Used-vehicle retailer Canada Drives has filed for and been granted creditor safety as the corporate seeks to restructure its enterprise and abandon on-line gross sales amid escalating stock prices and weakening used-vehicle costs.
The Vancouver-based firm mentioned March 21 that its enterprise mannequin, based mostly on a completely on-line buying and trade-in expertise, has proved fashionable amongst automobile consumers, however is “now not viable within the long-term.”
In a March 19 affidavit, submitted in assist of the corporate’s submitting below the Firms’ Collectors Association Act (CCAA), CEO Cody Inexperienced mentioned that Canada Drives’ ecommerce enterprise, established in 2020, was “a problem from the outset,” however started to come across sustained losses final yr.
“Within the latter half of 2022, the price of debt to personal the automobiles bought and bought elevated at an unprecedented price as a result of rising rates of interest. The difficulties introduced on by these elevated carrying obligations have been compounded by weakening used automobile costs,” he wrote.
Canada Drives obtained creditor safety March 20 below an order from the Supreme Court docket of British Columbia, in response to a discover from court-appointed monitor PricewaterhouseCoopers Inc.
Whereas the corporate has targeted primarily on ecommerce since 2020, Canada Drives was based in 2010 as a lead-generating enterprise, matching customers in search of financing with native dealerships.
Beneath CCAA safety, it plans to restructure its enterprise, winding down the “capital intensive” on-line gross sales phase, and refocusing on the financing matching service it has offered for greater than a decade.
As a part of the restructuring plan, Canada Drives additionally intends to keep up one facet of its ecommerce platform. In 2021, the corporate launched a trade-in device, which permits sellers at hand off their automobile by means of an “on the spot” on-line supply. It plans to associate with auto dealerships throughout Canada to “proceed scaling” the device.
These potential subsequent steps for the corporate are contingent on contemporary financing or a sale.
Within the March 17 affidavit, Inexperienced mentioned, “the persevering with arm of the enterprise will must be recapitalized by means of a sale or new funding.”
The restructuring at Canada Drives follows a number of turbulent months for used-vehicle sellers throughout North America. In January, Toronto-based Clutch pulled out of Western Canada and laid off about 65 per cent of its workers. In the US, Arizona-based Carvana Co., noticed its inventory worth erode by almost 98 per cent in 2022. It laid off about 4,000 workers over the course of the yr amid hovering bills and weakening demand.
As with Carvana, Canada Drives reported important losses in 2022. In accordance with monetary statements included within the affidavit, it posted a lack of $80.5 million for the yr on revenues of $297.8 million. This in comparison with a lack of $5.3 million for 2021 and revenues of $54.6 million.
Inexperienced mentioned the corporate started exploring “strategic alternate options” final yr amid liquidity constraints. It raised $40 million by means of an funding from non-prime lender Goeasy Ltd. in June, and an additional $10 million from U.S.-based KAR Public sale Providers Inc. in August, however has been unable to safe any additional financing since. A takeover bid from an unnamed purchaser was acquired in February within the type of a non-binding letter of intent, however the transaction in the end fell by means of, Inexperienced mentioned.
Canada Drives had 326 staff in Canada as of March 17, in response to the affidavit. The doc added that “a quantity” of staff might be terminated below the restructuring plans.
The corporate additionally plans to liquidate its remaining automobile stock as it really works by means of the restructuring course of and stop used-vehicle gross sales. It had 1,250 automobiles remaining in stock on March 17, in response to the affidavit.