Wynford Connects to Our Clients Vol.2

WELCOME TO VOLUME 2 OF WYNFORD CONNECTS TO OUR CLIENTS!

The first segment of this report shares recent news and milestones from some of our clients.

In the second segment, we take a broad look at an industry that represents several of our clients: the automotive industry.

PS: We apologize in advance for any omissions –if there’s something you’d like to see highlighted from one of our clients, please let us know!

CLIENT NEWS

Immersive experiences are all the rage these days. Best Buy is building one and it’s a doozy. They launched the Ultimate Gamer Dad* Challenge for Father’s Day.

The winner of the competition got a weekend stay at the “Ultimate Gamer Suite” at the Soho Hotel in Toronto, where dad and a plus one enjoyed an exciting, immersive gaming experience with a room full of the latest technology.

Prize aside, the way they had created this content mixing elements of social media, live action, and in-store elements makes it one of the most modern campaigns we’ve seen in quite some time.

*second to Johnny Brennan of course

CI Financial recently reported total assets of $395 billion as of April 30, 2023, a record for the company. The assets are roughly split between Canada and the United States and include assets of clients of CI Assante and other subsidiaries.

Exact rankings can be a bit “fluid”, but this places CI comfortably in the top 8 Canadian asset managers.

iA Financial Group has appointed a new leader of its wealth management division. Stephan Bourbonnais will be responsible for the firm’s wealth management growth strategy, overseeing iA Clarington Investments, Investia Financial Services, iA Capital Markets and iA Private Wealth.

Before joining iA in 2021, Bourbonnais held senior roles with TD Private Wealth Management and National Bank Private Wealth Management.

CLIENT NEWS

Kia opened the “Electric Vehicle Inspiration Centre” in Quebec City in late May, the second of its kind in Canada. It’s an interesting innovation in auto retailing.

Recognizing the hesitation some drivers have about EVs, Kia Canada COO (and friend of Wynford) Elias El-Achhab said, “These centres are designed to be a place where the public can test different types of electric vehicles, while learning about charging infrastructure, government incentives and the savings associated with EV ownership. It truly is a place where the public can learn about the EV lifestyle in a relaxed environment.” Watch for more Kia centres, and copycats from other manufacturers, to roll out across the country soon.

RBC performed the rare feat of bringing two of its major sponsorships together in the most satisfying collisions since Starsky met Hutch. The RBC Canadian Open welcomed Alanis Morissette for the latest in the RBC Music series; demand for tickets bordered on the hysterical.

Golf fans (hello, Renu!) will appreciate how huge it was for RBC to have their name on the past weekend’s tournament; numbers fans (hello, Rose!) will appreciate that their sponsorship generated tens of millions of impressions on Twitter alone in just 4 days.

Even Jim Nantz said it was the best ever!

A senior RBC Insurance executive (and Wynford program veteran) received significant recognition recently. Dennis Craig, Vice President, Managing General Agents & National Account was named the winner of the 2023 Alexander S. Melvin Award for inspirational and ethical leadership in financial services. The award was presented last month at the Canadian Association of Independent Life Brokerage Agencies National Conference in Quebec City.

INDUSTRY SPOTLIGHT: AUTOMOTIVE

In each volume, we offer a short primer on one of Canada’s biggest industries. This month: all roads lead to automotive!

Wynford has had automotive clients almost since the day we opened our doors. Currently, we work with Kia, Hyundai, and Mazda on various conferences and reward experiences.

In structure, operation, audience, and expectations, automotive has some significant differences than other industries we work with, many of which are not obvious on the surface. This primer will give you some background on how it works and why it’s different.

In this section, there are two main players:

Manufacturers:

Each country has its own subsidiary of the global manufacturer, sometimes called an “affiliate”. These are our clients.

Dealers:

Independent businesses that strike (very long and detailed ) agreements with the manufacturers to sell and service the vehicles. They are separate businesses from the manufacturer. Their facilities are usually called “Dealerships”, though there is an increasing trend towards calling them “stores” ( especially at Ford ). The owner, or most senior executive, at a dealership is referred to as the “Dealer Principal”.

