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AutoCanada’s Pat Priestner on taking the road less travelled

Priestner has made a habit of doing things his way, and it’s still paying off

Jan 2, 2014

by Michael Ganley

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Pat Priestner, CEO, AutoCanada
Photograph Ryan Girard

AutoCanada
# 42 on the 2014 Fast Growth 50
Head Office Edmonton
CEO Pat Priestner
Founded 2006 (as a public company)
Number of Employees 1,227

Twenty years ago, Pat Priestner started to bring auto dealerships – ones selling different car brands, even – under the unified Canada One Auto Group umbrella. The consolidation was almost unheard of in the Canadian market at the time, and it caused consternation among auto manufacturers, who liked the traditional dealer system of individual owner-operators. Then, seven years ago, Priestner took his company public (again irking some car manufacturers) under the AutoCanada banner. Since then, he’s grown the business into the largest publicly traded auto dealership company in the country, while steering AutoCanada through the financial turmoil of 2008 (even after his $250 million line of credit dried up, overnight).

Today, despite people telling him to stop, he continues to personally train staff, because, he says, it’s indispensable to his success. And now, Priestner is hoping to ride an emerging trend in the auto sector – manufacturer’s demands for multi-million dollar investments in dealerships – to new heights.

Priestner started running a single Chrysler dealership in Edmonton, called Crosstown Auto. At the time, manufacturers wanted individual owners in dealerships, running them every day. It was tough enough to get a second Chrysler dealership, let alone one for a different brand. “Other manufacturers would say, ‘You own a Chrysler store five miles away. Why are you going to put effort into your Ford or GM store?’” Priestner says.

“There are 70 dealerships in Edmonton and they’re all competing at the end of the day. Whether you own three different brands or not is irrelevant. – PAT PRIESTNER

A good question. And Priestner’s answer was one that challenged traditional thinking in the industry. “There are 70 dealerships in Edmonton and they’re all competing at the end of the day,” Priestner says. “Whether you own three different brands or not is irrelevant. If there were only four stores and you owned all four, I would get that, but when there are 70?”

Priestner’s logic gradually took hold, in no small part because of the success of his dealerships. He worked to build his empire one new location at a time. “The way to overcome those concerns is, with each store you buy, you make sure that the manufacturer gets good market share and has good customer satisfaction,” he says. “It’s as simple as that.”

Nine years ago, with 10 locations now under his belt, Priestner began to notice that the price of dealerships was going up. He saw it as signalling a tactical shift for his industry. “A dealership making $1 million per year was trading at $4 million,” he says. “Today it’s trading at $6 or $7 million and the real estate has appreciated so much. We realized quickly that having access to capital would be a huge advantage.”

To raise that money, Priestner first made a few deals with private equity firms, but ultimately rejected that model. “We were doing all the work,” he says, pausing. He’s not sure how far to go with the thought. “They were helping take a lot of profits out, I suppose. In the public model at least you have a share price that trades and you get rewarded for that.”

Consolidation of auto dealerships had started in earnest in the U.S. by 2005, powered by money raised on the markets. Inspired, Priestner began to prepare his company for an initial public offering. In 2006 he carried it out, raising $200 million on the Toronto Stock Exchange.

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But going public created challenges for Priestner and AutoCanada, too. A board of governors forced organizational discipline and Priestner says quarterly reporting is gruelling. “In the sales business you’re generally tough enough on yourself,” he says. “You’re graded every week on your sales by all the manufacturers. I still don’t look forward to quarterly reporting [though].”

From an operational standpoint, things were going well. Priestner stuck to the basics, focussing on staff training, strong leadership at every dealership and customer satisfaction. Things went well until a number of manufacturers, including GM and Kia Motors, said they would not allow publically owned groups to buy their dealerships (despite their parent companies allowing the practice in the U.S.). “We were completely shocked,” Priestner says. “The issue had never come up.”

Gradually, Priestner has chipped away at that resistance, and, in May 2012, broke through with the purchase of a stake in a GM dealership in Sherwood Park. A Kia dealership soon followed.

Shopping Spree

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AutoCanada has been snapping up dealerships, as evidenced by its asset growth

The second big, post-IPO challenge was Chrysler’s bankruptcy, which also brought down Chrysler Financial, the manufacturer’s credit arm. Priestner had been doing business with them for at least 30 years. “We owed them around $250 million on an operating line of credit,” he says. “They went bankrupt on May 1, and sent an email to all their dealers saying they had no money.” Nobody wanted to lend at that time, and AutoCanada, which stocks about a 90-day supply of vehicles, all financed through credit, suffered. “We were making good money, but we couldn’t buy inventory,” Priestner says.

He went back to work, back to the basics of staff training and customer service. “We do things one day at a time,” he says. “That’s how I run my life and my business. So long as we get really good market share for all the manufacturers we’re working with – it’s no different than 20 years ago.”

The one thing that has changed in recent years is that manufacturers now demand multimillion-dollar capital investments in dealerships to make them more welcoming destinations. Some dealerships now have their own spa. A growing number of dealers with just one or two stores – particularly those looking at their succession plan – are selling to dealer groups like AutoCanada, which can more easily make such an investment. AutoCanada has grown to 30 locations, and is now represented in B.C., Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia. Priestner has ambitious growth plans for many of those provinces, but insists he’ll be keeping it simple the whole way. “Retail is in the details, the processes and how you treat your people,” he says. “That’s it.”

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