Stay connected

Get the latest insights into Canadian business

Toggle

Follow the leader

By Christopher Korchin | August 30, 2016

With the rise of car-sharing services, electric cars and online shopping, and the increasing consolidation of independent car dealerships into large retail groups, the automotive dealership business is in a state of flux. But for Robert B. Issenman, President and Chief Executive Officer of Leader Auto Resources LAR Inc., it’s also a time of opportunity – and the heart of the business is still the car itself.

“I’m going to use a tautology,” Issenman says, “but the vehicle is the vehicle for making profits.” Having led a Montreal-based dealership supplies and services business for more than 20 years, he knows that for dealers, success still begins with the sale of a new car. But with margins so slim – dealers often clear less than 1 per cent on the purchase price of a vehicle – profits have to come from other sources within the dealership, from financing and administration to service, repairs and detailing. LAR helps dealers to increase their margins in these key profit centres. It’s all about “good absorption,” Issenman says. “The dealer’s fixed operations – parts, service, body shop – all need to contribute.”

LAR was founded in Quebec in 1980 by a group of eight car dealers who felt they could rein in expenses by pooling their purchasing power to negotiate lower prices for supplies. The time-honoured system of freebies and kickbacks for parts orderers – “colour TVs, trips to Vegas,” says Issenman – effectively meant that a dealership’s employees were not always acting in its own best interests. “The idea was quite revolutionary,” he explains. “Dealers were up against all kinds of forces within their dealerships. People were buying products for the wrong reasons – maybe there were incentives, maybe there were other things that were not appropriate. But they also found they were paying too much because they were buying through various levels of distribution. Their approach was, ‘Let’s consolidate even though we’re competing with one another, and buy together.’”

The co-op has since grown into an alliance of some 1,600 automobile dealers spread throughout eastern Canada and the northeastern U.S., and the business model of cutting out the middleman and obtaining supplies and services at reduced rates has not only endured but flourished. By the end of 2015, LAR had reached total sales of more than $3.2-billion since its inception, and remitted more than $304-million to its member dealers in additional discounts and dividends. Issenman says the company is akin to “a Costco for dealers,” leveraging their collective buying power to reduce costs.

The transparency of every transaction also gives dealers peace of mind, which allows them to pursue other opportunities rather than worry about internal issues. “Dealers are by nature entrepreneurs and very competitive,” says Issenman, “so they’re going to find opportunities everywhere. If a dealer has been successful, if a dealer <italic>became<italic> a dealer, it’s probably because he was a very creative and entrepreneurial individual.”

LAR mirrors this entrepreneurial nature. Issenman, a prominent lawyer “not from an automotive background” who assumed the role of CEO in1994, points to the innovative CarrXpert network, established by the Corporation des concessionnaires d'automobiles du Québec (Quebec Dealers Association) for its Quebec based-dealers, which seeks to channel insured collision repairs to dealer-owned or -operated body shops. LAR is now aggressively expanding that initiative throughout the rest of North America.

Issenman is proud of partnerships with companies like Bell Canada. “Today everything is about computers and phones and communicating, and in the dealership that means WiFi, it includes the server, it includes having a salesman pick up a phone and walk off to the lot and still talk to a customer,” he says. “We packaged that together with the purchasing power of 1,600 dealers to buy lines, mobile phones, PBX systems, all of that, and we’re able to provide one-stop shopping with dedicated people within Bell who are focused on the car dealer.”

Success in the quickly changing automotive environment is going to require continued streamlining and an ability to adapt. Issenman says that before the financial crisis of2008-’09, the automotive industry had “a lot of marginal players, with too many nameplates, too many cars and too many dealerships chasing too few customers.” But the bounce-back in recent years has been extraordinary. Total revenues for new-car dealers in Canada topped $100-billion for the first time in 2015, with some 1.9 million cars and trucks sold. Thanks to online comparison shopping, the average consumer may know so much about the car they’re interested in that a trip to the dealership might seem unnecessary.

But given the complexity of automobile transactions versus most types of online shopping, Issenman sees a bright future for bricks-and-mortar dealerships. “Manufacturers have tried selling cars on their own – Ford tried that, and it was not a success,” he says. “A car is different: You’ve got a lot of components to it, you have financing, you have service, you have repairs beyond the standard maintenance. You’ve got used cars, trade-ins…” Even Warren Buffett has entered this lucrative game: Last year, the famed investor formed Berkshire Hathaway Automotive, which now operates a network of 81 new-car dealerships in the U.S.

LAR is “unabashed” about the pursuit of profit, Issenman says: “Our role is to make money for the dealers. We are short on words, long on dollars – that’s our job.” He sees the increasing sophistication of cars, and the training and equipment required to service them, as another source of profit for dealers, with independent garages lacking the resources to compete.

Even the rise of telematics – popularized by the aircraft industry – may ensure that the dealer will be the first choice for service and repairs. “With telematics in aircraft today, whether you’re flying Air Canada or Delta, they’re continuously transmitting data back to the company about how the aircraft is operating,” Issenman observes. “The same phenomenon is coming to the automotive market, so that the manufacturer and the dealer will know maybe even before the consumer that this vehicle is going to need repairs. They’re going to know the parts that are required and they’re going to know how to do it.” One disruptive factor in the industry may be a change in the very nature of car ownership. A recent Los Angeles Times article reported that dense urban markets “will see business models develop around access to cars but not ownership.” But even

there, Issenman sees opportunities for dealers. “It’ll be a bit like NetJets,” he says, referring to the Berkshire Hathaway Inc.-owned company that sells stakes in private aircraft. “You buy an interest in a transportation solution as opposed to buying a physical car.” Depending on the occasion, “you might want a sports car or an off-road vehicle, so people will be buying a timeshare — a solution in a multitude of vehicles,” Issenman adds. “But at the end of the day, there’s going to have to be someone who is servicing, delivering and doing client contact, and that’s going to be the purview of the dealer.”

The content of this field is kept private and will not be shown publicly.
About PwC Canada Hide Footer