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The Globe and Mail

GM showroom deal marks shift in Canadian auto industry policy

Pat Priestner, CEO of AutoCanada Inc., the first publicly traded company allowed to buy a stake in a General Motors dealership in Canada. May 2, 2012, in Edmonton.

Ian Jackson/The Globe and Mail/Ian Jackson/The Globe and Mail

A change in ownership at a single Chevrolet franchise in an Edmonton suburb is setting the stage for a transformation of Canada's automotive dealership network.

AutoCanada Inc. , will purchase a stake of Nicholson Chevrolet in Sherwood Park, Alta., a transaction that gives the largest publicly traded auto dealership company in Canada its first ownership stake in a General Motors of Canada Ltd. outlet, ending what was perceived throughout the industry as a GM prohibition on public ownership.

"GM wasn't receptive to AutoCanada five or six years ago and today I think we have a great relationship with them," Pat Priestner, chief executive officer of Edmonton-based AutoCanada, said in an interview.

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The deal opens the door to AutoCanada to expand beyond its existing major brands by purchasing dealerships from the auto maker with the largest number of dealerships in Canada, one that is still restructuring its network after eliminating about one-third of its outlets in 2009.

The GM agreement and the granting by Kia Motors Canada of a franchise in Edmonton last month–ending its opposition to public ownership – demonstrate that the auto-distribution network is changing in Canada and could encourage other auto makers that oppose public ownership to change their strategies.

In addition, such publicly traded U.S. dealer groups as Group 1 Automotive Inc. of Houston, and Penske Automotive Group Inc. of Bloomfield Hills, Mich., are believed to be scouting the Canadian market.

Mark Iuppenlatz, Group 1's vice-president of corporate development, said last month that the company has looked at acquisitions in Canada, but backed away from various deals for reasons he wouldn't divulge.

Mr. Priestner said AutoCanada is in discussions with other auto makers about obtaining franchises. He would not identify them, but noted that the company would like to expand into luxury brands. It now owns several Chrysler Canada Inc. dealerships as well as Hyundai Auto Canada, Nissan Canada Inc. and Volkswagen Canada Inc. stores.

For now, though, "AutoCanada shall be actively seeking out GM acquisitions," he said.

In the Sherwood Park agreement, he, other senior executives and AutoCanada will own a holding company that will hold 51 per cent of Nicholson Chevrolet. Mr. Priestner will hold 100 per cent of the voting shares of the holding company.

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Future deals will involve AutoCanada acquiring 80 per cent of stores, with Mr. Priestner and the managers buying the remaining 20 per cent. The AutoCanada CEO will have 100-per-cent voting control of those stores and be named dealer operator.

That enables the dealership company to meet GM's technical requirement that a single person be identified as dealer-operator.

GM spokeswoman Faye Roberts said the Sherwood Park agreement is the first time "in many years" a publicly owned company has purchased a stake in a GM dealership. It does not represent a change in policy, she added.

One industry source said the Canadian units of auto makers opposed to public ownership of dealerships are reluctant to say so publicly because their parent companies permit the practice in the U.S. market.

AutoCanada wants to expand in British Columbia and Alberta – where it owns the bulk of its stores – and to grow in Saskatchewan, Mr. Priestner said. Saskatchewan and Alberta are the strongest markets for the Canadian arms of the Detroit Three, generating market share of 70.1 per cent and 63.3 per cent respectively last year, compared with their national average of 47.2 per cent.

Nicholson Chevrolet sold 755 new vehicles and 307 used cars last year.

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Mr. Priestner "likely thinks that if he/AutoCanada can double sales in their first year (very doable) GM will become more inclined to allow outright purchases of GM stores," said one Alberta dealer familiar with the Edmonton market.

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