I will start this article with a quote from a friend of mine who, although is extremely successful in his professional life, (like the majority of your customers), has absolutely no idea of how the automotive sector works, but his story and the quote below should be a stark warning to Automotive Manufacturers.
In fact he has always come to me for advice when looking to change his car, which he did in January, but this time he was far further down the path of a decision than he had ever been in the past. A busy professional he dreads the whole concept of changing his car but he had been introduced to an independent internet based new car supplier via their recent TV campaign. Below are his actual words;
“I couldn’t believe it, I just logged on and saw the discounts available. I had no idea that the company existed or that discounts like this were possible on a premium brand of car; so I took a screen shot, emailed it to the dealer I had been speaking too and they immediately beat the quote for me!”
Those of you who follow my blog and/or read my used car business development articles, know that I have been promising to write this article for a while, because if any story should send a shiver down the spines of Automotive Manufacturers, it is the one above; and before you think well it is OK for us we are probably not the manufacturer concerned and I’m sure that this is not happening with our product, I would caution to think again.
I won’t be naming names in this article, we all know who the internet based companies are and there is no need, besides the companies concerned have a right to run the business of their choice and as a manufacturer, you have the right to choose who has access to your product, but let’s at least explore where these decisions to allow the “Status Quo” to remain unchanged, may be heading. My advice in the first instance; log onto these websites and see the discounts listed for your products, some of you are going to be reassured but some will be choking over their cornflakes because in the eyes of the customer, just like my friend, the easily accessible websites of independent new car suppliers are now beginning to set the pricing agenda on new cars.
I have seen most things during my 25 + years in the automotive sector but even I was surprised at how undermining some of the discounts stated were to the brands concerned and how surprised I was that some of the usual suspects for this heavily discounted pricing model, were actually the manufacturers making a stand and therefore showing the smallest discount levels available. You will all have to look yourselves to see which category you fall into and therefore whether or not you feel the distressed prices shown are where you want the brand you represent to be.
But what is important here is the perception of the customer because, to the customer, “Perception Is Reality!” I have no idea of the business objectives of these independent internet based new car suppliers, but one thing I do know is this; If you can change consumer behaviour and control the most valuable of commodities, the customer, you can effect change in the market you choose to target.
You could argue that the company concerned didn’t get the business of my friend on this occasion and you would be right, not this time, but they have changed his purchasing behaviour forever and this situation will be resulting in some major shifts within the Automotive Sector.
- It has massively reduced the profit margin of the franchised dealer concerned.
- It has changed the individuals purchasing behaviour; where do you think he will go first the next time he wants a quote on a new car?
- It will no doubt generate many other potential customers for the company concerned, once this individual has spoken about this experience to his many friends and associates.
- It is making these companies very powerful with consumers and therefore within the sector, and no doubt they will not be bothered about losing this sale in the here and now as this will all be part of the “Long Game!”
Now what the independent internet based new car suppliers are achieving is very clever and a very similar business model to those employed by other tech entrepreneurs, the likes of Amazon, We Buy Any Car, Uber and on a another scale, how Purple Bricks are targeting the real estate sector. They are engaged first and foremost in the attacking of established markets, via the successful manipulation of consumer behaviour.
Now the Automotive Sector is not alone as an industry in being targeted by outside forces and having our established markets put under threat. This is the business model of choice for technology entrepreneurs who see how advances in technology can change the way business is done in long standing established markets, and appeal to the changing purchasing habits of a proportion of our customers. If you don’t believe me, just ask your local estate agent or a taxi driver, to see how technology entrepreneurs are targeting established markets with no barriers of entry!
Now as challenging as this trading landscape is, the internet based new car suppliers are, in my opinion, a different and less threatening proposition and I think the industry should stop obsessing about them. So why do I say this? Well the independent internet based new car suppliers will only ever be as strong as the weakest link in your franchised dealer network is weak. Like Virgin Cars before them, they can only be successful if they have access to stock and access to stock is in your hands, as the manufacturer, and your franchise partners; make stock available to these businesses and guess what, they will have a flourishing business, (one which is now advertising on National TV), but if you don’t make stock available to them, then they won’t!
There is no doubt that some manufacturers might have a decision to make and that action might need to be taken because there is a long term danger here that, at first glance to your franchise partners, the internet based independent new car suppliers may actually appear to be a necessary evil; if you as the manufacturers are not more supportive and creative in how product ranges reaching the end of their production cycle are retailed/disposed of.
However, and as much I as I add the very respectful caveat that it is not for me to tell any franchise dealer group how to run their business, I have been left bewildered by posts on LinkedIn showcasing training days delivered by the staff of these independent internet based businesses, actually at the sites of some of the biggest dealer groups in the country. Again it is not for me to tell manufacturers how to run their franchise dealer networks, I can only advise from my own perspective, but if it were me?,,,,, Well I would be taking a very dim view.
