Canada Drives granted creditor protection as it restructures, abandons online

Used-vehicle retailer Canada Drives has filed for and been granted creditor protection as the company seeks to restructure its business and abandon online sales amid escalating inventory costs and weakening used-vehicle prices.

The Vancouver-based company said March 21 that its business model, based on a fully online purchasing and trade-in experience, has proved popular among car buyers, but is “no longer viable in the long-term.”

In a March 19 affidavit, submitted in support of the company’s filing under the Companies’ Creditors Arrangement Act (CCAA), CEO Cody Green said that Canada Drives’ ecommerce business, established in 2020, was “a challenge from the outset,” but began to encounter sustained losses last year.

“In the latter half of 2022, the cost of debt to own the vehicles purchased and sold increased at an unprecedented rate due to rising interest rates. The difficulties brought on by these increased carrying obligations were compounded by weakening used vehicle prices,” he wrote.

Canada Drives obtained creditor protection March 20 under an order from the Supreme Court of British Columbia, according to a notice from court-appointed monitor PricewaterhouseCoopers Inc.

While the company has focused mainly on ecommerce since 2020, Canada Drives was founded in 2010 as a lead-generating business, matching consumers looking for financing with local dealerships.

Under CCAA protection, it plans to restructure its business, winding down the “capital intensive” online sales segment, and refocusing on the financing matching service it has provided for more than a decade.

As part of the restructuring plan, Canada Drives also intends to maintain one aspect of its ecommerce platform. In 2021, the company introduced a trade-in tool, which allows sellers to hand off their vehicle through an “instant” online offer. It plans to partner with auto dealerships across Canada to “continue scaling” the tool.

These potential next steps for the company are contingent on fresh financing or a sale.

In the March 17 affidavit, Green said, “the continuing arm of the business will need to be recapitalized through a sale or new investment.”

The restructuring at Canada Drives follows several turbulent months for used-vehicle sellers across North America. In January, Toronto-based Clutch pulled out of Western Canada and laid off about 65 per cent of its staff. In the United States, Arizona-based Carvana Co., saw its stock price erode by nearly 98 per cent in 2022. It laid off about 4,000 staff over the course of the year amid soaring expenses and weakening demand.

As with Carvana, Canada Drives reported significant losses in 2022. According to financial statements included in the affidavit, it posted a loss of $80.5 million for the year on revenues of $297.8 million. This compared to a loss of $5.3 million for 2021 and revenues of $54.6 million.

Green said the company began exploring “strategic alternatives” last year amid liquidity constraints. It raised $40 million through an investment from non-prime lender Goeasy Ltd. in June, and a further $10 million from U.S.-based KAR Auction Services Inc. in August, but has been unable to secure any further financing since. A takeover bid from an unnamed buyer was received in February in the form of a non-binding letter of intent, but the transaction ultimately fell through, Green said.

Canada Drives had 326 employees in Canada as of March 17, according to the affidavit. The document added that “a number” of employees will be terminated under the restructuring plans.

The company also plans to liquidate its remaining vehicle inventory as it works through the restructuring process and cease used-vehicle sales. It had 1,250 vehicles remaining in inventory on March 17, according to the affidavit.