How U.S. and Canadian dealers can leverage cross-border synergies for growth.

While analyzing the automotive landscape in the United States and Canada, it is evident that both manufacturers and dealers are actively engaged in strategies to expand and scale their operations. To delve deeper into these developments, David Wilke, Chief Agent of Canada F&I at Ally Financial in Canada, provides his perspective on emerging trends.

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Q: What are you hearing from dealers as they shift towards a more scalable North American solution for expanding into the U.S. or Canada?

David Wilke: Original equipment manufacturers (OEMs) and dealer groups are realizing the advantages of working across borders to achieve growth and scale. For instance, roughly 400,000 people cross the border between both countries each day and 90 percent of Canadian residents live within 124 miles (200 kilometers) of the U.S. border. This means that both manufacturers and dealers have access to a larger pool of potential customers. Furthermore, many Canadian retirees migrate to southern U.S. states during the winter and frequently keep a vehicle in both countries. So, U.S. dealers often sell to these individuals.
In addition to sales opportunities, many dealer groups are often able to utilize their current accounting systems, branding, and product offerings across both borders, enhancing the scalability of cross-border operations.
From a dealer-interface perspective, the proximity of these two countries allows dealers to cultivate cross-border relationships at major events like the National Automotive Dealers Association Show and Canada’s Used Car Week event.
Lastly, this level of migration allows dealers to tap into a broader employee pool. In other words, it simply makes sense for dealers in the U.S. and Canada to take advantage of these opportunities across the board, whether it’s increasing their footprint, improving vehicle sales volume or enhancing the availability of talent.

Q: What is driving the migration of U.S. dealers to Canada and vice versa?

Wilke: It’s more about consolidation. We’ve seen an increase in mergers and acquisitions in both the U.S. and Canada, with larger dealer groups buying out smaller dealers. With fewer dealerships in Canada compared to the U.S., it makes sense that Canadian dealerships will continue to look south of the border as they explore new opportunities to expand. For instance, it’s less of a burden to explore movement from Ontario, Canada, to Michigan, compared to looking across multiple provinces and time zones.
We’re also noticing a trend with U.S. dealers expanding into Canada, as evidenced by a major dealer group that recently acquired 11 luxury dealerships in Toronto. Conversely, we’ve also begun to see Canadian dealers moving far into the southern areas of the U.S. and opening stores in Texas and Florida.
From another point of view, the external environment plays a role in how dealers within the U.S. and Canada interact. When dealers encountered an inflationary environment or experienced supply-chain disruptions resulting from the pandemic, their ability to migrate between borders allowed both sides to overcome some of those challenges because dealers obtained access to a broader variety of vehicles. However, as economic trends ebb and flow, those approaches may change and a dealer will take advantage of that fluidity. For instance, some Canadian dealerships prefer to ship vehicles south rather than selling them as used vehicles on their own lots, which capitalizes on the current strength of the U.S. dollar. But if that valuation shifts, dealers may elect to retain those vehicles. Regulation plays an important role as well; while the U.S. tends to have stricter regulations overall, there may be variability in the number of new regulations based on location within the States.

Q: From an F and I perspective, how does the U.S. and Canada differ? Any similarities?

Wilke: In both countries, vehicle-service contracts are the primary offering. However, while guaranteed asset protection (GAP) is more prevalent in the U.S., creditor and corrosion products are quite popular in Canada. Despite similar weather impacts in northern U.S. regions, corrosion protection remains a valued legacy product for Canadian customers – and I don’t expect that to change. For U.S. dealers that aren’t familiar with creditor, it’s an optional product that can help cover a mortgage loan, credit card debt and so forth if an accident, disability or illness impacts the customer’s ability to pay these debts. Recent legislative challenges may lead to changes in creditor offerings so that they align with similar products in the U.S. I expect this could evolve in the near future.

In contrast, the topic of theft has piqued the interest of both dealers and consumers in the U.S. Ally is promoting a product called RecovR that allows dealers to track inventory on their lots, which helps them mitigate dealership losses and costly claims. If a vehicle is stolen, the technology can automatically alert law-enforcement authorities so the vehicle can be tracked and recovered more quickly. Dealers can then pass this service along to the consumer when the vehicle is purchased, which means car buyers can enjoy those same benefits.

As a result, we’ve seen increased emphasis on enhanced maintenance or ancillary products that focus on when – not if – customers will use them. Encouraging customers to return to a dealership for maintenance is important; in my experience, focusing on the service lane can potentially boost profitability, enhance customer retention, and may contribute to the long-term value of the dealership.

There are some differences in how dealers market F&I offerings. Although menu usage isn’t as common in Canada, I have noticed product penetration improvement when dealers use this method. Interestingly, there’s also a growing trend toward bypassing menu-based selling entirely and adopting an Amazon-style shopping cart instead. This could allow for a more personalized experience based on an individual customer’s needs. In my experience, the number of products sold per deal is becoming as relevant as profit per deal. This may suggest that the quantity of products sold could be linked to customer loyalty and service-lane performance, even if immediate profitability isn’t as high.

Q: How does the Ally model function differently in Canada? What trends are you seeing?

Wilke: The main difference in Canada is that Ally doesn’t operate in the auto-finance space. Instead, it focuses on F&I and remarketing through our SmartAuction internet platform. While the U.S. focuses primarily on a direct model for F&I, we offer both a growing suite of Ally products as well as strong and stable relationships with two large OEMs in Canada. I’m excited to see how we continue to grow in both the breadth and depth of our products and services.