New vehicle sales for November were reported today by Statistics Canada.
For Canada overall, the number of new cars and trucks sold was up 4.45% versus the same month year ago and in dollar terms were up 6.95%. For Alberta unit sales were down 15.9% and in dollar terms were down the same 15.9%. A 16% drop in sales is painful but it is not afterall, anything close to say a 50% drop in sales.
AutoCanada has about 43% of its 52 dealerships located in Alberta. That is a large part of the reason why its share price has fallen as high as $90 to a recent level of about $21
Clearly at $90, the stock was pricing in a lot of growth and today the earnings are in decline.
But it seems to me that a drop in new vehicle scales of say 20% or even 50%, were that to occur, is not enough to threaten the viability of very many dealerships. After all, there is still significant revenue from servicing vehicles . Also used car sales may not have fallen as much. In fact at least one very large dealership in Edmonton is advertising that it has a large U.S. buyer for used vehicles. U.S. buyers can take advantage of the sharply lower dollar.
And auto dealerships have some ability to reduce staff expenses. They will be paying less in sales Commissions and can reduce the sales staff head count. To date, AutoCanada had been reluctant to let sales staff go but they would do so to insure dealerships remain viable.
Most companies can sustain periods of sharply lower sales if they don’t have excessive debt. AutoCanda does have significant debt but probably not an over-whelming debt level.
Also AutoCanada has so far remained profitable and there is no indication that it will not remain profitable.
It appears to me very likely that AutoCanada will be able to make some adjustments in its costs and will remain profitable.
If you owned two car dealerships in Alberta and one in B.C. and one in Ontario, you would not be having a great year but you would also not likely be panicking. And so why should owners of AutoCanada shares be somewhat panicky?
Auto dealers have been through many recessions and yet they continue to have some of the most prosperous looking businesses around. (I don’t recall ever walking through a new car dealership that looked run-down or down on it’s heels, and that’s even in towns that are otherwise not very prosperous looking.)
For more details see our full report on AutoCanada.