Canada Drives Ltd. has been granted creditor protection to restructure its business operations in the wake of ambitious expansion plans the Vancouver-based online auto dealer embarked on in 2022.
Late last year, investors agreed to provide the company with another $10 million in capital following the $40 million it had raised in the summer.
Canada Drives, which was founded in 2010, had raised $100 million in a 2021 funding round led by Honor Ventures. The injection of capital was aimed at expanding the company’s operations beyond B.C. and Ontario.
It expanded into Saskatchewan in 2022 after launching in B.C. and moving into Ontario and Alberta.
But in a March 21 press release detailing its successful application for protection under the Companies’ Creditors Arrangement Act, Canada Drives said it was restructuring its business and narrowing its focus to two business lines:
•providing Canadians with a way to sell their vehicles through an instant online offer; and
•helping customers get approved for automobile financing online through a network of Canadian automotive dealerships.
Canada Drive’s business challenges come amidst a volatile new and used automobile market in North America.
A recent report from J.P. Morgan noted that new car prices, driven by higher production costs, were up 4.2 per cent in January 2023 compared with January 2022. That increase in new car prices and inventory availability challenges caused by supply chain bottlenecks and other marketplace complications have increased demand for used cars.
The result, according to J.P. Morgan, has pushed average prices for used cars up 30 per cent above pre-pandemic levels.
But the global financial services company predicted that used car prices have likely peaked and are expected to drop by approximately 10 per cent this year.
While Canada Drives touted the viability of its online car sales platform and the “exceptional” response to it from its customers, it conceded that “the rising costs of holding inventory, amongst other headwinds, have made this specific business model no longer viable in the long-term.”
The company said that, during its business model transition, it intends to continue delivering its “car shopping experience to Canadians on all its existing inventory and honoring its commitments to both present and future customers.”