AutoCanada Inc. reported a net loss of $20.1 million (all figures in CND) in the second quarter as the COVID-19 pandemic sent the dealer group’s retail sales plummeting in April and May, offsetting gains made in Canada in June as stores reopened.
The loss compares with a $3.5 million loss in the second quarter of 2019. Revenue plunged 23 percent from a year earlier to $727.4 million as the company sold 15,094 vehicles during the quarter, marking a 22 percent decline.
Despite the loss, company executives signaled optimism as the dealer group heads into the second half of 2020, citing improving retail sales and margins and reduced debt. Total retail sales in Canada rose 33 percent from a year earlier in June and 19 percent in July, a stark contrast with year-over-year decreases of 50 percent and 25 percent in April and May.
“We’re better positioned than at any other time in the history of the company to achieve our potential,” Executive Chairman Paul Antony said on a Wednesday call with analysts.
AutoCanada’s U.S. unit, long a drag on the company’s finances, recorded a net loss of $6.4 million, an improvement from a $16.3 million loss in the second quarter of 2019. Revenue fell 39 percent from a year earlier to $71.1 million as vehicles sold declined 28 percent to 1,704 units.
New-vehicle sales in the U.S. dropped 35 percent to 1,011 units. Used-vehicle sales dipped 16 percent to 693 units.
Across both units, revenue from parts, service and collision repair fell 28 per cent to $90.4 million. Revenue attributed to finance and insurance slipped 3.4 per cent to $40.6 million.
AutoCanada’s Canadian unit recorded a net loss of $13.7 million in the second quarter, compared with $12.8 million in income a year earlier. Revenue dipped 21 percent to $656.4 million. Total vehicle sales also fell 21 percent to 13,390 units.
The decline in vehicle sales was driven by a 35 percent plunge in new-vehicle sales to 6,855 units sold, offsetting a 1.7 percent rise in used-vehicle retail sales. New-vehicle retail sales in Canada fell 26 percent to 6,518 units, while fleet sales plummeted 81 percent to just 337 units.
Antony said on the call that AutoCanada would soon unveil a “fully realized Canadian digital retail strategy” aimed at selling used vehicles completely online or through omnichannel platforms. Details were scarce, though Antony said the dealer group would reveal more in the coming months.
Antony said AutoCanada has been studying what new-vehicle groups in the United States, including Lithia Motors and AutoNation, as well as used-vehicle retailers such as Carvana have been doing in the digital space as it prepares to roll out its strategy.
“What we wanted to do was be very disciplined in the way we launch this, understanding that we couldn’t go out and afford to lose $100 million or $1 billion in a year,” he said. “So we’ve spent a lot of time building out a strategy in order to enable us to be able to sell many thousands of additional, incremental used cars.”
AutoCanada undertook a host of cost-reduction initiatives, including job cuts and the deferral of discretionary costs, that will result in “permanent annualized cost savings” of about $10 million. AutoCanada’s net debt fell by $45.8 million from the first quarter of 2020 to $124.2 million at the end of the second quarter.
The company also took advantage of government assistance in Canadian and the United States. In Canada, the company is set to receive $26.2 million from the Canada Emergency Wage Subsidy, designed to help businesses cover employee costs during the pandemic. Half of that was received in the second quarter, and the company expects the rest to arrive in the third.
Its American dealerships in Illinois, meanwhile, received a loan of US$5.4 million ($7.1 million CDN) under the federal government’s Paycheck Protection Program.
AutoCanada also undertook a $20.9 million writedown of its new and used inventory on both sides of the border in an effort to cut down on the days’ supply of vehicle inventory on dealer lots ahead of the rollout of 2021 model year vehicles.
AutoCanada said board member Dennis DesRosiers, a longtime Canadian auto industry analyst, will retire from the Board of Directors effective March 2021, though the company said it will “continue to work with Dennis as a resource to the company.” DesRosiers has been on the board since 2007.