No matter which brand you are representing, you have models that become more difficult to retail as they progress through their life cycle. It is an inconvenient truth that only one car can be the market leader, (in its class), and that no car can be the market leader throughout its production life cycle, and in the past I have seen many excellent manufacturer based initiatives to keep control of this product, reduce the perception of distress marketing and protect residual values.
This has included one luxury car maker actually selling cars at cost and guaranteeing to purchase them back in 12 months at the same price! Which at the time was a stroke of genius; not only did it bring customers to the brand who would not have otherwise purchased these cars, but it also avoided the perception of market wide distress marketing and most importantly, ensured their used car operations had a future supply of quality used car stock, which helped to protect residual values; key to on-going success in the new car market.
Your franchise dealer networks will always have both business based and cyclical pressures to register new cars, and at the end of the production cycle, (and when market fluctuations cause sales to begin to slow down), margins come under pressure and registration targets need to be met. At this moment the independent internet based companies may be an attractive proposition for your franchise partners, (in terms of disposing of this stock holding), if they are not supported by manufacturer initiatives, and this is when you are in danger of letting the wolf in through the door.
It is important to remember that these businesses are not charities, they are in business to make money and by allowing these businesses to set the market price of your new car product, regardless in how small a proportion of the market, you are not only allowing them to manipulate consumer behaviour, you are putting future residual values in the hands of third party businesses with no loyalty to you, only their own business and their own aspirations, and it is unlikely that they are going to be aligned with yours.
They like you need customers to survive, but without product they have no customers, so much thought must be given to the long term ramifications of allowing your franchise partners to give their new car problems of today to third party businesses, in this misguided perception that they have gained the advantage, because they, and you as the manufacturer, have not.
For sure both you as the manufacturer and your franchise partners have got money in the bank, you have disposed of product and reached your registration targets, but this has been achieved by handing a business over to your competitors on a plate! In effect this means you have supported a competitor business and my advice would be to be mindful of the “Trojan Horse” business model of these new up and coming technology based businesses.
Like We Buy Any Car did all those years ago now, they see the inherent weaknesses in your business model and they are targeting it, just as they are many other established markets, because they see the revenues to be made; and before you know it they have customers of their own, who should be your customers, and they have grown too powerful.
My challenge to manufacturers would be this; if these purchasing models of business are viable, why are you not employing them yourselves? And if you are, like some manufactures who are moving to online purchasing models, deploy some joined up thinking to this process and look beyond the immediate business needs of the new car sale.
There is no doubt that consumer purchasing habits are changing and evolving at a rapid pace, and the technology model will be vital to your on-going success in the new car market. In fact I was chatting recently to someone who has been instrumental in launching on-line purchasing models for manufacturers and was enthusing about just how brilliant the platform was, and having looked at it, I agree. But one thing troubled me; during the conversation I asked just one simple question; “How is any part exchange valued?” The answer; “Via third party auction software!”
Now the long term ramifications of strategic business decisions like these are a post in themselves and I will be returning to this subject in a future post, because I am concerned for some manufactures, those I see handing over the most important business they have, (in terms of their future new car success), to third party partners, thinking it is a short term price worth paying for new car registrations today.
Now out of respect, I will add the caveat again that it is not for me to tell anyone how to run their business, but at the risk of repeating myself, I cannot stress enough that the success of your future new car business has it’s foundations in your success in the used car market; it is the shared and common objective that binds manufacturers to their franchise dealer networks and you must be careful in applying too much short term thinking to the new car challenges of today.
With new car registrations declining last year, how the UK automotive industry faces the challenges of tougher trading conditions in the new car market, will be interesting to observe, especially in regard to the used car market and individual manufacturer used car market strategy during this period. Will some manufacturers and their dealer networks continue to hand their new, nearly new or used car stock problems over to competitors and feed independent competitor businesses? I don’t know but it will be fascinating to observe?
This will be a challenging period and I fully accept that resilient and successful used car operations are not “A Given” for manufacturers, but luckily help is available and if this post has resonated with you and you would like to know more about our used car business development consultancy programmes, because you would like to partner with an organisation of professionals who have faced the challenges of fast paced evolutionary markets and know how to develop a successful and profitable used car dealer network programme on your behalf, (in order to keep your new car and total business objectives growing and on track), then we would very much like to hear from you.
The owners of Autoformance have owned and run successful used car operations and been at the forefront of the development of approved used car programmes for a host of manufacturers. For an exploratory conversation regarding our services and how we can develop bespoke used car business development and consultancy programmes on your behalf, please do not hesitate to contact one of our Used Car Business Development Directors; Andrew Banning at ajb@autoformance.com or Malcolm Thomas at mgt@autoformance.com
Alternatively please feel free to call us on 0345 057 3177.
For more information about our services please visit our website at www.autoformance.com
Andrew Banning.
Used Car Business Development Director.
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