Performance and smart Centres.
The store also has its own 36,000-square-foot pre-owned vehicle showroom.
"We have been privileged to be an integral part of this strong and vibrant community for almost 27 years," said Philipp von Witzendorff, vice president and head of Toronto Retail Operations. "The mantra of our brand is 'The Best or Nothing', and it is our consummate objective to live by these words in every single aspect of the day-to-day operations of this dealership.
"We initiated this massive undertaking because our customers deserve the best products and service possible and this goes hand-in-hand with an excellent overall dealership experience. We are very proud of this new flagship location but we are even more excited about the opportunity to provide an entirely revamped level of service to our customers in Thornhill and its surrounding areas."
The company also explained the design was focused on sustainability and efficiency.
Von Witzendorff said, "We thank our dedicated employees, the community, and most importantly our valued customers for their undivided loyalty and patience during the challenging construction phase. As we endeavour to bring the various operations to a highly functional level in a very short period, we are convinced that you will collectively agree it was worth the wait.
"We very much look forward to serving our existing customers as well as welcoming the community members whom we'd be delighted to count amongst our future customers."
The growing dealer group OpenRoad announced Thursday it has joined SiriusXM Canada’s pre-owned vehicles program.
Through the partnership, the Vancouver-based dealer group will now offer complimentary three-month SiriusXM subscriptions with all pre-owned vehicle purchases equipped with satellite radio.
"At OpenRoad, we strive to take our customer experience to the next level, whether they're purchasing or servicing their vehicle, or enjoying the benefits of the Club OpenRoad loyalty program," said Mark Lin, vice president of the OpenRoad Auto Group. "Partnering with SiriusXM Canada for this exciting program demonstrates our ongoing commitment to offering a superior customer experience. We can now provide our pre-owned vehicle customers with an enhanced in-car entertainment experience that they are sure to enjoy."
The SiriusXM Canada pre-owned program works to help dealer market their inventory by helping to provide more value in pre-owned vehicles through a complimentary SiriusXM subscription service on pre-owned vehicles.
OpenRoad touts 15 locations across British Columbia, and has become one of the largest and fastest growing automotive retail groups in Canada since it began operations in 2000.
"Partnering with OpenRoad is another step in the progress we are making with the pre-owned vehicle market," said James Byun, vice president, OEM, SiriusXM Canada. "Everyone can benefit through our pre-owned program. Dealerships can offer additional customer value, the overall in-vehicle experience is enhanced and SiriusXM is able to deliver our leading content to more Canadians. We are excited to be working with OpenRoad and partner our unmatched entertainment with OpenRoad's exceptional service to deliver a wonderful overall customer experience."
Michael Mazgay, director of fleet and automotive remarketing at SiriusXM Canada, and a member of Auto Remarketing Canada’s 40 Under 40 class, shared more about how the company conveys the value of its pre-owned program to dealers.
“A fully engaged customer is a happy customer, and whether they are buying a new car or a used car. We found that dealers do a fairly good job on the new-car side advertising satellite radio, but can we make that experience better on the pre-owned vehicle side?” said Mazgay. “The way we look at it is, a dealer wouldn’t let a used car go over the curb with headlights that didn’t work. And if satellite radio is embedded in the vehicle, why would they let that car without a working radio?”
Mazgay said that in over his over 15 years in the industry, he has seen dealers really embrace the SiriusXM product, as well as other new technology entering the market.
The Policaro Automotive Family announced Tuesday that three of its premium dealerships have earned acknowledgements from their manufacturing partners for their sales performance and customer service.
The three dealerships represent three different manufacturers, which include Acura 2000 and Northwest Lexus of Brampton, Ontario, as well as Porsche Centre Oakville. The awards were announced in separate events earlier this month.
Acura 2000 earned the Acura Client Excellence (ACE) Award status for the 13th time, which is awarded to Acura dealers who excel in customer service and sales.
Northwest Lexus also received an award for the 13th time, which also happens to be its 6th consecutive year in a row, by taking the 2014 Pursuit of Excellence Elite Award, a competitive award competed for by Lexus dealers from coast to coast which recognizes customer satisfaction and other key operating metrics.
Porsche Centre Oakville, in its first full year of operation, earned the 2014 Porsche Premier Dealer honor, one of three awarded in Canada, for its operational performance among peers and its commitment to excellence.
“We expect our dealerships to compete to win the business of our valued customers, but they also compete with their peers for the recognition and honor of delivering the very best customer service and dealership performance across our industry,” said Francesco Policaro, of the Policaro Automotive Family. “When our dealerships stand out in a field of the best automobile dealers in Canada, we know it’s our customers who are the real winners.”
