When the first automobiles rumbled onto Canadian streets, they quickly came to represent consumers’ dreams and ambitions, with the help of automakers promoting the latest models to rev-up demand in boom times and bust.
Little wonder that Canada’s auto dealers have proven so resilient during the pandemic, despite a sudden drop in sales and shifting motoring trends. And Scotiabank’s Automotive Financing team has been helping these entrepreneurs adapt and grow, since the 1958 Ford Thunderbird began turning heads 63 years ago.
Pandemic pumped the brakes on sales:
While Canadian auto sales stalled when the pandemic first hit, they rebounded quickly, according to Sylvie Gagnon, Director and Market Lead in Quebec, Scotiabank Automotive Financing: “Even in bad times, people buy cars, since they are a necessity rather than a luxury for many people. And during the pandemic, more people chose to drive rather than take public transit or car-pool.”
Gagnon references Scotiabank data on Canada-wide dealer sales, which plummeted by 74 per cent year-over-year in April 2020, but quickly recovered over the coming months, for a total annual drop of 20 per cent by year end. Most recently, Scotiabank Economics reported that Canadian auto sales enjoyed a strong 10 per cent gain in February 2021 compared to the previous month, reducing the year-over-year vehicle sales decline to 9.9 per cent.[1]
That’s a remarkable turnaround, considering ongoing regional lockdowns that closed many dealerships and a global chip shortage, which halted new vehicle production and reduced car inventories in many showrooms.
Bramin Karsanji, Director and Market Lead, Automotive Financing for Western Canada, credits the business rebound to Canada’s dealers:
“They are among the strongest, most creative entrepreneurs in Canadian retail, and the pandemic really showed how they can adapt. Right out of the gate, many dealers adjusted their cost structures, found operating efficiencies and worked with the manufacturers to best manage their inventory allocation. Although government supports and loan deferrals were helpful, dealers put cost controls in place, they focused on serving existing customers, and they introduced aggressive marketing to meet pent-up buyer demand.”
- Bramin Karsanji, Director and Market Lead, Automotive Financing for Western Canada
Karsanji notes that today’s auto-dealers are very sophisticated operators, often diversified across locations and brands, and run by individuals or families with extensive skills and experience. Western Canada, in particular, saw the early development of ‘auto groups’, composed of multiple stores, including large urban dealers in Vancouver, or dealerships with many stores scattered across rural Alberta. He adds that many dealers honed their business agility during past ups and downs, including the 2008 Global Financial Crisis, when auto-manufacturers and consumers alike faced financial hardships.
Gagnon proudly points out how Scotiabank supports dealers in industry upheavals, including the many family-run, multi-generational dealerships in Quebec: “During the pandemic, we vowed to ‘support the industry’ and help the dealers continue to do business, with a variety of relief programs and loan payment relief for individual car-buyers.”
Scotiabank also helped many dealers ‘pivot,’ if public health restrictions forced them to shut their showrooms, by facilitating ‘ an online process adapted to meet the government regulations, helping the dealers to continue to operate and deliver vehicles. Since vehicle buyers already comparison shop online, this helped dealers complete the process in a way that is convenient and safe for everyone.
Individual advice for every change:
Gagnon notes how Scotia’s automotive specialists are accustomed to supporting dealers through any economic or business event, from the 2008 Global Financial Crisis to dealer expansion or succession requirements: “The most important thing is to ensure that dealers have the right capitalization and cash flow to go through all the changes. And we build strong relationships with these individuals to help them achieve their goals and objectives.”
Dealers themselves are skillful at adapting with their customer needs, including evolving car-buyer preferences. This includes the recent shift in demand from sedans to SUVs, and the gradual rise of the electric vehicles (EV) market.
Karsanji points out that, although it will take time before car-buyers overcome their ‘battery range anxiety’, and for EV vehicle prices to fall in line with combustion engine vehicles, EVs are the future, and dealers may require support to retool their service facilities with the right equipment and technology: “As this gradual transition occurs, our automotive bankers are here to serve as trusted advisors to help dealers adapt.”
His team regularly assists clients with complex challenges, alongside colleagues from across Scotiabank, including Roynat Capital and Wealth Management: “In the past decade, we’ve seen much industry consolidation and generational transition – as owners pass the dealership keys to their grown children – so we’ve been really creative in introducing new financing solutions to help these dealers evolve and grow.”
Gagnon describes how Scotiabank, as an important leader in the automotive industry, has many 30-40 year relationships with auto dealers:
“We’ve partnered with them as their industry changed, and advised them on acquisitions and succession plans, so they could grow from single-store dealers to large multi-store, multi-brand operations.”
- Sylvie Gagnon, Director and Market Lead in Quebec, Scotiabank Automotive Financing
“It means we understand their needs very well, and they can trust we won’t take the umbrella away’ if it starts to rain,” says Karsanji, adding that there’s no forecast for showers in his industry forecast. “The low interest rate environment, pent-up demand for good products, and strong manufacturer incentives for car-buyers will help our dealers succeed over the next couple of years.”
So, despite the ups and down, consumers will keep dreaming of shiny new vehicles and dealerships will be busy places. Concludes Gagnon, “The industry will evolve but dealers will find opportunities in every challenge. They are strong, and we’ll be here to serve them with advice, new programs and steady, trusted support.”