Automotive News Canada - March 2024 - 19

EXECUTIVE INSIGHTS
SPONSORED CONTENT
CANADA'S BUY-SELL AUTO MARKET
REMAINS STRONG
The Canadian retail auto market is facing strong headwinds,
including high interest rates, excess inventory and
global political tensions. What does this portend for the
buy-sell market? Here, Samir Akhavan, Co-Founder and
Managing Partner of Templeton Marsh Ltd., offers some
valuable insights and perspectives in collaboration with
Michael Croxon, CEO of NewRoads Automotive Group;
Chris Pfaff, CEO of Pfaff Automotive Partners; Michael
Carmichael, CEO of UpAuto Group; Brian Gordon, Chief
Business/Marketing Officer at Dave Cantin Group; and
Mike Lewicki, Principal at Lewicki Automotive Consulting.
Q: The world is an unpredictable place these days,
with widespread global tensions. How is this affecting
the buy-sell market in North America?
A: We don't feel as though many of the international issues
are straining the North American buy/sell market, other
than the current conflicts in the Middle East, which are causing minor supply
issues due to disrupted trade routes. This is ultimately forcing manufacturers
to utilize alternate routes, which results in lengthier shipping times as well as
increased shipping costs.
Samir Akhavan
business, coupled with tighter margins and limited growth
opportunities. The best operators are going to focus on
managing costs and looking for strategic opportunities.
We see this impacting mergers and acquisitions in a few
ways. First, there are plenty of automotive groups with a lot
of free cash, generated from years of strong profits. They
are buyers, but will be looking for strategic acquisitions
with accretive value. It's more likely that U.S. auto groups
will look to grow specific OEM platforms, geographic platforms
or tuck-ins with strong synergies. The economic and
political uncertainty only bolsters this current thinking.
Having a highly focused and strategic approach provides
some protection from the risks associated with an indecisive
U.S. Federal Reserve and a presidential election year.
As a result, we see U.S. dealers staying " home " and being
aggressively selective with their acquisition strategies.
Excess inventory is the first sign that the market is turning
negatively. Consumer incentives provided by the manufacturers
would also indicate that to move inventory, the
pricing option for consumers has to be more attractive.
Q: Given this international uncertainty, will the dealership
consolidation trend continue in 2024?
A: Yes, we believe the consolidation trend absolutely
will continue to accelerate in 2024. The " easy " business
conditions that have existed since shortly after COVID
are over. In many cases, there is excessive inventory and
dealer profitability is on its way down. I also am hearing from many dealers that
they are now at a point of reconsidering exiting the industry. Also, there's the
uncertainty of interest rates and consumers are strapped, which is affecting the
overall general business conditions.
But there's another side of the coin to consider: Dealer groups are well capitalized,
having been profitable for a dozen years. And their performance permits
banks to feel more confident about providing credit facilities, allowing dealer
groups of all sizes - metro, regional and national - to grow to the next level.
Q: Historically, even in times of uncertainty, buyers are still attracted to
good assets. What are the good buy/sell assets during a period of global
uncertainty like the one we're experiencing?
A: We think certain brands withstand economic fluctuations better than others.
Toyota, Subaru, Honda and others all seem to play in the market of necessity
versus impulse and, as a result, are more resilient in uncertain times. Certainly,
having a larger lease portfolio, as some of these brands do, also helps. Tougher
times bring buying opportunities, though the past three record years have made
dealership pricing expensive. That said, brands that traditionally `rank` low in the
Canadian Automobile Dealers Association (CADA) Dealer Satisfaction Survey and
have had a tougher few years still present the best buying opportunities - if one
believes their OEMs will make the changes needed to improve their scores.
Q: Does this uncertainty favor acquisitions south of the border? Or, conversely,
would Canadian dealerships be more attractive to suitors in the
United States?
A: Based on everything we're seeing in the market and from our findings in the
DCG 2024 Market Outlook Report, we see this as a year where U.S. dealers are
refocused on managing their businesses and going back to the grind on operations.
As 2024 settles into the new norm, we're seeing more predictability in the
Tougher times bring
buying opportunities,
though the past three
record years have
made dealership
pricing expensive.
Q: The pandemic and the Great Recession of 2008-09 represent the last
two periods of true industry upheaval. What lessons from those times
would help make us wiser participants in today's buy-sell market?
A: Regardless of the period you're in, you should structure
and operate your business in a way that it is marketable
to maximize the financial return to the shareholders.
If you run your business in this manner and a crisis hits,
- you'll be able to stay calm and make decisions in a clear
and pragmatic manner and produce the best outcome for
everyone involved. In other words, do the basics, follow
up, pay attention and be diligent.
Q: Interest rates have stabilized in recent months, but
that could change. What can prospective buyers do
to insulate themselves on the financing front?
A: Aside from the obvious courses of action, such as fixed versus floating interest
rates or locking in rates early, there are a few other considerations. First,
when establishing purchase financing, negotiate with lenders for a fixed-rate
program that permits early principal repayments without penalty. This strategy
will provide flexibility to indebted purchasers should the current high rates
decline. Second, when negotiating a dealership purchase, existing escalated
goodwill values and tighter credit markets mean that vendors may be more
willing to entertain purchase offers containing vendor take-back financing. A
retiring dealer principal may be significantly more flexible when establishing
interest rates as compared to a more traditional funder. Finally, interest rate
exposure is reduced as amounts borrowed decrease. Creative buyers achieve
this by having the vendor retain a small equity interest in the dealership sold.
Currently high earnings will facilitate the payment of dividends to the vendor
until the vendor relinquishes the small minority position.
ABOUT THE PANELIST
Samir Akhavan
Co-Founder and Managing Partner, Templeton Marsh
Canada's pre-eminent dealer buy/sell firm possesses hands-on experience and
works with clients through the entire lifecycle of a transaction, while placing an
emphasis on respect, honesty and the ability to deliver. Put our team's nearly 300
years of combined automotive experience in your corner. templetonmarsh.com
https://www.templetonmarsh.com/ https://www.templetonmarsh.com/ https://www.davecantingroup.com/getmor/

Automotive News Canada - March 2024

Table of Contents for the Digital Edition of Automotive News Canada - March 2024

Automotive News Canada - March 2024 - Intro
Automotive News Canada - March 2024 - 1
Automotive News Canada - March 2024 - 2
Automotive News Canada - March 2024 - 3
Automotive News Canada - March 2024 - 4
Automotive News Canada - March 2024 - 5
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Automotive News Canada - March 2024 - I1
Automotive News Canada - March 2024 - I2
Automotive News Canada - March 2024 - 11
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