Justina Wilson of Mississauga Toyota in Ontario did not come to her promotion to operations manager by charming a lot full of hagglers and looky-loos, parlaying test drives to a final deal hammered out over industrial-grade coffee and creamer. 

She got her start more than five years ago, collecting internet leads on websites like CarGurus and Kijiji. That role became a launchpad for her to later learn about traditional sales, managing final transactions and warranties.

If Wilson’s digital-advertising savvy was getting noticed before the pandemic, COVID-19 has cemented its importance. She can tell the story of the pandemic in terms of internet traffic: a steep drop-off in March and April 2020, when the initial spread of COVID-19 chilled big purchasing plans. Over the next half year, people had lots of time to shop online, but were still “very nervous” about actually coming in or making a purchase unless it was an absolute necessity. Then, as people got more comfortable with open-air outings and safety precautions, online test-drive bookings and purchases became more popular, and some online shoppers trickled onto the physical sales floor.  

“[COVID-19] made us change all of our processes and look at every single department operation and how we can make things more efficient…. I think that, going forward, that’s going to be the norm,” she said.

It’s not just the pandemic. With heightened awareness about the environmental impact of auto emissions, dealerships like Mississauga Toyota are also seeing shifts in what they sell and how they sell it. All of this is leading to a dramatic rethink of what it means to be one of Canada’s nearly 12,500 auto dealerships in an industry that employs almost 150,000 people, considered one of the last holdouts of brick-and-mortar retail.

A rebrand is coming for just about every dealership at the same time. The government has mandated that by 2035, all new vehicles sold in Canada will be zero emissions, with dealers playing a frontline role in educating consumers about electric vehicles.

For dealership owners looking at the books, even routine rebranding, or “re-imaging,” can be a million-dollar undertaking, said Cameron Percy, a director in BDO Canada’s M&A and capital-markets group who works with dealership clients.

Some General Motors dealers are already feeling that cost pressure in the U.S., where 17 per cent of Cadillac dealers reportedly chose to ditch the brand last year rather than spend roughly US$200,000 on dealership upgrades, tools to repair EVs and charging stations.  

Cara Clairman, president and CEO of Plug’n Drive, a non-profit that encourages EV adoption, is hoping the dealerships run her out of town. Her organization launched a Toronto hub four years ago, where consumers can ask questions about different charging stations and models, and even book test drives of different EVs. Plug’n Drive’s facilities stemmed in part from a secret-shopper study that found most dealerships were not well equipped to sell EVs, and that salespeople needed more detailed training on environmental benefits of EVs. 

“It was challenging for people when they went to the dealer. Not so much because the dealer tried to persuade them to buy a gas car, but because there wasn’t much availability [of EVs],” said Clairman. Rather than facing salespeople incentivized to sell whatever they had on the lot, Plug’n Drive let visitors “learn everything with no pressure to buy anything.” 

Clairman said she thinks that as more models hit the market, sales staff will catch up. Rebates also help dealers dispel myths that EVs are always more expensive, she said.

“The dealers are really, really good at explaining the features of the vehicle,” said Clairman. “Where they have not been as knowledgeable is, ‘How much money am I going to save and why is this better for the environment?’—these more big-picture questions.”  

Some dealerships are already taking note. Dartmouth, N.S.,-based Steele Auto Group, which owns 51 dealers of 28 brands, announced in late July that it was acquiring specialized dealer All EV Canada for an undisclosed amount. Steele’s president, Kim Day, said in a statement that All EV’s expertise in accelerating EV adoption among potential customers was one factor in making the deal. All EV’s CEO Jeff Farwell said “the time is right” to be focusing on EV education. 

Tesla CEO and EV pioneer Elon Musk hasn’t been afraid to experiment with different sales models over the past few years—and none look like a traditional dealership. It makes sense, considering that people are consistently more loyal to vehicle manufacturers than their local dealers, according to U.S. IHS Markit research. Tesla’s strategies have ranged from showrooms in upscale malls to having more of its salesforce work remotely to help shoppers with online orders. It has even mulled going online-only in the past, though it’s never fully made the leap—opting to open some new retail locations, including one in Laval, Que. in 2019. 

Tesla is no longer the only auto brand experimenting with direct-to-consumer sales and other non-traditional retail models. Other EV upstarts like Polestar have high-end showrooms in Toronto’s Yorkville area and Montreal’s Carrefour Laval mall. Executives at dealership brand AutoCanada said in a recent earnings call that the company had formed online sales departments at each of its dealerships over the past year, and that about a third of vehicles are now bought solely online. 

