The CADEX conference, which has been held annually since 2012 by the Nova Scotia Automobile Dealers Association (NSADA) and brings together dealers, suppliers and expert speakers, enjoyed its biggest-ever event this week in Halifax, Nova Scotia.
The jam-packed room of well over 200 attendees was bristling with energy, as keynote speakers and panelists delivered on their promise to inform dealer attendees about the key trends impacting the auto retail industry.
The event was emceed by Niel Hiscox, publisher of Canadian auto dealer, who also moderated panel discussions, fielded questions from attendees, and delivered a presentation on customer experience by the Clarify Group — an automotive consulting practice where he is president.
One keynote speaker from the U.K., making his first trip to Canada, was Andrew Tongue, Research Director with ICDP — a firm that provides advice on the auto industry and works with dealer groups around the world. His presentation was “Picking a path to future success, navigating electrification, agency and other pressures facing dealers.” Tongue covered all of that during his fast-moving presentation.
Tongue’s perspective from Europe echoed many of the same concerns and observations that Canadian dealers are facing. In terms of the market, he said vehicles are selling but economic weakness is undermining the affordability of personal mobility and the ability of governments to support the transition to EVs.
He said it’s government mandates around the world that are forcing the transition to EVs. “This is presenting many challenges for OEMs and for dealers,” said Tongue. “The pace of change is being forced by regulators ahead of market demand.”
Tongue said the request by consumers for an omni-channel experience is made difficult by the fractured information chains among OEMs and dealers. “The need to deliver to consumers remains.”
New entrants, not just the Chinese, will bring risks and opportunities for legacy players. “We see the road ahead for dealers as littered with rocks and boulders,” he said. “Can manufacturers succeed in getting involved in retail?”
Tongue said the number of car dealers across Europe is declining, mostly due to smaller dealers leaving the business — although this has been offset by the arrival of new entrants. Large dealer groups continue to consolidate, grow in retail sophistication and expand internationally.
“There is a lot of talk in Europe about brands moving from dealerships to agency,” said Tongue. “OEMs get to set a deal, contract directly with the customer, but they also have to take the commercial risk from the dealers,” said Tongue. Dealers become a service provider: they do some services and are paid for it.
European OEMs see the agency model as providing a better customer journey and giving them a better view of the customer throughout the journey. They also see it as a means of cutting system distribution costs.
The manufacturers do not see agencies as a staging area on their own path to go direct to consumers, he said. They see dealers as critical, but with a slightly different role. Research shows consumers still want dealers to be part of their buying journey.
Tongue showed a slide that showed most brands in Europe are shifting to an agency model, with notable holdouts so far from Toyota, Hyundai, Mazda, Suzuki, Jaguar Land Rover and Kia. Agency makes you more dependent on the manufacturer, with smaller margins. The OEMs are getting more involved in the new vehicle sales, and that seems inevitable.
Tongue said mass market buyers are a lot more skeptical and need a lot more persuading. In the U.K. the ban on gas sales was set for 2030, but has been pushed back to 2035. There is still slow consumer demand due to political uncertainties, order backlogs, and fragile consumer demand.
He said adoption rate is 13 per cent for BEVs in Europe. Where there are incentives, the cars are selling well, and once incentives are taken away, sales “fall off the cliff.”
In terms of the impact of EVs on dealership profits, he said the main thing will be the overhead absorption and profitability. Profits from lubricants and oil changes are removed, and the more expensive EV repairs will not replace the volume decline. There are limited opportunities to raise labour rates to compensate, and over-the-air updates will substitute for some workshop activity.
Customers are very hesitant to buy used EVs. OEMs will need to protect the residual values on used EVs. “Inevitably, we will see more OEM involvement in the used business. As dealers, all you can really do is navigate your way through all of this,” said Tongue, adding that dealers can expect more OEM involvement in their used vehicle market.
In Europe, EV growth rates were three times higher than the charging infrastructure. “EVs aren’t going to go away,” said Tongue. “You will be in the forefront of explaining this to consumers. There is no escaping that.”
Overproduction in their own country is leading Chinese manufacturers to target Europe for more growth. A lot of Chinese-OEM bashing is going on in Europe, with the EU launching a subsidies investigation that could lead to an increase in tariffs on Chinese imports. But Tongue said tariffs might need to be as high as 50 per cent to really protect European car makers.
Even with all the hype and fears about an imminent Chinese car maker invasion, Tongue said only eight Chinese brands sold more than 1,000 units this year. One good sign is that most Chinese OEMs are working with dealers in Europe. “There will be opportunities for you for some of these brands. But choose carefully,” said Tongue.
Charles Bernard, CADA’s Lead Economist, presented dealers with an economic update about some of the softening in the economy that is starting to show up. Although he took attendees through the vehicle sales forecasts, and presented stats for the Atlantic provinces, he said he really hoped dealers would talk to him and share their stories about what they are seeing in their markets.
These anecdotal stories are invaluable in his work in Ottawa. “The data is interesting, but I want to hear your stories,” said Bernard.
Bernard, at ease on stage and keeping his presentation light, did have some hard news to deliver about economic factors that are going to impact dealers, such as continued high interest rates, rising household debt service ratios, low productivity among Canadian workers, and slow economic growth.
