Canadian Auto Dealers See Profits Increase, Stabilize

Survey shows majority of Canada's remaining auto dealerships saw profits increase or remain stable in 2009 despite global recession and massive industry restructuring.

TORONTO (CP) -- A majority of Canada's remaining auto dealerships saw their profits increase or remain stable in 2009 despite the global recession and a massive restructuring of the industry, according to a new survey.

The annual dealership survey by PricewaterhouseCoopers and DesRosiers Automotive Consultants said 48 percent of dealers who stayed in business last year saw their profits increase, while 12 percent said profits were stable.

"Given the state of the market and with new vehicle sales down 15 percent, the fact that dealers were able to retain their profitability is a good indication that dealers have been able to control costs and, in some cases, increase revenue in other profit centers within their dealerships," said Terri McKinnon, a partner in the Private Company Services practice at PricewaterhouseCoopers.

The survey acknowledged a bias towards better-performing dealers, since those that went out of business in 2009 were unable to respond to questions.

Canadian auto dealers weren't immune to the global recession. The survey found the percentage of dealers whose profits increased was down compared with the previous two years. In 2007, 65 percent of dealers surveyed said their profits had increased, while 52 percent said their profits were up in 2008.

Among dealerships that survived 2009, sales of both new and used vehicles were down by about three percent.

General Motors Canada culled 240 of its dealerships to cut costs last year, and others went under due to lower sales resulting from the global recession.

GM's decision to shutter approximately one-third of its Canadian dealership network is the source of ongoing controversy. Two class-action lawsuits have been launched by dealers that didn't make the cut and accuse GM of breaking contracts and arbitrarily deciding which stores to close.

The Canadian Automobile Dealers Association has asked GM Canada to prove that it used a fair set of performance measures when deciding which dealerships to close. In the U.S., GM has reinstated hundreds of the 1,100 dealerships it initially closed after a lengthy arbitration process.

"If the metrics that (the parent company) used to arrive at the decisions to terminate dealers are admittedly flawed... we find it inconceivable that in GM Canada's case those metrics are flawless," Richard Gauthier, president of the dealers' association, said Wednesday.

The survey found businesses that own multiple dealerships saw profits increase more than individual stores.

In a question asking respondents about the most and least desirable auto brands, the survey found "Toyota is a clear winner."

Honda and Hyundai were also listed as desirable brands, while Chrysler was considered the least desirable brand.

Both Chrysler and General Motors underwent massive restructurings last year that included filing for bankruptcy protection in the U.S. and taking billions of dollars in aid from the U.S., Canadian and Ontario governments. However, Chrysler's future is more uncertain than GM's as it works to tweak its product line with the help of its new partner, Italian automaker Fiat.

Only 20 percent of Chrysler dealers listed the brand as desirable, while 42 percent said it was undesirable.

The survey also found that despite record low interest rates, dealerships were paying more for their loans.

"The moral of this story is that risk equals higher costs in the world of finance," the survey said.

Dealers in British Columbia were the most pessimistic about the value of their business, while those in Atlantic Canada were the most optimistic.

More in Supply Chain