Canada: Auto Team America Update

Three times a year members of our Automotive Group attend meetings with Auto Team America to discuss the latest trends and events in the Automotive Dealership section. For more information on the points below or other inquiries contact Conven Tang in our Edmonton office.

Industry

  • Slow start to the year with January and February being the most challenging. Dealers that have diversified operations (subprime, special financing, and insurance products) are doing well. Q1 results show that profitability is down this year by 0.7%.
  • Projected units sales for 2019 expected to be the same as 2018 at 17 million units for North America.
  • Industry changes in the next few years to include ride share/subscription services, popularity of electric vehicles, population growth, millennials starting families, and decline in public transit ridership.
  • US Tax agencies are investigating reinsurance programs for implications to taxable income.
  • Multiples remain steady with no significant changes in blue sky.
    • 3 types of sellers in the market
      • Aging dealers with no succession plan
      • Dealers with only a few small dealerships
      • Dealers that believe industry changes will start to reduce blue sky value
        • Trends affecting valuations now include the type, size, and rate of the floorplan financing contract, other operations, and tax jurisdiction. Definitely more sellers than buyers at this time given the above as well as an influx of rooftops that public companies are divesting due to performance issues.
        • Automate coming out with 12 digit account fields to accommodate dealership groups with multiple stores. This would allow for region, store and manufacturer reporting.
        • Reynolds and Reynolds, feeling that they have a superior product, have not budged on pricing. Likely to lose some rooftops to CDK and other DMS providers. CDK may take a hit when GM eliminates exclusivity contract.

Dealer Finance

  • GM Financial has been aggressive in the market to obtain floorplan financing contracts. Offering rates lower than major banks.
  • Captives are putting a cap on floorplan financing leaving dealers to look for alternative sources. In some cases, used vehicles are being financed through banks. In other cases, financing of high valued inventory at the lower rate if different institutions are used.
  • Lenders are relaxing their covenants for those dealers that have put down collateral, provided guarantees or have subscribed to multiple products.

Manufacturers

  • Inventory levels are higher at year-end compared to the previous year. However, interest credits and program payments are much lower and are being paid slowly.
  • Very little activity regarding terminations. However, manufacturers have been sending out performance standard letters. No actions are taken yet, just put the dealer on notice. This now becomes a method used by manufacturers to get a new owner into the market.
  • Revision of operating areas for dealerships based on driving distance rather than the direct distance from a map. This will require some work to accurately determine goals and incentives based on the new operating area of the dealership. In addition, dealers will need to take into account travel time due to barriers such as highways, bridges and drive time.
  • FCA and Mercedes Benz are most active regarding add points. FCA has increased its involvement in this regard to help choose future Maserati and Alfa dealers.
  • VW starting to push back now that the diesel scandal is behind them. For example, VW did not approve a deal involving multiple rooftops and manufacturers because they were not happy with the amount of blue sky allocated to the VW dealership.
  • Manufacturers such as Honda, Acura, and Mazda are looking at pre and post-acquisition procedures to determine if profitability is maintained or improved with new owners.
  • Mazda being more aggressive on its image program. They are willing to provide concessions and special agreements to some dealers.

Operations

  • OEMs are making the process for rate adjustment requests for parts and labor more and more difficult. In extreme cases, dealers are suing the manufacturer to have these requests approved.
  • Increase in manufacturer audits for claw-back of program/rebate/incentive money. Some claw-backs are due to forms being filled out incorrectly or that are incomplete.
  • Tesla's operations continue to be a battle between the manufacturer and state laws. For instance, Connecticut did not allow Tesla to set up a gallery in the state and Tesla is suing S. Carolina for institutional restrictions to do business.
  • Manufacturers are making it harder for warranty claims to be accepted. Dealers are told that the submissions are incorrect, but will not tell them how to fix it.

FIAT CHRYSLER, RENAULT WEAKENED AFTER FAILED MERGER TALKS

The abandoned merger talks between Fiat Chrysler Automobiles NV and France's Renault SA renew questions about how both car companies will fare in a rapidly-transforming industry that favors manufacturers with deep pockets and technical expertise. The proposed merger deal that fell apart this week amid opposition from the French government already faced high regulatory and political hurdles. But, investors were encouraged by the deal's prospects, believing a tie-up of these two smaller car firms would give them the global heft and financial means to compete in an industry dominated by Toyota Motor Corp., Volkswagen AG, and other auto-making giants.

Source: The Wall Street Journal

TOYOTA SPEEDS UP ELECTRIC VEHICLE SCHEDULE AS DEMAND HEATS UP

Toyota Motor Corp. aims to get half of its global sales from electrified vehicles by 2025, five years ahead of schedule, and will tap Chinese battery makers to meet the accelerated global shift to electricity-powered cars. The change illustrates the breakneck growth in the electric vehicle (EV) market, which is transforming the auto industry and is also an acknowledgment by Japan's top car maker that it may not be able to meet the demand for batteries on its own. Toyota is now faced with higher-than-expected demand for cars that use batteries, rather than gasoline, Executive Vice President Shigeki Terashi told a briefing on Friday.

