The transformation of automotive retailing in Canada is accelerating, so AutoCanada Inc. plans to increase the number of dealerships it operates by at least 20 per cent during the next two years.
The Edmonton-based company, Canada's largest publicly traded dealership group, plans to add six to nine dealerships to its current 30, as older dealers and those operating one or two outlets consider succession as large dealer groups expand.
"We believe the succession issue has accelerated," AutoCanada chief executive officer Pat Priestner said during a conference call with analysts and investors on Tuesday. "Management believes the company is well positioned to play the role it has long sought as a consolidator in Canada."
AutoCanada has already been playing that role, expanding from its base as mainly a Chrysler dealer to offering such brands as Audi, Nissan, Volkswagen and those owned by General Motors Co.
Others, such as Ford Motor Co. of Canada Ltd., Honda Canada Inc. and Toyota Canada Inc. prevent AutoCanada from owning their dealerships in Canada.
Nonetheless, Mr. Priestner said, there are acquisition opportunities in British Columbia, Saskatchewan and Calgary that will allow AutoCanada to accelerate diversification from its base in northern Alberta.
Those opportunities arrive as a result of the aging of auto dealers in Canada, the need for all dealers to invest to keep up with the pace of technological change and auto makers' demands that dealers make hefty investments to renovate their stores.
"As AutoCanada executives further acquisitions, we expect additional [auto makers] to open up to public ownership in Canada, with AutoCanada remaining the premier market consolidator," industry analyst Derek Dley, who follows the company for Canaccord Genuity, wrote in a note to clients Tuesday.
The company has already announced purchases of four dealerships this year, but the acquisition strategy is going to change slightly, Mr. Priester said.
"We're looking at dealerships that are a little bit larger than we've bought in the past," he said. "I think guidance would be stores that are making in the $1-million, $1.5-million range annually in earnings."
Mr. Priester made his comments as AutoCanada reported first-quarter profit that grew by 66 per cent from year-earlier levels. Profit soared to $6.8-million in the three months ended March 3 from $4.1-million a year earlier.
The increase was led by sales of new vehicles, which rose 18.3 per cent and helped boost profit from dealerships' finance and insurance departments.
The profit increase led to the company boosting its dividend to 76 cents a share annually from 72 cents during the fourth quarter of 2012.
AutoCanada's stock soared on the news, hitting $26.85 at one point on Tuesday – up 15 per cent – before settling back to close at $25.84 on the TSX, up more than 10 per cent.