Amid all the chaos and confusion, focus on what is within your control
When I began writing the first draft of this article, I immediately focused on the tariff situation and the global geopolitical landscape.
Although there’s much material to write about, there is no shortage of opinions currently in the marketplace. As such, I decided to take a different direction.
September, in my mind, is the beginning of a new year. The long, lazy days of summer are behind us, and it is normally time to get everyone back to work.
Growing up in Windsor, I was accustomed to new model introductions being announced in September, which seemed to mark the beginning of the automotive year.
One of the philosophies I have always followed is that you cannot control situations beyond your control, no matter how hard you try. You can only react to elements over which you can influence and possess the ability to undertake strategic actions.
From a dealer’s perspective, the reduction in general employment will hurt consumer demand for vehicles and services. It may also influence the type of vehicles consumers are able to access, shifting to ones they need instead of ones they want.
The Canadian economy is currently at a tipping point. The automotive industry, on which we all depend, is becoming increasingly more fragile by the day. This is not our doing directly, but rather a result of policies emerging from our largest trading partner, the United States. The fact is we have been only too happy to be dependent upon them for decades.
The U.S. administration wants all vehicles that are sold in America to be built in America. They also want to sell their domestically produced vehicles to other markets on a reciprocal basis. This is seen as better for the American worker.
This philosophy will significantly impact Canada unless a mutually beneficial trade policy can be developed. CUSMA does provide some short-term protection until it gets renegotiated in 2026.
The current formulas are complicated; however, they have worked up until now. I only mention this because the risk of job loss is currently significant. It’s been reported that one assembly automotive job is the catalyst for approximately 10 other direct and indirect jobs.
We’re already seeing layoffs at the parts manufacturer level, and OEMs are exploring ways to shift some of their production to the U.S. to meet consumer demand there. It remains to be seen whether those same OEMs will retain assembly in Canada strictly to meet Canadian demand.
From a dealer’s perspective, the reduction in general employment will hurt consumer demand for vehicles and services. It may also influence the type of vehicles consumers are able to access, shifting to ones they need instead of ones they want. Consumers might instead choose to retain their vehicles longer. A shift in that new vehicle demand also affects the used vehicle market and the vehicle finance market.
It’s important to acknowledge that dealers operate in local markets. All regional markets are not the same. As a dealer, you must be fully attuned to the labour markets in the communities you serve.
You may be operating in an area that has significant consumer risk. As such, the risk to your business is elevated. This likely means more lower-end vehicles to satisfy your customers’ affordability issues.
It also likely means less inventory of new vehicles; however, you might not have much choice in that, depending on the brand you represent. Your fixed operations business might come under pressure as vehicle owners devote less of their monthly budget to service and parts.
Our employees might also be impacted. Their spouse or partner could suffer job loss. This would hurt them financially and cause significant strain on their financial resources. The debt service issue alone could keep them awake at night, and the pressure could impact their work performance.
We might see consumer financing issues. Many customers finance their vehicle acquisition through loans or leases. As affordability becomes a serious issue, access to credit becomes challenging.
Some of your customers who financed real estate during COVID will be completing their five-year term and refinancing at higher interest rates. This makes monthly budgets tighter.
The brands we represent will also have some differences. Supply of new vehicles will likely be unpredictable for some brands due to supply chain disruptions and tariff policies.
Although not having too much new inventory on the ground of slow-selling products might be a good thing, it’s normally the in-demand products that you’re able to sell quickly that get impacted, leaving you with low-demand inventory and possibly discounting.
This also applies to used vehicles. Acquisition price volatility for popular vehicles will likely continue until some stability is achieved in new vehicle sales. Vehicle reconditioning should help overall profitability.
F&I has been a significant source of both revenue and profit for dealers over the past several years. Going forward, F&I could be a double-edged sword.
On the one hand, consumers with affordability concerns might tend to back away. On the other hand, offering the right products might align perfectly with consumer concerns. Products that provide financing protection for job loss should be very popular, provided the price fits.
On the expense side of the profit equation, we should all be cautious with what we spend. We like to maintain higher cash inflows than outflows. It’s the fuel that keeps our dealerships running.
During COVID, we all got much better at managing cash outflows. Unfortunately, many of us have forgotten these lessons and have reverted to the old ways. Those playbooks still exist, and it is time to dust them off and start using them again.
One big cash outflow for some dealers is facility and imaging. Unless absolutely necessary, I believe this is not the time to spend that sort of capital. This goes for electric charging stations as well. All signs point, at least in the short term, towards reduced emphasis on battery electric vehicles. I suggest you delay these expenditures as long as possible.
One final note to keep an eye on. In the last few days, Canada and China seem to be headed towards some sort of trade arrangement.
Although this seemed all but impossible when we had a strong and reliable relationship with the United States, things have changed. One such thing is 100 per cent tariffs on Chinese vehicle imports charged by the United States and immediately replicated by Canada. Perhaps Canada may take a different stance in the future.
We are once again entering a period of challenges. Maintaining an active interest in your business and staying in close contact with your brand, dealer council, and teams will become increasingly important in the coming months. Now is the time to stay awake and keep your eyes open, focusing on what you can act upon and parking the noise you can’t off to the side.
