In their Q3 2014 Capital Markets Flash, PriceWaterhouseCooper (PwC) reports that “[t]here’s a lot of positivity within the Canadian auto dealership industry, which should come as no surprise given record sales that were almost unimaginable a few short years ago.” Since PwC’s Q3 update, the Canadian Automobile Dealers Association (CADA) published the industry’s October economic report, and the numbers keep looking better.

The Canadian light vehicle market has set seven consecutive monthly sales records with total sales 6% above 2013’s record setting numbers and truck sales increasing by 10%. Revenues at dealerships are also setting record highs, eclipsing $90 billion for the first time in 2013 and estimated at $95.5 billion for 2014. CADA reports that 2015 will most likely by the industry’s first $100 billion year. Our friends down south are having similar good fortune, with the National Automobile Dealers Association predicting that US sales of new cars and trucks will hit a 10 year high in 2015.

CADA reports that strong job creation, competitive industry fundamentals and strong access to financing are driving these record levels of demand, although the increasing use of long-term consumer financing deals has raised some sales sustainability questions.

What does this mean for potential M&A activity?

Basically, the iron is hot and it may be time for some industry players to strike.

In addition to significant increases in dealership valuations and increased dealership performance, PwC  reports that a large number of dealership owners are reaching retirement age and contemplating sales and succession strategies. Another driving force for M&A activity in the industry are increasingly complex and sophisticated OEM (original equipment manufacturer) guidelines and standards. Smaller dealerships may face challenges finding the capital to keep up with OEM demands.

While distinct, the issues of capitalization and succession will likely drive increased M&A activity as owners look to sell. And, with over 3,200 automotive dealers in Canada, there is little doubt that industry consolidation offers significant opportunities for investors.

Industry experts believe that there will likely be growth in public company ownership of automobile dealerships and the increasing prevalence of larger dealer groups who will use M&A to achieve back-office synergies, OEM diversification and geographic diversification.