AutoCanada is a leading North American automotive dealer. The company operates through 66 franchise dealerships with 27 brands in Canada and the United States. AutoCanada serves a large, diversified geographic customer base with its multi-location car dealership model.

The company generates income from the sale of new and used vehicles and provides services such as parts and accident repairs, as well as finance and insurance. Almost 88% of the revenue comes from the US and the rest comes from Canada. The company is associated with some of the most popular vehicle brands such as Cadillac, Infiniti, Nissan, Hyundai, Audi, Volkswagen, Mercedes-Benz, BMW, Ford, etc.

AutoCanada’s reporting segments are Canada and the United States. The Canadian Operations segment currently operates 49 franchise dealerships with 21 brands in 8 Canadian provinces. The US business segment, renamed Leader Automotive Group, currently operates 17 franchises with 12 brands.

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Plant data

Sales growth & market presence

AutoCanada offers a wide range of automotive products and services, including new vehicles, used vehicles, vehicle leasing, vehicle parts, vehicle maintenance and accident repairs, extended service contracts, vehicle protection products and other after-market products.

The company also arranges financing for customers through various financial institutions and receives a commission from the lender as well as for facilitating the sale of liability insurance products to customers. AutoCanada receives various incentives from manufacturers based on units sold to retail or fleet customers.

AutoCanada’s cross-location business model makes it possible to serve a diversified geographic customer base.

AutoCanada is focused on growth through acquisitions, most recently Auto Bugatti Collision Center and Haldimand Motors (in Q4 2020). It is constantly looking for family owned department stores to grow. The company has built a robust pipeline that is diversified across regions and brands.

AutoCanada is also expanding its network of used dealers and accident centers. The company is well positioned to benefit from increasing overall vehicle demand. In addition, it focuses not only on new car sales, but also on used car sales.

The pandemic had a negative impact on the auto sector. AutoCanada’s Canadian auto dealerships sold nearly 58,000 vehicles (up from 61,000 in 2019) vehicles last year, while U.S. dealerships sold 7,800 (up from 9,900 in 2019) vehicles and processed over 756,000 service and crash repair orders.

However, the company’s first-quarter sales were 36% higher and the highest first-quarter sales in its history. Used retail sales also increased ~ 52% year over year. AutoCanada sales have increased more than 15% CAGR over the past decade.

Dividends

AutoCanada has suspended its ongoing dividend payment, which is estimated to result in annual cash savings of ~ $ 11 million and registered savings of $ 8 million last year itself. AutoCanada’s finance and insurance, parts, service and accident repair revenues are part of its more stable, recurring, high-margin revenues.

To preserve cash and strengthen the business, AutoCanada also reduced its capital expenditures and earned $ 9.2 million in net proceeds from the sale of non-core real estate. The company has successfully reduced net debt and generated free cash flow over the past few quarters.

AutoCanada has been working on a systematic transformation of the new operating methodology since 2018. It is gradually developing into a business-oriented automotive group. The company continues to focus on executing and expanding its Go Forward initiatives for its Canadian business.

AutoCanada has seen traction and improvement with its go-forward plan and strong operational performance. The strategy will emphasize used car sales while also drawing attention to the new car market. The US business also benefited from a reorganization of all seller contracts and a reorganization of compensation towards performance-based arrangements.

Canada Motor Vehicles sales grew ~ 250% in April 2021 and retail sales grew ~ 13% year over year in March 2021. Canadian companies are leaders in the development of transformative automotive technologies. Canada is one of the top 10 light vehicle manufacturers in the world, and Canadians buy more vehicles each year, both new and used.

AutoCanada is well positioned to take advantage of this opportunity. The pandemic could also change consumer buying behavior and customers could become more attracted to used cars.

competition

The company outperformed the Canadian new retail market for nine consecutive quarters. The company operates in a large and highly fragmented Canadian market with significant scope for consolidation.

It competes for auto parts with Uni-Select, Exco Technologies, NFI Group, Magna International. Uni-Select is a leading distributor of automotive refinish paints and parts, while Exco is a global designer and manufacturer of equipment, components and assemblies.

In addition, NFI is a leading “independent” global bus manufacturer, offering a comprehensive range of “mass-transit” solutions, and Magna International is a global automotive supplier and one of the largest auto parts manufacturers in the world.

AutoCanada also enjoys a first mover advantage with a used digital trading strategy.

Bottom line

The auto sector saw a major rebound as economies reopened and debt got cheaper. AutoCanada’s focus on OEM relationships, including achieving sales units and customer satisfaction goals, should support future growth.

A strong brand portfolio, sales diversification and a disciplined acquisition strategy form a broad moat around his business. AutoCanada is well positioned to benefit from the recovery and its focus on improving customer loyalty should continue to pave the way for sustainable future growth.

There are many changes to be made in the automotive industry, and other than the move to clean energy, it is not clear that growth should outperform other investments.

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