WHAT’S UNIQUE ABOUT THE AUTO INDUSTRY?

I. Longevity

The current model – of customers going to an independent dealership for all their needs, wants, and interests – emerged in 1889, when the Reading Automotive Company opened the world’s first dedicated car dealership in Pennsylvania. (They sold Winton cars made in Cleveland.) Obviously, there have been some evolutions since then, but the basic model has never been disrupted in 134 years. How many industries can say that?

II. Customer Acceptance

Even more remarkable than the model’s longevity is the fact it has survived despite consumer’s dislike of it. Most people reading this section likely have experiences of their own. In terms of data, check out these results from an Ipsos survey in late 2022:

• 84% wish that the process for purchasing a car was easier

• 71% prefer not to negotiate with commission-based salespeople

• 21% of car buyers have felt taken advantage of at some point

The endurance of the model in the face of results like these demonstrates just how powerful, and entrenched, the model really is.

III.The A-Word: Allocation

Allocation simply means: how many cars do we have to sell? This is about more than raw numbers – it’s about access to the most-desired, fastest-selling models.

This affects both players. The global head office decides how many vehicles to allocate to affiliates in each country. There are many factors that can affect this decision, including sales, satisfaction, and adherence to brand standards.

The national affiliates in turn allocate cars to each dealership. This is one of the few levers manufacturers have over dealers. In addition to the factors noted above, decisions can be made to reward or punish certain dealerships.

Example: a manufacturer may want a dealer to invest in a remodel of their facility. They can’t legally be compelled to do so, but if the dealer resists, they may find their allocation compromised.

WHAT’S UNIQUE ABOUT THE AUTO INDUSTRY?

IV. Profit Potential Not Driven By Sales

One surprise your writer had when they started working with car companies is that sales aren’t their main driver of profitability. The general rule of thumb is that the parts and service department should cover 100% of the dealership’s fixed costs, and only then will sales create the potential for profit. Parts and Service is also where customer relationships are formed, because the sales transaction is fleeting at best. (It’s also where relationships can be torched, but that doesn’t usually come up in the script.)

V. Metrics of Success

Sales are important, obviously. But one thing you’ll hear some up repeatedly in executive meetings is market share, especially between close competitors. For example (and this is just for illustration) , say Hyundai sales are up 6% in a month, and Kia sales are flat. But Hyundai’s market share in the key subcompact segment is flat at 9% and Kia has overtaken them at 11%. Hyundai wouldn’t be thrilled about that. (Again, that’s just for illustration.)

VI. Brand Experience Not Owned By Brand

Listen to any manufacturer and they’ll talk on and on about the “customer experience”. The trick: they don’t actually control it. They outsource it to another business, the dealership. This lack of control is one of the most unique things about the industry. Imagine if TD outsourced its branch experience to another company. You can’t! It adds an extra dimension to the manufacturer-dealer dance.

FACTS AND FIGURES

There are approximately 3200 automotive franchises in Canada; roughly 30% of their owners own a single dealership, while the remainder are part of ownership groups. The largest in Canada is the Ottawa-based Dilawri Group, which owns 80 franchised dealerships, representing 37 brands, in Canada and the US.

Specific data on the number of dealerships per manufacturer is elusive, but for content, In Canada, as of April 2023 Hyundai has 224 , Kia has 202 ; and Mazda has 163 .

This chart of first-quarter 2003 industry sales offers a snapshot of recent sales trends. (Note that market share is specifically broken out by brand, but not by model. You have to pay for the info!)

LIGHT-DUTY VEHICLE SALES IN CANADA

Data Source: DesRosiers Automotive Consultants Given that multiple manufacturers no longer report monthly sales, individual manufacturer and industry totals are reconciled and reported quarterly and annually by DAC. Based on total sales of reporting manufacturers.

