AutoCanada Inc.’s net income fell in the final three months of 2022 as the company took a writedown on its used-vehicle inventory and saw floorplan financing costs climb with interest rates.
Canada’s only publicly traded dealership group last week reported (in Canadian dollars) net income of $14.8 million ($10.9 million USD) for the fourth quarter, down 79 percent from $69.4 million the year before.
Used-vehicle writedown provisions cost the company $12.4 million during the quarter, while added floorplan financing costs amounted to $13.3 million.
“These new hits to profitability impacted what was otherwise a historic quarter for AutoCanada,” said the company’s Executive Chairman Paul Antony on a conference call with financial analysts March 2.
Despite the lower net income, AutoCanada revenue hit a fourth quarter record of $1.4 billion, up from $1.2 billion in the same quarter of 2021. For the year, AutoCanada reported revenue of $6 billion for 2022, up from $4.6 billion for 2021.
Antony said “continued fluctuations” in used vehicle pricing prompted the writedown, before adding that the revaluation positions the company’s used inventory properly heading into the spring selling season. On Jan. 1, AutoCanada also implemented new measures to better address changes in used-vehicle prices, rolling back a change it had enacted as the used market accelerated during the pandemic.
After rising steeply in 2020 and 2021 to a peak in March 2022, used-vehicle prices in Canada declined in the second half of 2022, according to the Canadian Black Book Used Vehicle Retention Index. Used-vehicle values declined about 5.4 percent between March and December of 2022, the index shows.
AutoCanada’s gross profits on used vehicles were lower in the final three months of 2022, though its used sales climbed 21.2 percent during the quarter to reach 14,418 vehicles.
This compares to a 1.3-percent decline in new-vehicle sales for the period across AutoCanada’s 82 new-vehicle dealerships in Canada and the U.S.
Despite the current challenges, Antony said the company continues to move further into the used market in pursuit of growth.
“We see ourselves as being a hybrid of a lot of the largest auto retailers in the U.S., and CarMax. … We want a bunch of new-car dealerships and a bunch of used-car dealerships that sell both online and in-store.”
In the fourth quarter, the company sold 1.78 used vehicles for each new vehicle sale. This compares to a used-to-new ratio of 1.45 in the same period of 2021, and a ratio of 0.88 in the fourth quarter of pre-pandemic 2019.
The company is also expanding its presence in the collision centre and vehicle repair business.
On Feb. 27, it announced the acquisition of DCCHail, a paintless dent repair company specializing in the insurance claim management process and repairing hail damaged vehicles, with a national presence, including Canada’s largest hail repair facility in Calgary, Alta.
DCCHail generates more than $15 million in annual revenue, AutoCanada said.
“The current management team will continue to operate the business going forward,” the company said. “Apart from continuing to strengthen the operation's performance, the acquisition unlocks additional growth opportunities, including the potential to expand the business by leveraging AutoCanada’s dealership, parts and service and collision platforms.”