Futureproofing the Dealership in a Time of Transformation
We all know the auto industry is headed toward electrification and alternative energy inputs. It’s an ambitious undertaking, and dealers have a lot to consider regarding how they will decarbonize and what the future of the dealership will look like.
With that in mind, Adam Doran, BMO’s Managing Director of Dealer Finance, recently sat down with three industry experts to discuss how dealers can execute this transformation while keeping customer engagement on the forefront:
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James Burrow, Director, Sustainable Finance, BMO
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Silvia Carfora, President and CEO, Weis Group, which specializes in retail network innovation with a focus on the automotive industry’s shift to electric vehicles (EVs) and sustainability
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Ethan Goldberg, Vice President and Regional Market Leader, Ontario and Atlantic, BMO Dealer Finance
Their conversation covered a lot of ground, from the nuances of selling and servicing EVs to navigating rapid change in the industry.
Sustainability Leaders podcast is live on all major channels, including Apple
and Spotify.
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Adam Doran:
Hi, everyone. Thanks for joining us. Welcome to our podcast and YouTube video talking about the automotive space, specifically dealerships and what they should look like and how they may operate in the future when we think about sustainability. I'm joined by some great guests today. I'm going to do a brief introduction, and then I'll ask the three of you to maybe tell the audience a little bit more about yourselves and your experience, and then we'll jump into some [inaudible 00:00:29].
So to my left, we have James Burrow, director of sustainable finance here at Bank of Montreal. To my right, we have Silvia Carfora, president and CEO of Weis Group. And to her right we have Ethan Goldberg, our VP and market leader for Ontario and Atlantic. Before we get into the Q&A, talk a little bit about your role at sustainable finance.
James Burrow:
Yeah, I'm going to be nice and quick. My role is really for our commercial capital markets clients to create new sustainable finance products and offerings that help them decarbonize and accelerate their journey towards net zero.
Adam Doran:
Silvia, over to you.
Silvia Carfora:
Thank you, and thanks for having us here today. I'm Silvia Carfora. We work with, or the Weis Group works with, automotive OEMs and their dealers to help implement brand standards and assess brand standards, ensuring there's consistency across the entire network.
Ethan Goldberg:
Hi, everyone. And I'm Ethan Goldberg. By way of introduction, I lead the commercial sales team for Ontario and Atlantic Canada. What we do is we help car dealers finance their operations. And one of their ongoing requirements is to look for opportunities for sustainability, and that's going to require financing in a lot of cases. So great opportunity for us to bring solutions to the table and help them grow their business. And thanks, Adam, for having this.
Adam Doran:
Oh, you're welcome. Thanks for joining. Silvia, so I'm going to put you on the spot first. You spend a lot of time with dealer principals, dealer groups, and the OEMs. From both of their perspectives, how are they thinking about the future of a dealership? What does that look like from the inside and the outside? Maybe walk us through some examples and where you see this shift going.
Silvia Carfora:
Absolutely. The transformation has been ongoing. And the future of the automotive retail space, we're working towards that. So we're seeing examples of that already. It's going to continue to evolve in this manner.
So we're seeing the spaces being utilized in ways that are different than we traditionally use them. Less of a transaction space and more of an experience space. I mean, we're still transacting at the dealership, but there's more congruency between how customers are interacting with the brands themselves offline and online. So we're bridging that in. A lot more technology, more immersive experiences inside the space with the use of technology. So it's being augmented.
And we're seeing a lot of electrification underway, a lot of improvements and groundbreaking for just being ready for the future and being relevant in a new landscape with a hybrid product and a full EV product as well. And sustainability is a big part of that equation as well, so we're already starting to see OEMs and dealers taking steps and looking at what are their carbon emissions, starting to establish their baseline and looking at ways of how they can roadmap committed reductions. So we're starting to see a lot of that, and the dealership of the future will have all of these components in their existence.
Adam Doran:
Thank you. And so how fast do you see that change happening? We don't need to get into different brands or OEMs, but how would you characterize the response at the dealer level? Where do you find the common ground? How are they making progress together as they go down this path of decarbonization or sustainability?
Silvia Carfora:
In some ways, it's early days still.
Adam Doran:
Sure.
Silvia Carfora:
Brands have made public commitments, right, that they want to be more sustainable all around, and the dealership is an extension of the brand to a great extent. Customers are coming to the brand first, and then the community space of the dealership is second. So ensuring that there's alignment with where the brand stands on sustainability, we're seeing some OEMs taking more steps to assist their dealers in understanding where they're at and starting to look at ways of how we can look at the operating model a little differently, look at the buildings a little differently. So there are steps starting to take place in that regard.
