The drive to be big: Days of small, independent car dealerships nearly gone

Hey there, time traveller!
This article was published 26/07/2015 (3195 days ago), so information in it may no longer be current.

Brian Lowes believes he’s moving into the Mercedes-Benz of car dealerships.

His new building on Rothwell Road off Route 90 is about triple the size of his old digs on Portage Avenue, the lot is twice as large, and there’s enough space for almost three times the vehicles.

Then there’s the not-so-little matter of location.

“I really wanted to be in the area where people lived,” said Lowes, the president and owner of Mercedes-Benz Winnipeg. “I wanted to be in the heart of the community.”

More specifically, Lowes’ desire is to be planted in the heart of Winnipeg’s residential boom. The south is where housing development is most fertile. It’s where IKEA set up shop, along with a plethora of big-box stores. It’s where the money is moving.

Yet Lowes’ relocation underscores two long-standing trends: The slow death of small, independent car dealerships in downtown Winnipeg — or anywhere else — and the growing clusters of car lots migrating to the city’s outskirts or suburbs.

“There’s just not the space anymore,” said Geoff Sine, executive director of the Manitoba Motor Dealers Association. “So you see these auto parks come up, which is partly due to space, but also it’s a convenience for the customer. It’s a one-stop. There’s a variety of brands, and you can make an informed decision.”

All true. But consider that across Canada, the average dealership breakdown is: one-third are dealers who own five or more stores, one-third are independent, and another one-third own between two and four.

In Winnipeg, only a handful (about six) of the city’s 45 new-car dealerships are independent. The vast majority are part of consolidated ownership groups.

For example, Lowes’ old location at 2554 Portage Ave., which will be revamped into a used-car lot, was once home to Robert Chipman’s Birchwood Motors — the first building block in what was to become the Birchwood Automotive Group, a 16-dealership conglomerate now based just outside the west Perimeter.

The Waverley Automall, at the intersection of Waverley Street and Bishop Grandin Boulevard, is home to 13 dealers.

Meanwhile, popular dealerships that once occupied Portage Avenue near downtown are extinct. Midway Chrysler, McNaught Motors, Carter Motors, Gateway Motors, Terry Balkan — all gone.

When Larry Vickar, president of Vickar Auto Group, was asked if the era of the independent “Mom and Pop” dealership owners was coming to an end, he replied: “That possibility is upon us, quite frankly. Even groups today are getting bigger. Groups are buying groups. I think that’s life. I think because of the high acquisition costs, it’s harder for someone to come into the business with a stand-alone, certainly in the metro area.

“The movement of car dealerships is not unlike almost all enterprises today,” added Vickar, whose group includes five dealerships. “The aspects of individual ownership are fewer and fewer in any sector of the economy.”

Chipman Automotive Group president Steve Chipman called the ongoing evolution a product of shrinking margins combined with efficiencies from streamlining costs from multiple outlets.

“It’s like the corner store or the hardware store. They’re gone, too,” Chipman reasoned. “It becomes an economy of scale, the capital involved. Our margins are shrinking. You need volume.”

In the past few decades, manufacturers allowed dealers to sell for more than one company. It was no longer treasonous for a Ford dealer to open up a Toyota shop in the same city. At the same time, however, manufacturers began to mandate how dealership showrooms looked — down to the floor tiles.

Noted Chipman: “Manufacturers have building standards that are very expensive.”

Over time, it became more advantageous for dealers to look for ways to duplicate services — marketing, auto-body repairs, accounting — between multiple dealerships. Independent owners who began in the 1980s with no succession plan began to sell. Groups such as Birchwood, Dilawri, Vickar, Murray and Gauthier expanded. AutoCanada, the only publicly traded auto group in Canada, has 50 dealerships across the country, including four in Winnipeg.

Meanwhile, the cheapest places to consolidate are away from the city centre. Said Chipman: “One, you need space. Two, you go to where the people are.”

In fact, the consolidation of car dealerships may soon be reaching new levels.

In a recent edition of Canadian Auto Dealers, a business trade magazine, an article entitled Show Me The Money predicted the days of larger ownership groups buying single dealerships will be replaced by “dealer groups seeking to acquire other dealer groups.”

“I believe 2015 and 2016 will become a period in history in which dealer group sales will dominate the dealer consolidation market,” wrote author Chuck Seguin. “Groups that for the last 10 or 15 years have been on the acquisition hunt will switch gears, change sides of the table, so-to-speak, and become sellers.”

Chipman contends the loss of the small independent dealerships downtown — such as where his father began — is neither for better or worse. It’s just business.

“There’s pros and cons,” he said. “The cost of a vehicle today — and the safety features — are way better than they were 30 years ago, 10 years ago. They’re more fuel efficient. And as a percentage of your income, they’re way less.

“I think there’s way more transparency. It is better, but it’s different.”

One dealer, who wanted to remain anonymous, said consolidation can help defray costs to the consumer. But the cost may come in terms of a business with fewer roots in the community. “There is a concern, candidly, that many of these parachuted-in dealerships don’t have a feeling to the local community as far as involvement,” he said. “It becomes a hard-nosed business as opposed to a community owned and family-type business.”

Lowes, the incoming president of the MMDA, agreed no matter how large dealers become — or where they’re located — the long-term challenge remains the same.

“It’s something that our industry, as it continues to go towards the direction of consolidation, the struggle is going to be, ‘How do we keep the personal touch?’ ” he said.

randy.turner@freepress.mb.ca