Alan Haig is quoted in the recent Auto Remarketing Canada article and provides several factors as to the interest in Canadian dealers coming south.
The following excerpt is as published by Auto Remarketing Canada:
Alan Haig, president of Haig Partners, said he can’t really define when the crossing borders shift began, but he contends it certainly started before the pandemic, in terms of Canadian dealers buying dealer groups and individual dealerships in the U.S.
There are a number of factors Haig presented. Here’s how he broke them down:
- In some cases, owners of dealership groups in Canada want to buy dealerships nearby, but perhaps see the benefits of the U.S. dealer group set up.
- There is personal interest, as well, in terms of Canadians preferring to live part of the year in the U.S., avoiding the cold in the winter months.
- Canadian dealerships are more consolidated and expensive than in the U.S.
“A number of our Canadian dealer friends tell us that the prices that dealerships command in Canada as a multiple of earnings is higher than the multiple in the United States,” Haig said. “And I have a feeling it's just a function of supply and demand. There's a lot of demand in Canada.”
“There are not that many left that are independent for dealers to buy. So, when something comes up (in Canada), it's expensive,” Haig said.
The cost for real estate in Toronto, even well outside of downtown, far exceeds the cost of land in a comparable city in the United States.
“Then I think the U.S. is growing faster and is much larger. So, if you're a dealer and you're doing well and you want to expand, you have more opportunities and an opportunity for a higher return on investment in the United States,” Haig said.
And one doesn’t have to cross an ocean to get to either country from the other.
“There are a lot of Canadians in the United States, either for personal reasons or professional reasons,” Haig said. “The cultures are pretty similar, so it's not companies coming from Japan or China — or South Africa —and it seems to work pretty easily.”
Perhaps the border crossing started with personal reasons, but “they're also a lot of economic reasons why dealers find themselves wanting to acquire dealerships in the U.S. versus Canada,” Haig said.
Haig pointed out there are about nine times more dealerships in the U.S. than in Canada, “So, it's easier for Canadians to find opportunities for acquisitions in the U.S. than it is in Canada.”
Also, Haig said, in terms of Canadian dealerships being much more expensive from a real estate perspective, Canadian dealers looking to enter the U.S. are likely outbidding American dealers.
American dealers will often get a higher price when selling to Canadian dealer groups.
“For U.S. dealers that want to grow, they're competing not only with American dealers, but now with 15 or 20 Canadian groups that want to come down here as well,” Haig said.
He also touched on franchise rules, as well, in terms of our deeply engrained franchise dealer laws in America, and those being attractive north of the border.
“In the United States, every state has laws that are designed to protect the dealer,” Haig said.
For example, in Texas, there are laws making sure there aren’t any franchise dealers in very close proximity to other dealers, in hopes to not force over-competition.
“Canada doesn't have those same protections … if they get mad at a dealer, or if they think they're not being represented well in a certain area, they can award another franchise to another dealer — very close to an existing dealership, and that can harm the existing dealer,” Haig said.
And these dealers can jump on an airplane within a couple of hours, with most speaking the same language — and ”that’s a smart thing for them to do,” Haig shared.
Looking forward, Haig says dealers will continue to invest in the United States. And in many cases, Canadian dealers are looking to buy one or two dealerships a year. And many of these Canadian dealers are very large and highly profitable.
“And we absolutely expect that they will be making much bigger investments in the United States,” Haig said.
Read the full article here [may require a subscription].