DesRosiers Automotive Consultants and the Canadian Automobile Dealers Association polled 3,328 dealerships asking whether the changes adopted during the pandemic would stick. Dealers said that by 2025 they expected 17.8 per cent of new vehicle sales to be wholly online, up from 2.4 per cent in 2019 and 7.6 per cent in 2020. A separate poll of Canadian dealers by J.D. Power was even more dramatic, with 41 per cent of dealerships expecting at least one-fifth of their sales to be digital by May 2022.

“Auto retail is—sometimes we forget—a subset of retail. And the reason that’s important is that retail in general is being overhauled,” said BDO Canada’s Percy.

Dealers are also increasingly competing with direct-to-consumer businesses like Clutch, a Canadian car-buying platform led by Dan Park, former head of Uber Eats Canada. The company, founded in 2016, recently raised $60 million in debt and equity financing and is backed by Real Ventures and BrandProject. Meanwhile, Vancouver-based Canada Drives, which offers warranties and financing tools for dealers and car shoppers, recently announced it is expanding its vehicle e-retail to more provinces.

Dealerships have been one of the last holdouts in online shopping, said Canada Drives co-CEO Cody Green. But for him, it was a logical leap, since consumers have been doing more and more research online before they reach the lots. 

“They’re doing so much online already. Being able to actually do the transactions—set up their financing, sign all documents, schedule delivery, and then have it dropped off to their home—is a huge win,” said Green. “There is no haggling.”

A CarGurus Canada survey of 1,512 car shoppers in the country in the fourth quarter of 2020 indicated that 91 per cent of Generation Z shoppers (ages 18 to 24) and 79 per cent of millennials (25 to 39) used a mobile phone for last-minute research while visiting a dealership or seller. Sixty-eight per cent of Gen X shoppers (40 to 54) said the same, compared with just 29 per cent of baby boomers (55 to 65).

While consumers might be biting their knuckles over spending tens of thousands online, sight unseen, Green argued that Canada Drives’ seven-day return policy actually gives people more time to decide than a traditional test drive.

“We can store thousands of vehicles in a less expensive, non-retail location. So our customers aren’t paying for that dealership overhead, and all those staff that go with it,” he said.

Calgary lawyer Nav Dhaliwal wrote in a recent BLG report that smaller dealer groups and single-location dealerships are looking to exit the market, “particularly those without an appetite to adapt to emerging technologies.”

“[Automakers] are mandating investments in intellectual property, branding and marketing—investments in the actual footprint of the dealership,” Dhaliwal told The Logic. “It’s becoming expensive. And you also have to hire folks that are familiar with, for example, product development, on top of a whole suite of costs that are already being shifted onto dealers.”

While the vast majority of dealerships in Canada are privately owned, Dhaliwal said the space is ripe for consolidation by large firms that can use the same online platforms and even centralized staff for multiple locations.

“A lot of aggregators are looking at whether anybody has technology that allows them to get to market and consolidate processes … in a new and innovative way. A lot of that is being led by outside, third-party technology producers,” said Dhaliwal. “The location of the dealership is becoming a little bit less important than it used to be. Because if folks can find what they’re looking for online, it seems like they’re willing to make the commute.”

BDO’s Percy has noticed that dealers still want to sell to a new leader with a strong vision and a good cultural fit for the business they’ve built.

“You have a bunch of business owners that are getting older and getting closer to retirement. We’ve been talking about this for a long time, and I think it’s actually happening,” said Percy. “A lot of M&A is driven by succession.

“The cost of real estate, as everyone knows, has significantly increased over the last number of years across Canada. So, you see this very real pressure on these businesses. You get to a point where you say, ‘The only way that we can survive is, like, we have to grow,’ he said. “It’s not even like a little bit of growth. It needs to be a lot. You need to have a vision to become a really significant player…. Owning one store, that’s going to be a tougher business model in the future.”

However, Percy said, the wave of M&A in the dealership industry is also an opportunity for business leaders with a warchest who are eyeing growth.  

Wilson, the Mississauga Toyota operations manager, predicts the next generation of dealership leaders will have to be more entrepreneurial, and quick to jump on feedback from customers and salespeople to keep dealerships afloat.

Some dealerships “are a little bit behind in terms of the digital technology trends,” Wilson said. “You need leaders that are very forward focused, who really look at the customer perspective, and are really good at adapting to rapidly changing situations…. That’s what’s made us successful.”

Wilson said she still sees the majority of shoppers wanting to come in face to face and build up trust with a salesperson before buying. But she also said dealers should listen to shoppers who are bucking sales pressure and seeking a clearer, more straightforward process.

“If we don’t listen,” she said, “we won’t be in business.”