How Auto Dealers Are Helping Drive the Transition to Net Zero

Christine VanDerwill:

To manage, you first need to measure, and that's really applicable when we're talking about decarbonization is to get started, first, find a partner that can really help you to measure your emissions and then develop a plan to reduce the largest sources.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment business practices and our world.

Speaker 3:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries.

Katie Shuter:

Welcome back to another episode of Sustainability Leaders. I'm Katie Shuter and a Senior Advisor with the BMO Climate Institute. In this episode, we're going to be exploring the automotive industry's pivotal role in achieving net-zero. And more specifically, we're going to be looking at how North American dealerships are thinking about the transition. Dealers are a crucial hub for controlling the supply and demand of EV sales, and they're an integral part of EV charging infrastructure. But dealers are also facing a lot of competing considerations. Some of these challenges were recently explored in BMO's first ever North American Commercial Bank auto dealership survey.

So for today's episode, we have Ghram Debes, Head of US Dealer Finance with BMO's North American Commercial Bank, as well as Andre Salvi, Head of Automotive Finance in Canada, joining us today to explore the findings of the dealership survey in more detail. We're also going to be exploring the opportunities and the path forward in the transportation sector and where dealers go from here. And to touch on these topics, we also have Ethan Goldberg, Regional Market Lead, Ontario and Atlantic Canada in Automotive Finance, as well as Christine VanDerwill, Partnerships at BMO Radicle.

So together, this round table of experts is going to unpack the complex dynamics at play in the auto EV transition, and help uncover some innovative solutions that help drive us closer to net-zero. So with that, let's jump right into it. Welcome Ghram, Andre, thanks for joining us today.

Speaker 5:

Thanks for having us. Great to be here.

Speaker 6:

Yeah, thanks Katie. I'm thrilled to be a part of this. Thank you.

Katie Shuter:

So would both of you mind speaking to the genesis of the dealership survey? What is it? Why did it come about? And what were you broadly trying to understand when it went out?

Speaker 5:

As you mentioned, Katie, the dealership sector is a very important sector as we think about carbon-neutral and the transition to carbon-neutral. At BMO, we have a very big dealership finance business, and we thought it was a good time to reach out to our North American dealer finance clients to try to ask some questions, to understand how aware are they of it and some of the things coming down over the next few years, how are they thinking about it? What are some areas of concern or challenges? What are some of the trade-offs? And really get a better understanding of our client base and see where we can be helpful to our clients as we all focus on this over the next number of years.

Speaker 6:

That's exactly right, and I would add that we want our clients to be aware of that sustainability is embedded in our strategy, and it's fundamental to our purpose. And so by surveying them, it engages them on the topic and we are letting them know how important it is to us.

Katie Shuter:

Yeah, absolutely. It's super exciting to have us be so engaged with our clients, particularly as we set our climate ambition to be our client's partner in the transition to net-zero, so it's great to actually see this executing and in practice. Could you speak to why the survey was so important? Why auto dealers are such an important stakeholder in the transition to net-zero?

Speaker 6:

Well, they're at the forefront. They're selling the electric vehicles. They're marketing, educating, representing the manufacturers in selling the electric vehicles, which transportation and passenger vehicles, I believe, account for just more than 15% of global emissions, and so this is a very important area of concern. And the OEMs are out in front, they definitely are trying to get as many electric vehicles on the streets as they can, and our dealers are the ones who are educating and marketing though. So our dealers have a interest in selling these vehicles and getting consumer up to speed on the benefits.

Speaker 5:

And I'd add to that, Katie, if you look at the dealership space, it's unique in the sense that there's the operating businesses which are selling the cars and servicing the cars, and then it's often attached to real estate portfolios. And when you think about carbon neutrality and the transition, they also have large real estate footprint and building footprints to think through as well.

Katie Shuter:

That's really interesting. Let's discuss findings. Where did dealers stand on net-zero? What did you find from that survey where they stood?

Speaker 6:

They were a little bit all over the board. There were some that were absolutely aware and interested in following what's going on. There were others that were certainly aware of what sustainability is and what it means, but had not put any thoughts into actions in their own business.