Adam Doran:
That's great. Well, turning in just a moment to talk about some of the building standards and improvements, but Ethan, you've also been to a lot of new dealership openings.
Ethan Goldberg:
Yeah.
Adam Doran:
What are you seeing maybe over the last, I think, pre-COVID? Now that we're back in the new normal, what have you seen then? What are you seeing now?
Ethan Goldberg:
Sure.
Adam Doran:
What's the general reaction when people are at these dealerships?
Ethan Goldberg:
Well, no doubt, COVID actually changed the mentality in many cases as to how a dealership is going to develop and what their strategy's going to look like going forward. Fair to say that there is an assumption that for a lot of brands, there's going to be less inventory.
Adam Doran:
Mm-hmm.
Ethan Goldberg:
So the footprint may actually shrink compared to what we were seeing pre-COVID. I think that the dealers would prefer to have a smaller footprint in a lot of cases, it's cheaper to build, but also more emphasis on their backend, on their service department, looking for increased capacity from a service perspective, maybe not necessarily having as much floor space for demonstrating vehicles or having vehicles on display. More open concept, I would say, is pretty prevalent in the dealership space as opposed to closed-in offices. More collaborative approaches. Certainly, more receptive to more efficient energy-consuming sorts of technologies, whether it's converting to LED lighting, high-speed service doors, looking at high-efficiency windows, high-efficiency HVAC equipment, potentially looking at installing green roofs, recycling rainwater. There's a tremendous amount of opportunity for them to look for these types of strategies to establish and maintain a more attractive level of sustainability.
And I would say that ultimately, at the end of the day, it's still about dollars and cents, and there's a great opportunity for our dealer principals to take into consideration the efficiency opportunities that are out there. Long-term, it's going to save them money. Short-term may cost them more, but long-term there's a quick payback in some cases. And in many cases, it makes the dealership more attractive as an asset as well.
Adam Doran:
And so on that note, James, you are oftentimes speaking at lots of conferences, focusing a lot on decarbonization. What are you seeing, just across various industries, how owners are dealing with their real estate footprint? What kind of changes are they making? Maybe talk a little bit about that broadly, and then obviously we'll pull from that on the dealership level.
James Burrow:
Yeah. Yeah, no, I mean, Ethan actually previewed some of the measures that building owners and operators are taking, so that was a great jumping off point there. I think the big thing to know here is that buildings are a major source of emissions in Canada and the US. And governments at different levels, whether that's the federal government or municipal level, municipal governments are beginning to pay more attention to that forms of regulation. So you're seeing it in cities in the States like New York and Denver, some of the Californian cities. You're seeing it in Toronto. You're seeing in Vancouver. What's actually happening is these municipalities are regulating building [inaudible 00:07:36] their emissions, starting from larger buildings, getting down to smaller buildings. So immediately, only the largest dealerships will be touched, but it will get down to all buildings in time.
Now, Ethan made a really, really interesting distinction when it comes to decarbonization. There's almost the short, quick-hit measures that you can take, the no regrets moves, and then there's the big lifts that are really going to reduce the carbon emissions materially. Some of these quick-hit measures are just simply using less energy, working out those simple payback measures to use less energy. LED lighting is something that many dealerships will have probably done already, but you can think creatively about shading, green roofs, and these passive measures to reduce the amount of electricity and gas that you're consuming as a really, really good short payback way of driving that energy usage and decarbonization.
I'm going to be honest, the big-hit measure is taking the dealership off natural gas as a source of heating and on to electricity, on to heat pumps. That honestly is not a move to be taken lightly. It's a move that needs to be sequenced in a way that makes the most financial sense to the dealership.
So what that usually means is that when your furnace runs out of economic life, that's the time to make the switch. It isn't necessarily right now. So what I would say is particular is to have that strategy to understand when there are major pieces of capital equipment, their furnaces are coming up for end of life, think about when re-imaging is also happening, because that could be a good time to make some of these changes, and think about regulations. So the takeaway for me, I think, is dealers do need to educate themselves about their equipment, about the regulations that are coming, about what OEMs are requiring, and about when their next re-imaging is with regards to some of these bigger decarbonization measures.
Adam Doran:
That's great. Thank you.
Silvia Carfora:
I think that's a good point, if I could segue.
Adam Doran:
Yeah, of course.
Silvia Carfora:
It's a really respectful dialogue to have with dealers. If they're having an image program that they need to pay attention to and invest in, that's a time when we're looking at do we have enough infrastructure to be relevant and thrive in five, 10, 15 years from now? So it's at that time that we're having the conversations about, "Okay, what are the investments that we need to phase in, and can we do them in one go or do we need to phase some in?" So if you're breaking ground, you're breaking ground not just for your renovation and your new image program, but you're also future-proofing with the right conduits, perhaps filtering in some know photovoltaic and some things that you know will expand the sustainability presence of your dealership and your operating model.