Source: Reuters

FIAT CHRYSLER CEO BACK TO SQUARE ONE FOLLOWING RENAULT DEAL COLLAPSE

While Mr. Manley has repeatedly said Fiat Chrysler can thrive on its own, the company has numerous hurdles to overcome, the biggest of which is generating enough cash to invest in new technologies such as electric cars, as global auto sales cool. In 2018, Fiat Chrysler posted a 3% rise in net income to €3.6 billion ($4.1 billion) as revenue advanced 4% to €115 billion. Profit and revenue fell in the first quarter of this year. Mr. Manley also must fix Fiat Chrysler's money-losing operations in China and Europe, build a stronger pipeline of new models, and improve sales for its underperforming luxury brands, Maserati and Alfa Romeo, analysts say.

Source: The Wall Street Journal

NISSAN HITS OUT AT RENAULT, LEAVING ALLIANCE ON SHAKY GROUND

The decades-old alliance of Renault SA and Nissan Motor Co. descended into open enmity as the two sides sparred over governance changes at the Japanese automaker, an apparent tit-for-tat following Nissan's refusal to endorse a deal with Fiat Chrysler Automobiles NV. Nissan Chief Executive Officer Hiroto Saikawa said it was "most regrettable" that Renault planned to stymie board reforms, after receiving a letter from the French company's chairman, Jean-Dominique Senard. Renault's salvo contrasts with more reassuring remarks from French Finance Minister Bruno Le Maire.

Source: Bloomberg

RENAULT CHAIRMAN FACES INVESTORS AS NISSAN ALLIANCE FALTERS

On Wednesday, Renault shareholders will gather in the same cavernous hall in the French capital and again consider the company's relationship with Nissan. But the circumstances have changed radically. Ghosn is gone, arrested in Tokyo and charged with financial crimes, and the alliance he nurtured is under unprecedented strain. When Renault's new chairman, Jean-Dominique Senard, takes the stage, he'll be pressed to explain whether the world's biggest auto-making alliance can survive at all, especially after the French company's failed effort to combine with Fiat Chrysler Automobiles NV pushed the partners further apart.

Source: Bloomberg

GM EXPECTED TO INVEST $150 MILLION TO BOOST TRUCK OUTPUT IN FLINT, MI.

General Motors Co is expected to announce on Wednesday it is investing about $150 million at its Flint Assembly in Michigan to boost production of heavy-duty trucks, sources briefing on the matter said. The Detroit automaker announced in February it was adding 1,000 jobs to build a new generation of heavy-duty pickup trucks. The company confirmed its president, Mark Reuss, will make an announcement at the plant Wednesday, but declined to comment further.

Source: Reuters

'CAR WARS' STUDY - CONCENTRATION OF COMING CUVS WILL SQUEEZE PROFITS

Product saturation within automakers' current and future crossover offerings is leading to increased competition and profitability levels at or below those of sedans, while also leaving dealers short of entry-level new vehicles to sell, according to Bank of America Merrill Lynch's annual "Cars Wars" study of the U.S. product pipeline.

This year's study, which looks at automakers' current and planned product offerings from the 2020-23 model years, was released to the Automotive Press Association here by senior auto analyst John Murphy. Among its top findings:

  • Automakers collectively plan to launch 246 new or significantly updated models in the 2020-23 model years, an average of 62 per year — half again the average number of new or major updated models introduced in the 2004-19 model years.
  • Seventy percent of automakers' planned products through the 2023 model year are crossovers, SUVs and light trucks, compared to 24 percent in the small/midsize/large-car segments. The study suggests that the overweighting within crossovers will pressure profitability.
  • Slowing new-vehicle sales will further pressure profitability for automakers chasing market share.
  • Japanese automakers' continued commitment to passenger cars appears to be shifting somewhat to a heavier crossover mix, making their product cadence volatile through 2023, with Honda and Toyota planning larger moves compared to Nissan.
  • Hyundai-Kia's replacement rate for the next five years is above the industry average, especially in the 2020 and 2021 model years, but remains weighted heavily toward passenger cars.
  • Introductions of alternative-powertrain vehicles, including hybrids and battery electrics, will remain limited for now, due largely to continued prohibitive development costs keeping pricing for those vehicles elevated above those of traditional powertrains.
  • While the average showroom age of automaker products has declined year over year, it is largely attributable to product cancellations.

The annual study is based around the notion that newer product directly drives increases in market share for automakers and, as a result, the higher the replacement rate for an automaker's vehicle lineup, the larger chance that automaker has to increase its market share.

The study finds that Honda, Hyundai-Kia, and Ford have the highest replacement rates for their products in the 2020-23 model years, while General Motors, Volkswagen, and FCA have the lowest planned replacement rates. The study's authors caution that outside factors including product mix, pricing, and market disruptions can affect its broader thesis in unforeseen ways but predict that Honda and Hyundai/Kia are poised to increase their market share through the 2023 model year, while GM, Fiat Chrysler, and Nissan risk losing market share during that period. The relative market shares of Ford, Toyota, and European automakers are predicted to remain relatively constant throughout the period, according to this year's study.

Source: Automotive News

U.S. AUTO INDUSTRY FACES 30% DROP BY 2022, ANALYST PREDICTS

The U.S. auto industry is heading toward a nearly 30% decrease in sales by 2022, a Bank of America Merrill Lynch analyst predicts. Softening vehicle sales since 2016 will continue as cyclical demand softens. And that will challenge automakers as they balance their core market of traditional vehicle sales with investments into the industry's autonomous, connected and electric future, said John Murphy, a senior auto analyst.

Source: The Detroit News

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions