Why the Canadian gov’t is the best car salesman

Welcome to another episode of the Car Dealership Guy Podcast.

Today’s guest is Jimmy Houle, CEO of Groupe Lallier Automobile, a dealership group based in Quebec. Jimmy shares his insights into the Canadian car market and the unique factors that distinguish it from the U.S. retail automotive sector.

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(2:45) - Jimmy’s background and career

(8:37) - How many stores do you have and what is your top-line revenue

(9:41) - How did you react to Honda cutting dealer profit margins?

(12:31) - How is Honda performing in your market?

(13:23) - Are you experiencing similar challenges to US dealers?

(16:21) - Are EVs your best-performing product?

(17:59) - How much higher are margins on cars you send to the US?

(20:40) - How powerful are online sellers in Canada?

(22:43) - What are the core differences in operating your store vs. a US store?

(24:46) - Manufacturer presence in Canada

(26:30) - Are you facing any major headwinds in the Canadian auto market?

(30:21) - How do you operate your stores?

(31:36) - Cultural and regulation differences between US & Quebec market

(34:20) - How are you acquiring used cars?

(36:04) - Why are you sending cars to auction?

(37:10) - What has you excited these days?

(39:13) - Are you looking to make more acquisitions?

(43:56) -  What are your best-selling products?

(45:05) - Why do you sell cars but not deliver them for 2-3 days?

1. Jimmy’s background in automotive

Jimmy got his start in the car business as a salesman shortly after graduating from Northwood University, a business-focused education institution with an industry-leading automotive program. While his father worked in agriculture, his mother’s family, which owned the Lallier group, was responsible for introducing him to the auto industry at a young age, sparking a passion for vehicles and car sales that would last into adulthood.

2. Where the Canadian market is today

Today, the Lallier dealership group owns seven storefronts in Canada. These include four honda dealerships and three kia dealerships. Jimmy estimates the group sold 6,800 vehicles and generated roughly $300 million in revenue in 2023 alone. While demand has fluctuated between new and used, he adds that both markets have seen nearly identical sales numbers in recent months.

3. Honda’s plan to cut dealership profits

Honda recently announced that it would reduce dealership profits by as much as 40% in certain instances to fund its transition to electric vehicles, much to the frustration of its franchise network. While Jimmy acknowledges that the reduction seems significant on paper, he explains that he isn’t overly worried about the change as dealers generate the majority of their money through F&I and aftermarket products. He also believes that Honda’s plan to invest in EVs will pay off in the long run, making this short-term sacrifice worthwhile.

4. Honda’s inventory struggles

Similar to Toyota, Honda’s inventory remains very constrained after the COVID-19 pandemic. The Lallier group carries only a 15-day supply across its Honda dealerships, far below the national average, limiting sales and growth. As for which models are the most popular, Jimmy notes that Civics are a top-seller in Quebec.

5. Used vehicle shortage continues

One of the biggest challenges facing dealers in the Canadian market is used vehicle inventory. Since new car prices are higher than most consumers can afford, demand for preowned vehicles has skyrocketed. Unfortunately, since many drivers are also keeping their cars for longer, supply remains extremely limited.

6. Why Canadian EVs are hot

Electric vehicles are far more popular in Canada than in the U.S. While many American dealers have expressed pessimism toward electrification, Jimmy is excited to see where the market will go, especially as Honda expands its eco-friendly lineup. Part of the reason Canadian buyers are so interested in EVs is because of the attractive incentives the government has introduced (up to CA$12,000 in rebates on new models). However, these incentives are scheduled to drop in the coming years, adding a sense of urgency to the market.

7. Explaining the absence of Carvana

Online players like Carvana are virtually non-existent in Canada. Jimmy attributes this to a law that requires digital retailers to provide a 100% refund on returns made within 30 days. This makes the Canadian market risky for internet-only platforms. However, Jimmy believes it is only a matter of time before digital retailers make their way into Canada, due to the ever-expanding prevalence of online sales.

8. Headwinds for Canadian dealers

Jimmy describes two key headwinds that are troubling Canadian dealers the most. The first is interest rates. Although rates are scheduled to decline this year, consumers and dealers are struggling to cover their expenses due to the additional costs. Jimmy notes that smaller dealers have been especially impacted by rate hikes, since many are also dealing with slower sales following the COVID-19 pandemic. The second headwind retailers are struggling to navigate is falling car prices. The surge in new vehicle inventory in 2023 allowed prices to cool in both the new and used markets. While this has helped drive more traffic to dealerships, it has also undercut profit margins, making shrewd financial management a necessity.

9. How U.S. and Canada buyers compare

Canadian buyers face unique circumstances that set them apart from most American consumers. Jimmy explains that drivers are required to use snow tires five months out of the year, meaning that thousands of customers visit their dealerships twice annually to have their tires switched out. This works to the advantage of dealers as it opens up opportunities for aftermarket service while also establishing long-term relationships with consumers. Another unique attribute of Canadian buyers is their willingness to wait when it comes to vehicle delivery. While U.S. drivers typically buy and receive their car the same day, Jimmy notes that the process in his country usually takes anywhere from two to three days. He attributes this to cultural differences in how business is conducted and what consumers are used to.

10. Looking ahead

Looking forward, Jimmy is excited to see interest rates fall, and the positive impacts that will have on the car market. He is also eager to see the EV market continue to grow in Canada, especially as major brands like Honda debut more models. The Lallier group is also experimenting with different business ventures, such as rust proofing, opening new pathways to growth and profit that he feels will be incredibly lucrative in the coming years.