AutoCanada: Governance Stability and Strategic Growth Position It as a Buy Amid Auto Sector Challenges

AutoCanada (ACQ.TO) is emerging as a compelling investment opportunity, blending robust governance metrics with untapped expansion potential in the U.S. market. While the automotive sector faces macroeconomic headwinds—most notably U.S. tariffs and margin compression—the company’s stable leadership, operational cost discipline, and strategic focus on high-margin segments like collision repair and used-vehicle synergies create a favorable risk-reward profile. Here’s why investors should take notice.

Governance Stability: A Modest Governance Check, Not a Red Flag

The company’s 2024 Annual General Meeting (AGM) results underscore a culture of accountability without signaling broader leadership instability. Stephen Green, AutoCanada’s CEO, received 7.15% withheld votes—a small but notable governance check—during his re-election. However, this figure is dwarfed by the 92.85% of votes cast in his favor, ensuring his continued leadership. Critically, all director nominees were elected, reflecting shareholder confidence in the board’s overall direction.

This modest withheld vote percentage is a constructive signal of shareholder engagement rather than distrust. In contrast to companies where withheld votes exceed 20-30%, AutoCanada’s governance metrics align with stable, long-term leadership. As the company executes its $100 million annual cost-saving plan (ACX Operating Method), this governance check reinforces that shareholders are demanding accountability without destabilizing the boardroom.

Expansion Opportunities: The Untapped U.S. Market and Synergies in Used Vehicles

AutoCanada operates 17 U.S. dealerships (primarily in Illinois), a market segment that remains underpenetrated relative to its Canadian footprint. While U.S. operations were reclassified as discontinued in 2024 due to restructuring efforts, the company is positioning itself to capitalize on two key synergies:

1. Collision Repair Growth: AutoCanada’s 29 collision centers (12 standalone) generated a 23.7% revenue surge in Q1 2025, driven by insurance demand and OEM certifications. These centers could be cross-sold into the U.S. market, where collision repair margins (45.1% in Q1 2025) are far healthier than volatile new-vehicle sales.
2. Used Vehicle Ecosystem: The company’s $1.8 billion annual used-vehicle sales (pre-2024) offer a scalable model. By leveraging its Canadian success—63.7% gross profit per unit growth in used vehicles—AutoCanada could replicate this in U.S. markets, where used-car demand remains resilient despite industry-wide pricing pressures.

2024 Sales Performance: Navigating Headwinds with Cost Discipline

Despite a 4.5% revenue decline to $5.35 billion in 2024, AutoCanada demonstrated operational resilience:
- Adjusted EBITDA from continuing operations rose 12.8% in Q4 2024, driven by cost cuts and margin improvements in collision repair.
- New vehicle sales grew 4.7% in Q4, with average selling prices climbing 10.2%, offsetting unit declines.
- Collision repair revenue jumped 11.9% in 2024, proving its recession-resistant nature.

The company’s ACX Operating Method has already delivered $57 million in annualized savings by Q1 2025, with a clear path to hitting its $100 million target by end-2025. This deleveraging will reduce debt from $517.5 million (2024) and improve liquidity, critical as tariffs and interest rates remain risks.

Why Buy AutoCanada Now?

1. Valuation Attractiveness: AutoCanada trades at just 5.4x forward EBITDA, a discount to peers like L Brands (NASDAQ:LTD) or Sonic Automotive (NYSE:SAH).
2. Debt Reduction Momentum: Proceeds from asset sales—e.g., the $59.5 million Stellantis dealership divestiture—will further reduce leverage, freeing capital for U.S. expansion.
3. Shareholder-Friendly Actions: The $103 million cash reserve and renewed $130 million share repurchase program signal management’s commitment to value creation.

Risks and Counterpoints

• U.S. Tariffs: AutoCanada’s exposure to Canadian-made vehicles sold in the U.S. faces a potential 25% tariff. However, the company’s focus on core Canadian operations (85% of revenue) and U.S. cost cuts limits downside.
• Used Vehicle Margin Pressures: While used-vehicle gross profit per unit dropped 5.4% in 2024, AutoCanada’s ability to cross-sell F&I products and collision services mitigates this risk.

Conclusion: A Buy with Catalysts Ahead

AutoCanada’s governance stability, operational cost discipline, and underappreciated U.S. growth levers position it as a buy at current levels. With $100 million in savings on track, margin expansion in collision repair, and a 5.4x EBITDA multiple, the stock offers asymmetric upside. Investors should act now—before the market recognizes the value in AutoCanada’s strategic pivot to high-margin services and its resilient dealership model.