AutoCanada says it will close two ‘loss-generating’ dealerships in Chicago

AutoCanada Inc. plans to close two of its dealerships in Chicago this month as part of an effort to turn around its flailing American dealership group.

The company said on an earnings call Friday that it is closing Chevrolet of Lincoln Park and Cadillac of Lincoln Park, which shared an address in Chicago. AutoCanada executives said the company has lost C$2 million ($1.5 million USD) on the stores in the first nine months of the year.

“We just couldn’t get a handle on trying to figure out a way to bring those stores to profitability,” Executive Chairman Paul Antony said today on a call with investors. I think that the volume for these brands in an urban market just, from our perspective, wasn’t conducive to the expense structure that we had. And we had to make a hard decision.”

The stores will close by Nov. 15, Antony said. The move does not impact the adjacent Toyota of Lincoln Park dealership that AutoCanada also owns.

The move comes as AutoCanada looks to make its U.S. operations profitable. The dealership group bought eight U.S. stores and a six-brand auto mall from an Illinois dealership group for C$135 million in 2018, and the dealerships have been a strain on the company’s finances ever since.

The dealership group — which reports all results in Canadian dollars — said its U.S. stores recorded a $14.8-million loss in the quarter ended Sept. 30, including a $13.4-million restructuring charge related to the closure of the two stores.

The U.S. loss more than offset $10.7 million in net income for its Canadian operations, giving the company a net loss of $4.1 million on the quarter. That compares with a $15-million loss in the same quarter of 2018.

AutoCanada earlier this year said it was seeking to sell four other U.S. dealerships as part of the turnaround plan. Today, however, Antony said the company would examine whether it could keep them in its portfolio, crediting Tammy Darvish, AutoCanada’s head of U.S. operations, with boosting the stores’ performances.

“She’s actually turning them around and it’s making us have to really reconsider actually selling them, which we will do over the course of the next quarter,” Antony said. “So, I would say that we don’t plan on shutting any more store down in the United States, and frankly, we’re feeling much better about the assets that we have there.”

Antony said AutoCanada expects its U.S. operations to be profitable in 2020. 

AutoCanad’s third-quarter revenue rose 13 percent from a year earlier to $981.9 million. Canadian revenues gained 20 percent to $871.2 million while U.S. revenue dipped 22 percent to $110.7 million.

Total vehicle sales rose 2.8 percent to 19,652 units sold. That growth was driven by an 11-percent gain in used vehicle retail sales to 7,384 units. That offset a 1.7 percent decline in new-vehicle sales.

In Canada, new-vehicle sales rose 3.7 percent from a year earlier to 10,670 units. That compares with a 27 percent plunge in new-vehicle sales in the United States to 1,598 units.

Antony said the decline in U.S. sales was intentional. He said U.S. dealerships are no longer selling vehicles for a loss in order to boost volumes.

“We consciously took a step back and said we’re going to have to sell less cars and we’re going to have to increase our gross profit,” he said. “But we’re going to have to re-teach everyone in the U.S. how we want the business to go forward. It’s not acceptable for us to sell cars at a loss anymore just to get volume.”

AutoCanada said it sold Calgary Hyundai in July for $2 million. The company, which as recently as 2018 used acquisitions as a means for growth, did not buy any new stores in the third quarter.

AutoCanada will consider acquiring more stores by the middle of 2020 as the company’s finances improve, Antony said. He said the dealership group wants to continue diversifying its brand and geographic mix and said having more Ontario dealerships was an area of focus.

He said AutoCanada would be in a good position to buy stores from family-owned dealerships looking to exit the auto business as the new-vehicle market declines.

“By [the second quarter], we think we’re in a good position to start taking advantage of the cyclical nature of the business,” Antony said.

Further expansion into the United States was possible in the future, he said, though AutoCanada is “solely focused” on getting its current business there profitable.