Adam Doran:
Right.
Silvia Carfora:
Good point.
Adam Doran:
And all these really lead to a shift in mindset and culture at the dealership, right? So if you think about a top-down approach, dealer principals or the general managers, coaching folks on sustainability, getting people to buy in, making sure that there's a vested interest, you need to step back and think about culture. What have you seen, maybe a good sign of someone implementing a good culture to have a flexible and adaptable workforce? What are some examples where maybe it hasn't worked? A lot of experience in the dealership space. Maybe you can talk a bit about culture and how training may influence that.
Ethan Goldberg:
Sure. Well, I think the culture starts at the top. You have to have somebody that's going to champion a sustainability approach. I think that it's important for the dealer principal to buy into that sort of vision, and it's important to also have champions within the dealership itself that are also going to take ownership for encouraging the strategies and encouraging knowledge about what sustainability is and how they can support sustainability going forward.
I think it's also, as another critical component, is from the manufacturer itself. If the manufacturer as a vision of being a more sustainable corporate entity, then I think it also encourages the dealers to buy into that vision as well and buy into that strategy. And we see brands that have obviously a very visible commitment to the environment, where the dealers very much buy into that vision. And we see other situations where there's some resistance from the dealer itself to the manufacturer's vision, so it really comes down to the culture within the dealership itself. That is critical.
James Burrow:
I'm interested to know what your experiences are with dealers' concerns around sustainability because I almost have... My theory, my hypothesis is that it almost feels like too much too soon. Too much is being demanded. Too much is being expected. I mean, the point that I was almost trying to get at a little bit earlier is it doesn't have to be everything all at once. You need to have a strategy, but that strategy needs to work with your financial objectives, with your daily operations, with your brand. It doesn't have to be everything all at once, but it does have to be something you're thinking about now. Is that fair, or am I-
Ethan Goldberg:
That's a fair statement. I mean, let's be honest. I mean, dealers are for-profit entities, so a lot of it comes down to what's the cost, what's the benefit, and what's the payoff. So I think that that is one of the primary focuses, is how do I spend the right amount of money and get the right return? And I think that ultimately, the decision is going to come down to how strong is the dealership.
If this dealership is struggling, it's going to be much more difficult for them to invest in a footprint that is going to be more environmentally friendly or... An investment in a footprint that's going to be more efficient costs money. And if you're a dealer that is struggling, or a dealer that maybe is in the process of going to market to sell themselves, chances are there's going to be less focus on investing in the dealership itself to sustain the future.
On the flip side, there are dealers that obviously want to increase the value of the dealership itself, want to obviously encourage sustainability, and they understand the payoff metrics, which can be longer term. And in some cases, you hit the nail on the head, they're going to take steps. It's not going to be all done at once. It'll be done on a priority basis. Where's my biggest bang for the buck? How can I realize the quickest return? That's probably the first thing that's going to get done. And those that are a longer term payoff, maybe those investments will be delayed.
Adam Doran:
And so that's one of your earlier points.
Silvia Carfora:
Mm-hmm.
Adam Doran:
You're seeing that when they start to segment out or schedule out their investments, probably aligns with Ethan says.
Silvia Carfora:
Absolutely. And let's call it out. There's a lot of transformation, and I don't know that I've seen this level of transformation outside of automotive. So not only do we have a different labor force than we ever had, right, technology, the rate of change, it's so much faster than it ever was. So contending with every other business is contending with all of this transformation, but then layer in that their product is completely different.
So that product now has a trickle effect into even their people strategy. How do you attract and retain the right people and the right customer journey? So there's the online, the offline. There's just a lot coming at them, so there's a lot of competition for those finite resources. What do you do first? Then you add in sustainability to it, and it's like, "Okay, well show me the business case because this is just... I don't know where to split myself out any differently."
And so I think that's where, well, the sentiment might be there that everybody wants to be greener. Sure. Why not? Why can't we do things better than we did? Why can't we have more cost-effective operations going longer term if we make the investments now? But it's just competing for those investments and even understanding that ROI on the long-term. So sometimes, there's not enough business cases or examples to be able to shift everybody over and have that momentum, but I think the sentiment is right. Again, varies by dealership, but you have to start there.
And also, query your customers and your team because it isn't, [inaudible 00:15:53] you said, a one and done. We build a great facility and we have things in place that make us more operationally efficient and more sustainable. It's an ongoing occupant behavior, customer behavior. You're maintaining that level of sustainability and building on it. So there's just a lot coming out. I just want to acknowledge that.
James Burrow:
Yeah, yeah.
