The approaching arrival of U.S. dealership large Lithia Motors Inc. in Canada is prone to open the door to different retail teams south of the border, business specialists mentioned.

“If, in actual fact, Lithia comes right here, that will likely be simply the beginning,” mentioned Michael Lewicki, president of buy-sell firm Lewicki Automotive Consulting in Toronto. “There will likely be not less than a handful of different American consolidators that come north of the border, whether or not or not it’s to Vancouver, Calgary, Toronto [or] Montreal.”

Lithia, the second-largest dealership group in the US, is predicted to buy Toronto-based Pfaff Automotive Companions, Automotive Information Canada reported in July. It could be the primary notable instance of a U.S. dealership group increasing into Canada and would make Lithia the second publicly traded dealership group to function within the nation, becoming a member of AutoCanada Inc.

The deal might have large implications for the dealership buy-sell market. Lithia, with a market cap of US $11.55 billion ($14.36 billion) — and 262 dealerships in its portfolio, in accordance with the corporate’s web site — has higher entry to capital for growth than each different dealership group in Canada by a large margin. And the group has made no secret that it sees Canada as a major a part of its plans to develop to US $50 billion ($62.2 billion) in annual income by 2025.

LITHIA GOT TO KNOW CANADA

“Canada is our No. 1 goal,” Lithia CEO Bryan DeBoer mentioned throughout a July name with analysts. “We’ve spent the final 5 years attending to know the seller physique there and have fairly good relationships with many of the giant teams and consider that one thing is imminent in that nation.”

As of press time, Lithia, headquartered in Medford, Ore., had not confirmed the Pfaff buy, saying it doesn’t touch upon acquisitions till they’re closing. A spokesman for Pfaff additionally declined to remark for related causes.

The Pfaff acquisition would give Lithia a foothold within the Higher Toronto Space, Canada’s largest market, in addition to a smaller presence in Vancouver and London, Ont., about 190 kilometres west of Toronto. Pfaff operates 16 dealerships, largely in Toronto, representing manufacturers akin to Subaru, Porsche, Mercedes-Benz, McLaren and BMW.

The anticipated deal has already led dealership teams in Canada to look into buying extra shops or to promote, mentioned Samir Akhavan, managing companion on the Toronto-based dealership brokerage Templeton Marsh. Lately, he has suggested Lithia on its plans to increase into Canada.

“We’ve had extra inquiries since phrase of this deal obtained out than we might get in a yr … sellers calling us, not us knocking on doorways,” Akhavan mentioned.

Small dealership teams with only some shops are feeling stress to both promote or increase to a dimension and scale that may enable them to compete with bigger teams, he mentioned.

In the meantime, regional teams in regards to the dimension of Pfaff at the moment are saying: “ ‘What’s it that [Pfaff CEO] Chris Pfaff is aware of that I don’t know? Why now?’ ” Akhavan mentioned.

THE HEAT IS ON TO GROW

Canada’s largest seller teams at the moment are underneath stress to develop additional to higher compete with the likes of Lithia in addition to nationwide Canadian teams akin to AutoCanada, which operates 50 dealerships in Canada and 14 franchises in the US.

“You’re going to see the 25-plus-store teams doing one thing,” Akhavan mentioned. “Plenty of these teams have the wherewithal to accumulate one other group of 20 or 25 shops to make them into a really giant regional group or a considerably smaller nationwide group. I believe that’s the place you’ll see essentially the most motion.”

Massive U.S. teams akin to Lithia might see Canada as a market with plenty of upside, mentioned Colin Richardson, principal at Omni-Channel Automotive Options in Toronto. Canadian digital retail is seen as much less refined and all-encompassing than the methods in play from U.S. corporations, Richardson mentioned. That provides them a bonus over Canadian rivals proper from the beginning.

The U.S. teams additionally would possibly see a chance for used autos. To date, Canada lacks the presence of publicly traded used-car corporations akin to CarMax and Carvana, which have supplied stiff competitors for U.S. dealership teams. The price of doing enterprise can also be typically decrease for a seller in Canada than it could be in the US, Richardson mentioned.

“We don’t have particulars of the [Pfaff] deal,” he mentioned, “however I assure [Lithia] paid a major amount of cash for a high quality group.

“That’s a good way to get their foot within the door.”

Lithia and different U.S. teams may also see advantages in buying underperforming teams, particularly those who have but to totally embrace digital retail, Richardson mentioned. Bigger teams might take these dealerships and make them extra environment friendly and subsequently extra worthwhile.

“There’s extra upside and alternative with these specific teams,” Richardson mentioned.

‘A SPECIAL PARTNER’

Lithia’s DeBoer informed sibling publication Automotive Information that Lithia has been in talks with “many of the main teams” in Canada and would prioritize a companion that shares Lithia’s concentrate on scaling digital retailing. DeBoer beforehand mentioned that early classes from Lithia’s omnichannel digital retailing platform, Driveway, rolled out one yr in the past, show the potential for the platform to dominate domesticaly and internationally. Omnichannel refers to expertise and processes geared toward offering a seamless shopping for expertise for customers, whether or not they store on-line, in-store or each.

Whereas DeBoer declined to touch upon the Canadian group with which it has a deal, he did say, “It’s a particular companion to us after which somebody we’ve identified for nearly half a decade, and [we] actually sit up for with the ability to announce that within the coming months.”

He talked about the UK — the place rivals Penske Automotive Group Inc. and Group 1 Automotive Inc. have dealerships — and Australia as different prospects for Lithia growth.

“These are rather less related at immediately’s date,” DeBoer mentioned. “These are most likely two to 5 years out, type of the place Canada was just a few years in the past. So nothing pressing.

“We actually have a look at Canada as an extension of the US. It has related financial backgrounds; it has related governmental regulation and so forth. We really feel very snug in that.”

With recordsdata from Jackie Charniga and Melissa Burden.