AutoCanada makes first foray into U.S.; gains access to new brands

AutoCanada Inc., making its first foray into the U.S. market, has purchased a dealership group that includes stores it is not permitted to own in Canada.

The $110-million purchase of the Grossinger Auto Group in Illinois gives AutoCanada dealerships selling Lincoln, Honda and Toyota vehicles. The Canadian units of Ford Motor Co. (which makes and sells Lincoln), Honda Motor Co. Ltd. and Toyota Motor Corp. have banned publicly traded dealership groups such as AutoCanada from buying their stores, even though such ownership is permitted by those auto makers in the United States and elsewhere.

In addition to giving AutoCanada access to U.S. dealerships selling those brands, the deal diversifies the company's geographic footprint, gives it a presence in the much larger U.S. market and a group of stores under a single roof, enabling the company to participate in a key trend emerging in vehicle retailing.

Grossinger's eight stores in the Chicago area and a multiplex in Normal, Ill., that includes luxury and premium brands, generated US$401-million in revenue in 2017. That would boost AutoCanada's annual revenue to about $3.6-billion from $2.8-billion last year, raise its total number of dealerships to 68 from 54 and annual new-vehicle sales to 51,400 from 43,800.

"Establishing a presence here further diversifies our existing geographical base and in a market that is in close proximity to many of our current dealerships," Steven Landry, president of Edmonton-based AutoCanada, said on a conference call Thursday. "The acquisition also allows us to pursue our preferred approach of having a cluster of dealerships in large metro markets."

The deal comes just days after AutoCanada expanded its borrowing capacity to $1.08-billion, of which $350-million has been earmarked for acquisitions.

AutoCanada will continue to buy dealerships in Canada, Mr. Landry said in an interview, but now is on the radar screens of auto makers in the United States.

"The next time we want to be a candidate for one of these dealerships in the U.S., we've kind of passed one level of approval already and they'll look at us as a current dealer as opposed to somebody that was fresh and new," he said.

The size of the U.S. market – with as many as 20,000 dealerships compared with 3,500 in Canada – means greater opportunities, he said.

He said the acquisition is not aimed at forcing Ford Motor Co. of Canada Ltd., Honda Canada Inc. and Toyota Canada Inc. to change their positions on ownership of their Canadian dealers by publicly traded companies.

"We're working hard with Toyota, Honda and Ford in Canada to allow us to be in a position to be a dealer," he said. "It will be on their time. It will be predicated on their plan and when they're ready to have public ownership."

Honda Canada said it believes direct ownership of dealerships "provides the best basis for us and our dealers to satisfy the Canadian customers who drive our vehicles and service them at our dealerships."

The AutoCanada purchase of a group that includes a Honda store in Chicago does not affect Honda Canada's position on publicly trade companies, the auto maker said.

Ford Canada and Toyota Canada did not respond to questions about their policies.

Analyst Chris Murray, who follows AutoCanada for AltaCorp Capital Inc., said he believes the Canadian units of the companies makers will eventually change their policies.

"Over time you'll see what seems to be an anomaly globally in Canada go away," Mr. Murray said. "When you look at public company ownership it's very common in the United States across all brands, Australia, the U.K., Europe, so I think that over time there may be a bit of shift in position."

Mr. Landry said he favours the one-stop shopping that set-up encourages.

"I really think that's part of a future, kind of a jewellery-box presenting of our product. It's like a watch store. Somebody might go into a watch store and want to buy a Rolex or a Patek Philippe and they go into one store."