Speaker 5:

And further on that, if you look at the respondents, about 87% reported having some level of knowledge. But when you look at the 87%, despite everything going on and everything we see in the media and all the different initiatives in Canada, the US, of that 87%, 51% said they were only somewhat familiar. So there's an interesting opportunity there to increase the awareness as we talked about at the beginning. And then the other piece that we saw was 39% of the respondents reported having plans in place to reduce their carbon footprint over the next 18 months, which is very encouraging.

Katie Shuter:

Yeah, absolutely. The 39%, I think it was mentioned in the survey, that was a sign of great momentum, which I think that's a pretty big number given how big the industry is. Some respondents from the survey were focused on shifting to return on investment from carbon related initiatives. So could you speak to some of those initiatives that you found in the survey?

Speaker 5:

Yeah, there were a few themes that came out of the survey, for sure, as it relates to initiatives tied to return on investment. The first was optimizing their service base to support EV repairs and continuing to install EV charging stations. We talked about real estate and the real estate portfolios that the dealerships use. So there was a theme that came out in terms of remodeling their stores to include alternative energy sources. One dominant was solar panels on the rooftops. That's something that there's a lot of focus on going forward. And then transitioning, not only on the real estate side, but generally transitioning to LED lighting, there was the mention of replacing HVAC systems to be much more energy efficient in terms of the consumption. So those were some of the big themes that came out of our survey

Katie Shuter:

And sounds like a lot of momentum, but also, I know that there were a lot of challenges that were identified in the survey. So what were dealers most worried about? I think the survey put it, what keeps them up at night?

Speaker 6:

I think competing priorities. Our dealers have to meet the expectations of their OEMs, and we're talking about investment in real estate, we're talking about investment in new technology. There is an absolute drive in the industry to change the way that you sell vehicles to meet consumer demands and make the experience more easy. And so there's a lot of investment that's ongoing. And then when you layer in sustainability, I think the first thing that comes to mind is cost. But the OEMs are leading the way in asking for sustainability to be built into the dealership model over time. And so when we see new facilities being built, OEMs are asking for green items like solar panels, or thinking about ways to make the building more sustainable.

Speaker 5:

The only thing I would add, Katie, is that the themes are quite consistent across Canada and the US and on a North American basis, which we were really encouraged to see as we reached out to our North American client base. The other area, when we talk about trade-offs, the one area that was highlighted in the survey on the service side, and this one had a bigger percentage of Canadian dealers responding this way versus the US dealers, but the belief, at least at this point in time, around reduced profit, or the concern around reduced profit as a result of potentially less traditional servicing opportunities. So that was one unique challenge. There was more concern around that in Canada versus the US.

Katie Shuter:

So clearly a lot of challenges associated, but it sounds like there's also a lot of momentum, which is why I'm going to turn to you now, Ethan, because you recently attended the EV and charging expo in downtown Toronto, and you'd heard a lot of exciting opportunities and insights you had gained there that demonstrate that there's actually quite a lot to look forward to. So would you mind sharing some of your key takeaways from that event?

Ethan Goldberg:

Sure. Yeah. Thanks for having me, Katie. So three key takeaways from the show. One is the manufacturers were present. There's no doubt that the OEMs have sustainability on their minds, and this is something that dealers need to be thinking about, as Ghram and Andre alluded to. Second is there's a number of new entrants coming in from a zero emission standpoint as it pertains to fleet, transportation, logistics. There's a lot of technology that's coming now to the forefront and is going to provide, let's call it that last mile solution that's going to result in a zero emission vehicle being available to facilitate the delivery of goods and certainly reduce the carbon footprint. A lot of our dealers sell to fleets, a lot of our dealers finance under their portfolios, fleet financing, so a great opportunity for dealers. And last but not least, as we discussed, is all of the components of the real estate asset and opportunities for dealers to invest in their footprint, to reduce their carbon footprint, increase the efficiency of their buildings, and look for opportunities to generate, not only cost savings, but potentially credits as well, carbon credits, as they implement different strategies to reduce their footprint.

Katie Shuter:

And from what you've learned, what should dealers be thinking about or what should they be trying in order to get ahead of this environment?

