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Banking for auto dealers 5 min read

Electrification, consolidation and COVID: How CWB is supporting automotive dealers in a rapidly changing industry

Steeped in knowledge of all things automotive, CWB’s Gus Masi is a trusted navigator.

Gus Masi loves 4X4s and ‘70s-era sports cars, and if you ever have a video meeting with him, you might notice his background is a scene from the iconic 24-hour endurance race at Le Mans. Masi is, in short, a self-professed car nut—and that passion has carried over into his career choices. He has been involved in the automotive industry ever since he graduated from university in the early 1990s, working for manufacturers in sales and distribution, parts and service as well as finance divisions, as an executive at a large dealership group, and as a financing professional. Today, he brings that love for the industry to his role as Assistant Vice-President and Group Lead of CWB’s Automotive Finance Group, where he has been supporting the financial needs of Canadian auto dealers for more than six years. “I’ve been in the dealers’ shoes, on the manufacturing side and also the banking side,” Masi says. “In terms of experience, I guess you could say I’ve got it from all angles.”

For Masi, his job is about being more than a banker and lender for auto dealers-owners—it’s about being a partner to businesses that want to grow. It’s an approach shared across CWB, where small and medium-sized business owners can expect customized solutions based on the kind of in-depth knowledge and experience that the CWB Automotive Finance team bring to their work.

“I have nearly 30 years in this industry, and there are people on my team that have even more client-facing experience than that,” says Masi, who is based in Calgary but supports clients across the country.

“But our other strength is that we’re not looking at a client as just a number in a file. Our goal is to be a valued partner, understanding each unique situation and working that into our lending and banking solutions.”

Navigating a complicated outlook

Understanding and flexibility from a financial partner are arguably more important than ever to Canadian auto dealers, who are facing a rapidly evolving business landscape that is creating both challenges and opportunities. Dealer-owners are coming off a very difficult few years, in which supply chain disruptions caused by the COVID-19 pandemic hit the industry hard. While used-car prices skyrocketed during the crisis, a reduced supply of new cars from manufacturers adversely impacted sales volume and had a “trickle-down effect” on dealers’ parts and service departments, too. Even today, more than three years since the first COVID lockdowns in Canada, “new car sales remain supply-chain challenged” and dealers are still working through back orders, Masi explains. Meanwhile, another offshoot of the pandemic—higher interest rates in response to higher inflation—is further complicating the outlook for dealerships, as elevated borrowing costs could hurt consumer demand. “At this point, the impact of COVID, and how it evolves, will be a factor for dealers for at least the next few years,” he says.

Even as they address the lingering challenges of the pandemic, auto dealer-owners are facing longer-term transformational trends in the industry, too. One of them is electrification, which is “a big unknown to many dealerships,” Masi says. Its potential impact goes beyond selling electric vehicles; it also could require significant capital outlays to modernize showrooms, install charging stations, restock parts departments, retrain staff and technicians, and upgrade service capabilities.

Muddying the picture even more is the fact that there is little consistency in automakers’ approaches to electrification and how it will play out at the dealership level. “Each manufacturer has their own vision of what the sales model will look like in the future,” Masi explains. “Some clients who own one or two dealerships may be all-in on one brand, while other dealer groups who span a few brands are experiencing different things with different manufacturers.”

Opportunities on the road ahead 

It's not all bad news for dealer-owners, however, because in change lies opportunity. For the past several years, the trend in dealerships has been towards consolidation. In fact, Masi says, “there has been, over the last few years, a very high volume of buy/sell transactions for dealerships, and that’s not anticipated to slow down anytime soon.”

One driving force is demographics, as many dealership owners are aging out of the industry, and some are deciding that economic and market uncertainty provides a good reason to sell now. On the other hand, he adds, “some of the younger dealer-owners who may own three dealerships, as an example, have come to realize they need to get bigger, and that means taking on significant debt.”

Expanding into multiple dealerships provides opportunities to realize synergies. Merging marketing, HR, accounting and other back-office functions under one umbrella can lower costs on a per-dealership basis. As well, expansion can help diversify a dealer-owner’s product offerings. “With multiple brands and types of vehicles, a dealer can access a different cross-section of consumers and geographies,” Masi says. “For instance, trucks might be hot in certain markets but not in other markets. And on the used-car side, if you have experience with multiple brands, you become a bit of a subject matter expert as you’re taking in trades and servicing other used vehicles.” Electrification offers another reason to expand. Some dealer-owners are taking on several brands to diversify their sales channels and mitigate risk, since there is little clear direction among manufacturers as to how the move to electric vehicles will play out for dealers.

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The intersection of flexible and adaptable 

What is clear, however, is that the auto industry is in a period of unprecedented change—maybe more than Masi has seen in his almost 30 years in the business. To respond, dealer-owners need to be “flexible and adaptable,” he says - and so do their financial lending partners. He points to his team’s recent work with a dealer group in Vancouver that wanted to buy out a partner and purchase the real estate at one of its locations. “They were looking for some unconventional terms, compared to what the market would typically do, and we were able to assist them and beat out another leading financial institution,” Masi says. “Our rate was competitive, and the terms matched what the client was looking for in terms of providing cash-flow flexibility.” The client has since become a repeat customer: the group is building another dealership and CWB is in line to support them with financing again.

That’s an example, Masi says, of what makes CWB different from other banks. He and his team understand that “there are a bunch of factors pulling dealer-owners in multiple directions,” he adds. “That requires adaptability from us, too. Dealers need to have partners who understand the business and the nuances involved. We are not the financial services partner who says, ‘Hey, we will take all the risk.’ But we are the partner who says, ‘Let’s listen to you.’