More information about the Policaro Automotive Family can be found here.
AutoCanada Inc. announced this week it is continuing a string of recent acquisitions with the purchase of Airdrie Chrysler.
The company said Wednesday it reached an agreement to purchase the operating assets of North Hill Motors Ltd., the company which owns and operates a Chrysler Dodge Jeep Ram dealership located in Airdrie, Alberta.
"Airdrie Chrysler has a long and successful history in Airdrie and we look forward to continuing its storied tradition," stated Tom Orysiuk, president and chief executive officer at AutoCanada. "Airdrie Chrysler is located just minutes away from Calgary, and expands upon our current eight dealership Calgary platform."
The store was founded 40 years ago and is owned and operated by Larry McCook, Brad Styner and Jolayne Leger.
The facility includes eight car showrooms and 20 service bays. To get a handle on potential sales and revenue from the new acquisition, consider these statistics: AutoCanada reported the dealership retailed 935 new vehicles and 704 used vehicles in 2014.
The transaction is subject to approval of the manufacturer and is expected to close 30 days following such approval, the company said.
Patrick Priestner, executive chairman at AutoCanada, said, "We are very pleased to acquire this premium franchise in Alberta, which has proven to be, and over the long-term is projected to be, one of the strongest retail automotive markets in Canada."
Earlier this year, the company announced it will open a new Kia store in Winnipeg.
AutoCanada recently reported strong results for the fourth quarter and full year of 2014 during its last quarterly conference call, outlining across-the-board improvements in profitability. What the group wanted to bring more attention to, however, is the sales strife it is currently experiencing during its first quarter of this year.
The company’s management team frequently referred to what it’s calling a decline in consumer confidence due to the current economic and political climate in the country, which led to a lag in sales for the months of January and February.
Although exact sales figures are not currently available, the company cited an example figure from R.L. Polk, which reported a 9.4 percent decline in retail volumes in January 2015 compared to the year before in the Calgary area. Relating to the brands the company sells in Calgary, the decline includes decreases in retail sales for FCA Canada products (17.5 percent), Japanese-made vehicles (10.2 percent) and Korean-made vehicles (33.3 percent). The company said it is also experiencing similar sales challenges in Edmonton and Grande Prairie as well as volume and/or margin difficulties at a number of its dealerships in other areas of Canada.
Tom Orysiuk, the company’s chief executive officer and president, says that such “short-term curves” are to be expected in every form of retail business.
“In Q1 of 2015, the company finds itself in such a time of change, which in the very early months has provided some challenges,” Orysiuk said. “The economic environment in Canada has clearly changed, though its degree and extent currently remains indeterminate. The reduction in oil price brings with it mixed blessings for Canada. On the whole, the change should be positive for Ontario and Quebec, and to a lesser extent, British Columbia and Manitoba. The Maritimes as well should be slightly positively impacted. Saskatchewan and especially Alberta, however, are negatively impacted with the recent Alberta Treasury Branch Financial study showing 40 percent of Albertans are deferring major purchases of homes and automobiles. With a large percentage of the company’s revenue and profit coming from western dealerships, and Alberta dealerships in particular, this will pose significant challenges. The extent of the change in the price of oil and consumer confidence, however, be it positive or negative, cannot be fully appreciated as of yet.”
Orysiuk said that his management staff has encountered operational challenges unrelated to the economy, including unprecedented weather in some areas as well as some “operational misses.” Such misses may be present at some of the newly acquired stores, 17 of which were purchased in 2014.
“Clearly, this is not the position the company expects to be in and it is not one that management is satisfied with being in,” Orysiuk said. “As the result, the company is prudently but aggressively reviewing its operations to make sure that our dealerships are focused on the basics of selling, customer servicing and follow-up.”
The company’s president said the seasonality of sales at newly acquired dealerships is typically expected to lag behind that of stores the group has owned for over two years, but should be expected to regulate over time.
Barring any unforeseen changes, Orysiuk said that the company will remain profitable, but will not see profits like that of the first quarter of 2014. Despite the slow pace of sales in January and February, the group’s CEO said, at the time of the company’s conference call in mid-March, that he would need to see how the rest of the month went to know if things would begin to make a turn.
“The majority of March sales are going to happen over the next 10 days,” Orysiuk said on March 20. “What typically happens in the dealerships is the last week, the last 10 days, you get a significant portion of your sales. We process the deals, you might have a bit of a feel for it in April. So, the next 10 days are going to be real key.”