Ethan Goldberg:
Absolutely and Agreed.
Adam Doran:
When you mentioned shift, I think a little bit about the elections down south. Under a hundred days until there may or may not be a new sheriff in town. And so how do you think about the topic of sustainability? Some OEMs, this is very much round table, so some OEMs have signaled they're going to wait and see what happens down south. Others have not. And so how do you think about the goal setting at the OEM level, the political backdrop? There's always a conversation here in Canada. It's unfortunately, at times, a political discussion. But end of the day, dealers want to make money. OEMs want to sell cars. Everybody wants to do what's right. And how do you think about election cycles and then how that may or may not impact sustainability?
James Burrow:
I guess the points that I would make, though, is I do firmly believe the general trends towards decarbonization is established, and the president or prime minister is not the only actor that's driving that. You've got the federal government. You've got state and provincial governments. You've got municipalities. You've got regulators. And as you look across the broad landscape of all that, the direction of travel is established.
I'd also say the direction of technology is established globally. Although EV adoption may not be a linear upwards curve in North America, if you look at China, the cost of producing EVs there, greater than 50% penetration of EVs into the Chinese marketplace. This technology is scaling very, very rapidly globally. So I understand concerns about the US presidential election, but I would say that if you were over-anchored on that, you're going to be missing the big picture. And the big picture is a greater trend towards sustainability and decarbonization.
Ethan Goldberg:
It's going to be really interesting to see how the governments react because there's all sorts of noise with respect to tariffs being placed on Chinese vehicles. It's happening in the States. I think the federal government in Canada is now considering what their strategy is going to be. And there's a lot of resistance from the manufacturers as well because they're concerned about the fact that a very, very aggressive and successful manufacturer could be coming into North America with a very affordable product. I think they want to protect labor on the one side, but they also want to protect what's called the industry on the other side as well. So it's going to be really fascinating to see how this all plays out.
Adam Doran:
I agree.
Silvia Carfora:
But I agree that I think what's in motion will stay in motion. We're going to continue seeing more EVs. We're going to continue seeing customer sentiment towards transacting with businesses that are more responsible in business practices and in sustainability and transparently with sustainability and their promises and what they're doing. So that's not going to go away. In addition to all of the municipal energy code, building codes, they've already stepped up and have started to change to have more sustainable building elements incorporated into all facilities.
So we're not going to go back. Maybe the timeline to make the switch is not going to be from zero to 100 overnight, so this is where just having a good level understanding of what's in place, when do I need to get to, where I need to get to, and start planning. And be nice to your bankers, who can help you, support you along the way there because it will take resources. It will take some costs. And it does take a good mindset as well, right, but from your community, your staff, top down to be able to initiate what needs to be in place.
Adam Doran:
Absolutely. Well, I appreciate that we could address a few elephants in the room from a topic perspective. This is great. I think we could probably do a part two and a part three, but want to thank the three of you-
Silvia Carfora:
Just on the election.
James Burrow:
Yeah.
Adam Doran:
Want to thank the three of you for making time. I really appreciate all your thought and effort that goes into this. And to everyone diving in online and watching on YouTube or listening from the podcast, thank you for choosing to give us some of your time. We really appreciate you, and feel free to reach out to any of your relationship managers or contact us if you want to continue the conversation. And last but not least, Silvia, how can people find you online?
Silvia Carfora:
www.weis.ca.
Adam Doran:
Well, with that, thank you very much, everyone, and have a great day.
Ethan Goldberg:
Thank you.
Silvia Carfora:
Thank you.
Andre Salvi
Head, Commercial Dealer Finance, Canada
Andre Salvi is Head, Commercial Dealer Finance, Canada. Having joined BMO in 1999, Andre has held senior roles in BMO’s investment banking; private equit…(..)
View Full Profile >We all know the auto industry is headed toward electrification and alternative energy inputs. It’s an ambitious undertaking, and dealers have a lot to consider regarding how they will decarbonize and what the future of the dealership will look like.
With that in mind, Adam Doran, BMO’s Managing Director of Dealer Finance, recently sat down with three industry experts to discuss how dealers can execute this transformation while keeping customer engagement on the forefront:
-
James Burrow, Director, Sustainable Finance, BMO
-
Silvia Carfora, President and CEO, Weis Group, which specializes in retail network innovation with a focus on the automotive industry’s shift to electric vehicles (EVs) and sustainability
-
Ethan Goldberg, Vice President and Regional Market Leader, Ontario and Atlantic, BMO Dealer Finance
Their conversation covered a lot of ground, from the nuances of selling and servicing EVs to navigating rapid change in the industry.
Sustainability Leaders podcast is live on all major channels, including Apple and Spotify.
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