The government mandates forcing consumers down a path to purchase EVs is also having a negative impact on vehicle affordability, he cautioned.
Bernard was the first of three presentations by CADA leaders at the event. CADA President and CEO Tim Reuss provided a detailed update about the work the association is doing nationally on behalf of dealers. Reuss kicked off his session with an overview video, then dove deeper into the key files CADA is involved in.
Reuss said the honeymoon period after the pandemic, where dealers were achieving record profits, is now behind us and now we are back to the way the industry used to function pre-pandemic: rising OEM incentives, excess inventory, and higher financing costs for dealers carrying inventory. “This is the world we used to live in and we are back in it,” said Reuss.
Reuss told dealers the association is tackling three main areas: evolving business models and the concerns over the agency model, the transition to EVs and government mandates, and fighting against right to repair legislation that could negatively impact dealers.
In terms of EVs, Reuss said CADA and dealers support the move to electrification, but not the way the government is trying to roll it out. “We must never be seen as the ones standing in the way of progress. We don’t want to talk down the EV market. We are saying what the government is implementing is too far, too quick,” said Reuss.
The third CADA leader to take the stage later in the afternoon was Huw Williams, CADA’s Director of Public Affairs. “Ottawa is broken,” he said, describing the dysfunction he has witnessed in the city.
Williams said the Liberal government is trailing the Conservatives in the polls, and have a steep uphill battle to reverse their fortunes before the next election.
Jason MacDonald, a cyber security expert with CGI, updated dealers about ransomware readiness and how to prep their dealerships if they are victimized by hackers threatening their operations. He provided dealers with five quick tips: backups and redundancies, data loss tolerance, immediate actions in the event of an attack, insurance, and awareness and training. “Your personal cyber hygiene impacts your business,” said MacDonald.
Another panel discussion moderated by Niel Hiscox tackled the issues of the rising fraud in the industry, which covers issues like fighting auto theft, and internal theft and corruption. The panel featured Paul Embrack, National Underwriting Manager at HUB International, and Isabella Nicolini, a Senior Manager of Forensics and Litigation Support with MNP.
The range of fraud dealers face makes it difficult for them to stay ahead of the criminals and fraudsters. Embrack said some buyers arrive with a fake identity. By the time the transaction is done, and the vehicle is gone and it’s detected, then the bank pulls their financing and the dealer is out the funds for the vehicle — and the vehicle.
Embrack said some dealers are starting to put lot management tools in place to protect their vehicle inventories and help them recover stolen vehicles. Embrack said CADA is about to launch a new program. “CADA will be announcing shortly they are partnering with a company called RecovR to assist dealers,” said Embrack.
Embrack advised dealers to keep tighter track of their inventory and use technology and tools available to help them monitor their vehicles in real-time.
Niel Hiscox, President of the Clarify Group, who moderated the event, presented on the evolving customer experience. He presented information that showed that consumers care more about a customer experience than they do the price.
Hiscox talked about a high performance team Clarify assembled to work with OEMs and dealers who are experts in hospitality. Hiscox played videos of key hospitality coaching team members explaining what hospitality meant for them. Hospitality can elevate the customer experience and differentiate the dealership, while not adding a lot of expense to your P&L, he said.
The final event of the day was the dealer panel moderated by Hiscox. The dealers were Josh Mcgrath, President Highland Ford Sales, president of several Toyota dealerships and a Nissan dealership; Andrew MacPhee, GM of MacPhee Ford in Dartmouth; and Colin Jamieson, GM at Steele Chevrolet.
The dealers engaged in a thoughtful discussion, tackling a broad range of topics and the feedback from attendees was very positive.
MacPhee said things are almost back to normal, since the pandemic. “There are certain costs that have gone up but it’s close to normal.”
Josh McGrath said they are seeing the impact of a compressed inventory state. Toyota’s volume is at its highest point, and dealers have less than 10 days supply. McGrath said consumers may have to wait months or years if they want hybrids and plug-in hybrids. “Customers like some amount of electrification, but just not full EVs.”
Jamieson said there is a role for EVs and he loves driving them, but in terms of the mainstream the demand hasn’t appeared yet. “Our job is to give the people what they want,” said Jamieson.
Different brands are trying to come out with their own strategies for EVs within their brands, but the OEMs don’t seem to even know what’s next for them. “There are big question marks,” said Jamieson.
Jamieson said an EV client is a different client and experience. Even OEMs separate their CSI scores for EV vs. gas-powered vehicles, he said. “It’s a very different experience.”
McGrath said that while OEMs are distracted by EVs, finding resources for their battery supplies and trying to reinvent themselves as tech companies, the good news is that dealers are being quietly left to their own work as auto retailers. In their wide-ranging discussions, dealers wrestled with the issues of EV adoption, the agency model, the control of data and other changes impacting the industry.
Andy Wadeson, representing the event’s main sponsor, TD Auto Finance then took the stage to thank attendees and announce the bank was signing on for another three years to support CADEX.
On the eve of CADEX, the Automotive Business School of Canada and the NSADA held an alumni reception. The well-attended event featured a local comedian, an update from Jason Dale, Executive Director of the ABSC, and recent graduates were recognized.
The event wrapped up with a cocktail reception followed by the NSADA’s Annual President’s Dinner.
