By Farid Ahmad, Dealer Solutions North America
Our team has been involved in the automotive Mergers and Acquisitions space within Canada for over 10 years and over that time we have seen a lot of changes to the national retail landscape. In Canada, there are approximately 3,200 new car franchise dealers with approximately 1,900 of these being considered single ownership points. We identify a single point dealer as owning 1 to 3 dealerships. The balance, approximately 1,300, are all part of “Dealer Groups”.
In Canada, dealer groups range from having four dealerships to over 50 dealerships.
Canadian Dealer Groups size Number of groups
50+ 2
40+ 1
30+ 3
20+ 15
As the above highlights, nationally we really lack in the number of large groups as compared to the U.S. market. Although we have seen the activity of dealer groups with 10+ dealerships as being more aggressive with acquiring more points, the overall growth is still relatively slow. Key factors surrounding the lack of large mega groups fall into the following three areas:
- Lack of capital
- Lack of human capital in the marketplace
- Manufacturer expectations and approval
- Too many manufacturer-owned dealerships in major markets
- Only three major markets in Canada
I am often asked why no major U.S. dealership group has entered the Canadian market. There are various reasons, however the most common of these are listed below.
- The Canadian dealer agreements with the manufacturers are not palatable
- The size and volume of Canadian dealerships are too small
- The Canadian dollar is weaker than the U.S. dollar
- The average multiples in Canada are much higher than the average multiples in the U.S.
So, the question is will this situation remain the same and if so when and what would have to change to see more interest from U.S. dealer groups?
Based upon our discussions with most of the largest groups in the U.S. (Lithia, Group 1, Penske) to name a few, it is our opinion that Canada will see changes to our dealership landscape when the follow factors change:
- More acceptance from the manufacturers of publicly-owned structure
- Larger current Canadian groups being available for acquisition
- Current multiple levels to fall more in line with the U.S.
A few U.S. public groups have investigated the viability of expanding into Canada and generally they feel that Canada is a relatively stable economy with a great and diverse population base that has a high level of “under 30’s” in the population.
From where we stand, there are great opportunities in Canada, the dealer groups here have invested heavily into their businesses and facilities. As groups continue to expand in the U.S. we believe it is inevitable that they will come!! Question will be, who is selling!!!
Farid Ahmad is founder and president of Dealer Solutions North America. Based in Markham, Ontario, Canada, DSNA includes dealership mergers and acquisitions services and automotive recruitment. Ahmad can be reached at farid@dealersolutionsna.com or 1 855 928-SELL (7355).
