AutoCanada considers selling U.S. stores, reports data breach and $24 million Q2 loss

Editor's note: All financial results in this story are reported in Canadian dollars. The current exchange rate is 73 cents in U.S. currency per one Canadian dollar.

AutoCanada Inc. is exploring the sale of its U.S. dealerships and other “non-profitable and non-core assets,” as the company swung to a loss for the second quarter amid falling sales, a significant used-vehicle inventory writedown and fallout from the CDK Global cyberattack. 

The Edmonton-based dealership group reported a loss of $33.1 million ($24.2 million U.S.), or $1.47 per share for the quarter, down from a gain of $45.2 million, or $1.81 per share, in the same period of 2023. Revenue fell to $1.6 billion from $1.8 billion a year earlier. 

AutoCanada Executive Chairman Paul Antony said the company did not respond “swiftly enough to adequately counter increasingly challenging market demands.”

“Our recent performance has not met our own expectations and it has become clear to me that we need to further deepen our focus on both deleveraging, and the profitability of our core dealership operations,” he told analysts on a conference call Aug. 13. 

The company plans to halt all mergers and acquisitions activity as well as freeze discretionary spending as it contends with what Antony described as “economic uncertainty.”

AutoCanada reported net income of $2.4 million from its Canadian operations in the second quarter, but a loss of $35.5 million on its U.S. unit, which is made up of 10 stores in Illinois branded as Leader Automotive Group. Most of the stores are in the Chicago area.  

Given the weak performance, Antony said the company has initiated strategic reviews for all unprofitable, non-core assets in both Canada and the U.S.

Pressed by financial analysts on the conference call, he added that the company’s U.S. stores operate in a different environment than those in Canada and that AutoCanada doesn’t have the “competence or patience” to run them successfully. 

“Spending time and energy to properly turn those stores, I don’t think makes sense given the current conditions.”

Other challenges

Canada’s only publicly traded dealership group also reported a handful of significant charges that cut into profitability during the quarter. 

These included a $12.7-million used-inventory writedown, a $4.7-million management transition charge and $4.5 million in increased floorplan costs, according to company CFO Samuel Cochrane. 

The CDK Global cyberattack that shut down AutoCanada’s dealership management system for nearly two weeks in June also led to lost sales and profit during the quarter, Antony said. The incident resulted in a 15- to 20-percent hit to earnings, he estimated. 

AutoCanada also pointed to the weak performance of its Stellantis dealerships as a significant drag on the company’s quarterly results. Chrysler, Dodge, Jeep and Ram stores account for about 25 percent of the company’s Canadian dealership footprint, and consumer demand for the brands has been “soft,” Antony said. 

“It kind of impacts our used business [as well] because if we’re not selling new cars, we’re not getting trade-ins, and therefore it’s more difficult for us to go and acquire good used inventory for good gross margins.”

U.S. operations 

AutoCanada announced plans to enter the U.S. in March 2018 with its intent to purchase most of family-owned Grossinger Auto Group in Illinois. The acquisition included Chicago-area dealerships and introduced Toyota, Honda, Lincoln and Volvo to its franchise mix.

In 2019, AutoCanada rebranded its U.S. dealerships to Leader Automotive Group. The auto retailer then said the move was part of a turnaround strategy that included divesting underperforming stores.

AutoCanada in March of that year hired Tammy Darvish to lead U.S. turnaround efforts. Her charge was to improve the business in six months, with the goal of having U.S. stores break even and start being profitable, executive chairman Paul Antony said at that time.

Darvish, honored as one of Automotive News' 100 Leading Women in the North American Auto Industry in 2020 and 2010, led the company's U.S. division to report net income of $3.7 million (U.S. dollars) in the second quarter of 2021. Darvish quietly left the company in 2021 and that year, James Douvas took over her duties working as vice president of U.S. operations until October 2023, according to his LinkedIn profile.

With brand and geography more important than ever for dealership buyers, George Karolis, president of Presidio Group, an investment banking and buy-sell advisory firm in Denver and Atlanta, said AutoCanada's exposure to Stellantis poses a challenge and the firm's U.S. locations aren't ideal. 

"Their U.S. operations are not necessarily in the greatest business-friendly and growth markets that are better as in demand, such as Florida, and more the southeast and Texas." Karolis said. "They do have some good brands in the U.S. Some of their holdings are top-tier luxury and import stores, but obviously they have some of the other brands that are more challenged. The U.S. market in general is still a strong M&A market for dealers with the right brands and the right geographies in particular."

AutoCanada in September 2023 said Jeff Thorpe, who joined the group in April 2022 as president of Canadian operations, would become president of North American operations.

AutoCanada shares slipped 16 percent to C$15.20 in later afternoon trading Aug. 14 on the Toronto stock exchange.

— Gail Kachadourian Howe contributed to this report