RECENT EVOLUTIONS IN THE AUTO INDUSTRY

I. Electric Vehicles

They look like the cars we’ve known for decades. But behind the steel, there is almost nothing the same in design, technology, or materials. EV’s have revolutionized not only the product, the way dealerships are built and equipped, and staff requirements, but the market itself, as consumer interest switches to companies at the forefront of the industry. While sales may not match the hype quite yet, many governments have mandated that all vehicles sold by a certain date be electric. ( In Canada, that date is 2035. ) So the change is only going to accelerate.

2022 TOP SELLERS IN THE CANADIAN MARKET

RECENT EVOLUTIONS IN THE AUTO INDUSTRY

II. Changing Nature of Customer Inquiries

Years ago, if you wanted information on a new car, you had few choices. Newspapers, magazines, and a visit to the dealership were about it. The internet changed that completely. How? Wynford once did a series of videos for Hyundai, where we visited the top 6 dealerships for customer satisfaction to find the secrets of their success. A dealer near Montreal said something we never forgot: “Today, with the Internet, the customer has done their research. They know the price they want to pay. They know the price you pay. When they come to the dealership, they know they want the car. They’re just deciding whether to buy it from you.”

That may sound simple, but that’s a completely different selling proposition. The customer’s decision isn’t based on the product. It’s based on the experience. Not all dealers have caught up to this reality (as many of you have no doubt experienced.)

III. The Death of the Auto Show

This is a fairly small change happening in the business, but it’s one that should interest anyone in the live event business. For decades, large auto shows ( like the Canadian International, held in Toronto every February ) have been a key tool of promotion and sales. But with the rise of digital channels, and more interest in creating experiences, some major manufacturers have stopped joining the show circuit in favour of their own new marketing approaches (thus creating opportunities for us to create custom experience campaigns). For example, Ford, Honda, Mercedes, and Mazda skipped this year’s Toronto event. These shows won’t be sustainable without significant manufacturer positioning.

THREATS TO THE CURRENT INDUSTRY MODEL

I. Availability

This is more of a short-term issue, but it’s one that has plagued both the Canadian and global industries for the last 2 years. Two separate challenges – COVID-disrupted supply chain issues and a worldwide shortage of the materials to make semiconductors – mean many most-desired models are in short supply. Long waits, unavailable options, and a surge in used-car pricing are some of the most visible consequences. Most analysts expect these pressures to ease by 2025.

II. EV Training and Customer Base

EVs are an entirely new product, requiring an entirely new infrastructure and an entirely new body of knowledge to sell and serve a more upmarket customer base. An executive recently remarked to us that because early adopters are so keen, the customers often know more about the products than their dealership staff does. This has implications for long-term customer service, especially when EVs need to be repaired.

III. 3rd Party Research/Buying Services

The internet as a research tool has been well-established for many years. The growth in the last 2 years of services that will also sell you a new car is a new innovation. Clutch, CarDoor,

and Canada

Drives are just three examples. The consumer gets a flat price, efficiently-operated experience and the car is delivered to their door. A dealership gets the sale – but they have no opening to build a relationship or inspire loyalty. That is a significant downside to the dealer.

THREATS TO THE CURRENT INDUSTRY MODEL

IV. Manufacturer Direct Selling

This is a spectre that hangs over the automotive industry and is rarely mentioned in any context: Why don’t manufacturers sell directly to consumers, and cut the dealership out of the process? At present, only Tesla uses this model. There are a few reasons it hasn’t happened on a broader scale. First are the agreements signed between manufacturers and dealers: they are comprehensive, they are detailed, they are long-lasting, and they specifically prohibit such a move. Buying out those agreements would be cost-prohibitive. The second is that, for now at least, it’s prohibited by law in Canada and the United States. (Tesla has an exception that is too complicated to get into here.) Third is the investment that manufacturers would have to make in after-sale care; imagine how many service centres Ford would have to build if they changed the model. Could this change? It certainly could, but it’s more likely to be introduced by smaller EV players than established manufacturers.

FURTHER READING AND THANK YOU!

For more details and insight into the evolving automobile industry, these three articles and reports are a great place to start (each link is clickable) .

McKinsey: Innovating Automotive Retail

TD: Canadian Automotive Outlook

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