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AutoCanada poised to profit from industry consolidation

Pat Priestner, CEO of AutoCanada. The company has 28 wholly owned stores and manages five other dealerships.

Ian Jackson/The Globe and Mail

The number of Canadian auto dealers who want to sell their businesses is growing rapidly, increasing the acquisition opportunities for AutoCanada Inc., the largest publicly traded dealer group in the country and one of the companies best positioned to participate in the consolidation trend.

The dealership company has raised its forecast for planned acquisitions during the next two years and, for the first time, is being approached by dealership groups – some as large as 15 stores – that are interested in selling.

"A year ago, I can tell you, we weren't talking to any dealer groups," said AutoCanada chief executive officer Pat Priestner. "Today we're talking to a number of dealer groups; they could range anywhere from four to five stores to probably 15."

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The consolidation of small and medium-sized dealership groups by large groups such as AutoCanada would hasten a transformation that is already changing the nature of automotive retailing in Canada.

The traditional family-owned dealerships on the corner are disappearing as aging owners exit the business and their descendants choose other occupations or can't afford to purchase the real estate or pay for multimillion-dollar upgrades of facilities demanded by auto makers.

AutoCanada has grown in recent years by buying out dealers who owned one or two stores and wanted to exit the business. It now has 28 wholly owned stores and manages five other dealerships.

The company now expects to purchase 10 to 12 dealerships in the next 24 months, but that number will be higher if it acquires a dealership group, Mr. Priestner said on a conference call with analysts and shareholders Friday. AutoCanada has already invested in two General Motors of Canada Ltd. stores in Saskatchewan this year and received permission to open a new Volkswagen Canada Inc. outlet in Sherwood Park, Alta.

"We've experienced a significant increase in the number of acquisition opportunities in Canada," he said. "Larger, more profitable and some really premium dealerships are currently on the market."

A group of 15 stores could fetch as much as $250-million if real estate is included, said one industry source, who noted that AutoCanada is just one of a handful of large dealership groups that has enough financial muscle to pull off such a transaction.

One issue AutoCanada faces is a ban some auto makers impose on publicly traded companies owning their franchises.

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That prohibition is in effect at Ford Motor Co. of Canada Ltd., Honda Canada Inc. and Toyota Canada Inc.

If a group came up for sale that included franchises from auto makers that prohibit public ownership, Mr. Priestner said he would buy the stories individually, so AutoCanada could purchase the rest of the group.

He pointed to the 19 per cent sales increase AutoCanada posted in 2013 at existing stores as a number that should interest those auto makers that don't permit the company to own their stores.

"They want to sell cars," he said. "They want customer satisfaction. We are delivering on that with the brands that we have."

His comments came as the dealership group reported fourth-quarter and full-year profit increases of 45 per cent and 58 per cent respectively. Fourth-quarter profit soared to $9.6-million from $6.6-million or 44 cents a share compared with 33 cents a year earlier.

Revenue jumped 28 per cent to $72.6-million.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More


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