Auto analyst says 500 Canadian car dealerships will close over next five years

Despite measures in the federal budget to help free up financing for businesses and consumers, one auto industry analyst predicts 500 car dealerships across Canada will close over the next five years and the auto supply sector will shrink substantially as well.

``GM, Ford and Chrysler are highly over-dealered,'' Dennis DesRosiers of DesRosiers Automotive Consultants said in an interview Wednesday.

``Their model traditionally was to put a dealer on every corner. They're over-dealered not just because of loss of market share, but because of their preference to have multiple dealers competing with each other in the same marketplace.''

Because of this over-abundance of dealerships, the sector _ while has already shrunk by approximately 400 dealerships over the last decade _ will continue to contract dramatically, DesRosiers said.

``In the next five years, you will likely see a minimum of 400, perhaps 500 car dealers in this country disappear,'' he said, adding that the Detroit Three will lead the way in dealership closures.

There are currently about 3,000 new car dealerships in Canada.

Ottawa promised Tuesday to support consumers and business through the creation of the Canada Secured Credit Facility which will buy up to $12 billion in securities backed by loans and leases on vehicles and equipment for consumers and businesses.

The government hopes this will make it easier for consumers to lease vehicles by freeing up the credit markets for businesses like dealerships, which require financing to stock their showroom floors.

Huw Williams of the Canadian Automobile Dealers Association said tight credit markets were ``crippling'' car dealerships and he welcomed the federal boost.

``What it's doing is allowing those companies that want to finance the auto industry to do what they've always done but have been prevented from doing because of the worldwide credit freeze,'' Williams said in an interview.

He added that his outlook for Canadian dealerships is ``nowhere near as negative'' as some, and he expects 2009 will be a ``solid'' year for the industry.

The Canadian vehicle economy is fundamentally different from that in the U.S., where demand has fallen off a cliff, shrinking by more than 40 per cent in 2008. On average, Canadians own older vehicles and fewer vehicles than their American counterparts, meaning demand will stay higher and recover faster than in the U.S., Williams said.
``So we're optimistic about the pent-up demand and we're also optimistic about the product lineup that's there and vehicle affordability,'' Williams said.
However, there's a danger that Canadian consumers will let news out of the U.S. affect their confidence, he added.

``There's a lot of noise about the unhealthy nature of the auto industry, and our biggest worry of course is that the two things get confused and that spooks consumer confidence,'' Williams said.

Ottawa also said Tuesday it will use $13 billion to increase the lending of Crown corporations, including $5 billion through the new Business Credit Availability program. Export Development Canada and the Business Development Bank of Canada use that program to make loans to businesses whose access to financing would otherwise be restricted.
Although the budget didn't include any funding specifically earmarked for the auto supply industry, parts companies should be able to take advantage of the new program, said Gerry Fedchun, president of the Automotive Parts Manufacturers' Association.

``I'm reasonably confident that the money that we need is contained in that, because that was our big ask to the government,'' Fedchun said in an interview. ``If we get a piece of that, $1 billion worth of that, I'm happy,''

But DesRosiers said the parts industry also has ``a lot more shrinking to do.''

``Some of it is very healthy shrinking and necessary shrinking,'' DesRosiers said. ``The players that remain, darn they're going to be efficient. If you can get through this, you can get through just about anything, and when vehicle production comes back our guys are going to be really well positioned to explode.''