Downturn in the Number of Canadian Car Dealers Expected

by David Tingley on September 12, 2012

The automobile industry in Canada has undergone a drastic change over the past few years based on the evolving trends and needs of the consumers. These consumer demands have also shaped the vehicle purchase and designs. In the past decades, automotive dealers would play an integral role in the buying decision of a person but today the business of automotive dealers is under serious threat.

According to the 2011 PwC Automotive Dealer Trendsetter Survey, an estimated 30 percent of automotive dealers in Canada are expected to shut down or semi-retire within the next year. Further, more than 75 percent of the single point dealers covered by this survey intended to completely close their operations by 2021. These figures signal drastic changes at single point dealers across Canada.

A decline in the number of car dealers across Canada can be attributed to larger auto groups buying out smaller independent businesses. This trend of consolidation has been spurred by higher entry costs into the business. These larger dealer groups offer the smaller businesses attractive money and an easy exit strategy. Although the industry is expected to remain healthy in coming times, it will be dominated by larger dealers with huge resources at disposal. Therefore, the smaller dealers prefer to accept a decent value for their business and enjoy a retired life. Results of the survey reflect that the trend of consolidation could continue in the automotive dealer industry and larger dealers could increase their national footprint. They could consider acquiring additional stores through franchising to improve their presence in the market.

Traditionally, car dealerships used to be family ventures in Canada and handed down from one generation to the other. The car dealers are usually in their 50s and 60s and have not openly embraced technology and other market trends to expand their business. The internet provided these business an opportunity for automotive search engine optimization (SEO), automotive pay per click and video search engine optimization (SEO) to market themselves. Now unable to compete in the market, several dealership owners plan to unfortunately completely shut down within the next decade. Some of the car dealers, who intend to scale back their operations, intend to maintain some interest in the business even after retiring. Others hope to keep the business within their family by engaging one of the members as most of their wealth is tied to the dealership.

However, these dealerships suffer from lack of planning and effective transition strategies. In such troubled economic times, effective succession planning is critical for the survival of business. Most of the dealers do not have a well laid out succession plan and have not even discussed any transition plans with family. Some others need expert guidance to develop their rather inadequate and incomplete succession plans. There is also a need to educate family members and employees across all levels about the impact of these succession plans.

The Trendsetter Survey has also pointed out that the auto parts exported from Canada to the US could also be hurt because of the strengthening of Canadian dollar. About 85 percent of these auto parts are currently exported to the US market either as parts or in finished vehicles. As the exporters lose their competitive advantage, they are being forced to rethink their business strategy and adjust to the dynamic business situation. These exporters may consider exploring new markets or controlling their costs to develop an advantage over other competitors. In an open and competitive business environment, they also need to focus on innovation and quality to become the preferred sourcing destination.

David Tingley

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