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Report On Business Chrysler dealerships a hot commodity as economy booms in Saskatchewan

Chrysler has spent billions of dollars revamping its line-up, with a large portion of that going to the truck side of the business, which includes such vehicles as the Grand Cherokee and Cherokee sport utility vehicles and its Ram pickup line.

Charles Krupa/AP Photo

Forget the buyer battles for houses in Vancouver, Calgary and Toronto, there's another hot investment property that's drawing bidding wars – Chrysler dealerships.

More than six bidders presented offers to buy Redcoat Chrysler in Weyburn, Sask., population 10,484 as of the 2011 census. It's the only Chrysler dealership in town.

"Chrysler, I would tell you, is probably the most cherished franchise at the mass market level across the country," said Ted Knight, president of Regina-based Knight Automotive Group, who won the bidding but won't say at what price.

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Chrysler Canada Inc. and its dealers are on a roll after bottoming out in 2009 when parent Chrysler LLC went into chapter 11 bankruptcy protection. Sales in Canada have risen for 58 straight months year-over-year and the auto maker was on top of the sales charts through August this year until it was overtaken last month by Ford Motor Co. of Canada Ltd.

The success of Chrysler, however, is just part of the equation. The Saskatchewan economy boomed last year and its growth has outpaced the national average for several years. In addition, Mr. Knight's group is in the sweet spot of a trend reshaping automotive retailing in Canada as owners of single dealerships or a handful of stores rush for the exits and big, well-financed dealer groups eagerly buy them out.

At the dealer level, success begins with new vehicles. Chrysler has spent billions of dollars revamping its line-up, with a large portion of that going to the truck side of the business, which includes such vehicles as the Grand Cherokee and Cherokee sport utility vehicles and its Ram pickup line.

That's the heart of the market in Saskatchewan, where 78 per cent of buyers last year purchased trucks.

"We have absolutely the best quality product I've seen in 35 years; the best styling; the best management the company has ever had in Windsor [Ont.] and Detroit," said Mr. Knight, whose group now counts four Chrysler dealerships in southern Saskatchewan and one in Medicine Hat, Alta. among its 12 stores. The plan is to double sales of new and used vehicles in Weyburn to between 450 and 500 this year.

Chrysler's rebound "is a great example of how you get micro-cycles within the grand big cycles of the industry," said Michael Lewicki, automotive retail partner at consulting firm Ernst & Young in Toronto. "It's like a Ferris wheel and there's little Ferris wheels within the big Ferris wheel. Right now, from a Chrysler retailer point of view, they're at the top of the Ferris wheel. Five years ago they were at the bottom."

The values of Chrysler franchises have gone up from where they were during the recession and the outlets are in high demand from dealer groups, said one industry source who pays close attention to dealership acquisitions.

AutoCanada Inc., for example, which is the only publicly traded dealership group in Canada and owns 13 Chrysler outlets, has purchased Chrysler dealerships in Saskatoon and Calgary this year, although chief executive officer Pat Priestner said the company has not been involved in any bidding wars.

Mr. Knight pointed to the resource boom in Saskatchewan as a reason for the intense interest in the Weyburn dealership, notably its location in the middle of the Bakken oil field.

He said he has been told that Regina's population grew by 7,800 people last year. "That's 4,000 cars. That's how I look at it."

The provincial economy grew 4.5 per cent last year and although it should taper off to 1.3 per cent this year, growth should still be above the national average for 2013 and 2014 combined, said Paul Ferley, Royal Bank's assistant chief economist.

Vehicle sales in Saskatchewan grew 32 per cent from 2009 to 2013, well above the 19-per-cent increase in sales nationally during that period.

The current economic situation reflects the booms that hit Saskatchewan on average every 25 years but differs somewhat in that there are two booms, said Eric Howe, an economics professor at the University of Saskatchewan in Saskatoon. High potash prices sparked one boom that was carried on by Bakken development when potash prices tumbled.

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"Incomes are high, which would result in higher car sales, but optimism about the future is also high so people are borrowing to buy even more than would be supported by their current income levels," Prof. Howe said.

The boom is nearing an end, he said.

Mr. Knight has an eye out for other acquisition opportunities.

A survey of dealers taken two years ago showed that more than 70 per cent wanted to be semi-retired or out of the auto business within five years.

"A lot of guys are tired, they don't have the resources," he said. "It's happening with all franchises."

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