Ethan Goldberg:

The manufacturers are very concerned about sustainability, very concerned about how they're portrayed as it pertains to their environmental stewardship. I think that dealers have to develop a sustainability strategy as well. If they don't have a sustainability strategy, I think they need to think about how they're going to develop one, implement one, and also promote how they're conserving the environment, how they're looking to reduce their carbon footprint. And dealers are a pillar of the community, especially in smaller communities. Dealers are very committed, very focused on supporting their community. They should look to potentially promote their environmental sustainability strategies to the broader community. It could attract a client base that is more sensitive to that sort of a commitment to preserving our environment. So I think, again, there's a tremendous amount of opportunity for dealers to harness and really, as I said, sustain themselves in an evolving environment.

Katie Shuter:

Yeah, that's amazing. Thank you for sharing. And speaking of how to get businesses ahead in this environment, we also have Christine VanDerwill joining us from BMO Radicle. Christine, could you speak briefly to what BMO Radicle is, what it offers in the context of helping businesses like a dealership get started on their net-zero journey?

Christine VanDerwill:

You bet. Radicle's been a leader in the carbon market space for over 15 years, and we enable businesses of all sizes and across all industry sectors to reduce carbon emissions, also known as greenhouse gas emissions, through very innovative and oftentimes profitable solutions. And the solutions that Radicle has developed over the last decade include carbon footprint software and training, again for businesses of all sectors and sizes, there's some really innovative low carbon fuel standard programs out there that businesses can actually generate revenue streams as they electrify. We can help with feasibility assessments for carbon market participation in both compliance and voluntary markets all across North America. And then we have a really deep bench in terms of global advisory services as well.

And it was interesting, I was taking notes listening to our teammates here talk about, what does decarbonization look like within the auto sector and what can specifically a dealership do? And what we've advised over the years is really following the old adage of to manage, you first need to measure, and that's really applicable when we're talking about decarbonization is to get started, first, find a partner that can really help you to measure your emissions and then develop a plan to reduce the largest sources.

Katie Shuter:

You alluded to this earlier, Christine, but based on some of the challenges you had heard described by Andre and Ghram, where do you think BMO Radicle plays a role in helping the auto industry and dealers transition to net-zero?

Christine VanDerwill:

Yeah, great question, Katie. So when we step back and we look at the trends in the industry, we're seeing more and more publicly traded companies, Fortune 500 companies, of which the OEMs and manufacturers are part of, stepping up and leading within the Carbon Disclosure Project, leading within the science-based target initiative. And as part of that, there's going to be more and more mandates trickling down through supply chains where businesses within these supply chains are going to have mandates to report out on their emissions and to be able to do that in accordance with international standards and that's really a role that we can play is supporting businesses within these supply chains, no matter what size they are, to be able to meet these mandates, and also really become leaders within sustainability as well, and BMO really has an ambition to be a lead partner to businesses in the transition to a net-zero world.

Another trend relevant to the automotive sector are what are called low carbon fuel standard programs that are more and more across jurisdictions in North America. And low carbon fuel programs enable a business to earn carbon credits as it electrifies its fleet and invests in EV charging infrastructure. And these programs are really designed to support the economics of installing and operating EV charging infrastructure, which is especially important for EV penetration if it is too low to justify installing charges without additional incentives. And this is an area at BMO that we're really excited to support businesses to participate in these low carbon fuel programs, and really help to develop revenue streams and a return on these kinds of investments.

Katie Shuter:

And that brings us to the end of today's episode. Thanks to you, Andre, Ghram, Ethan, and Christine for joining today and sharing all these challenges, but also these opportunities ahead for dealers and the EV transition more broadly. Stay tuned for part two of this episode where we will have BMO Radicle explore the low carbon fuel standard in more detail and some of the challenges associated with regulating emissions from transportation. Thank you.

Speaker 5:

Thanks Katie, and thanks everyone. Thanks for having us. It was a great discussion.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO Financial Group. To access all the resources we discussed in today's episode and to see our other podcasts, visit us at bmo.com/sustainabilityleaders. You can listen and subscribe free to our show on Apple Podcasts, or your favorite podcast provider, and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, I'm Michael Torrance. Have a great week.

Speaker 3:

The views expressed here are those of the participants and not those of the Bank of Montreal, its affiliates or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy or security. This presentation may contain forward-looking statements. Investors are cautioned not to place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only and does not constitute investment, legal or tax advice and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment tax and/or legal professional about their personal situation. Past performance is not indicative of future results.