Well with the new car registration figures now out for September, the overall decline in the new car market this year in the UK can no longer be under question; for sure and as ever there are winners and losers, (and some even bigger losers), within the market, but as a whole new car registrations were down by 20% when compared to September 2017 and year to date new car registrations are down by 7.5%.
Now this article is not being written to tear into the minutia of the figures nor is it meant to be doom and gloom; I have been working in the sector for over 25 years and there have always been peaks and troughs in new car registrations and guess what, we will have them again in the future! However unlike previous down turns, today manufacturers and their franchised dealer networks face an array of different challenges, in terms of the evolution of the market, and for some their current trading model may be under threat.
By that I mean the traditional model that manufacturers employ, that of being supported in their aims by a network of heavily invested franchise partners in order to retail, service and support their new car product, and in truth, I wonder how sustainable this model will be for some? Now this concern has nothing to do with the quality of the product you may be retailing but everything to do with the challenges that the evolving trading landscape will bring to your franchise dealership and how some may then question the model and whether to invest in the franchise model again?
Now that is a big statement but one I think some manufacturers will need to address and some investors in franchise dealer models will need to think about. Reading the information supplied by the SMMT I think the market is becoming split between the “Haves” and the “Have Nots” in terms of the ability to survive the challenges coming to the market. Some of these are fiscal but the majority of these challenges come from the combination of the fiscal challenges and surviving in the evolving new car market, a subject that has been covered in many of our articles, some of which are below.
Internet New Car Sales 2, Judgement Day!
“Wow An Internet Company Got Me Over £5,000:00 Off My New Car!”
Now how much at threat you are does depend on the strength of the total franchise model you are operating and the ability of the associated manufacturer to continually invest in the franchise model and the franchise partner programme.
Now there’s no doubt that for many of you reading this article this will not be a problem; you have invested in an established brand, have consumer desire on your side and will have built a financially resilient business, strong enough to ride the peaks and troughs of the new car market and in supporting the product after the sale; servicing, warranty etc. But for many I fear there could be some problems as the traditional trading model continues to be evolved by the aggressive independent technology based businesses targeting the sector, both for the sale of new cars and the servicing of your vehicle park.
So I thought it worthwhile looking at the likely considerations that investors in the franchise model should now be looking at, in terms of their decision to invest and to take a franchise model on board; and in my opinion this could well be the challenge for some manufacturers moving forward, the building of the franchise dealer network required in order to ensure their long term success. In other words the perennial problem for all franchisors for years, that of attracting investment from the right investors, something that has always been of paramount importance to the success of their and your, (as the investor), business model, but which might be about to get a lot harder for some manufacturers. Those manufacturers showing some of the largest declines in new car registrations this year, those that therefore may lose some franchise partners over the next 12 to 24 months and will therefore need to plug new gaps in their network before they can then go on to expand.
In our opinion investors should now begin to look more forensically at a plethora of new concerns when looking at which franchises to invest in and it will take a lot more than an exciting range of new car product to tempt people and institutions into investing. With new car margins under threat from the curse of the internet new car supplier and more competition for servicing revenue once warranty periods have expired, the financial model for the franchisee/investor is becoming a lot more challenging.
But as the manufacturer you need a franchised dealer network to survive, after all who is going to service your cars, support your warranty programme and sell your product, if you are unable to attract the right quality of investor into your franchise model.
Now if it were me and I was investing in a franchise in the near future, as much as this post is not designed to go into this in great detail, at the very least the issues below would be at the forefront of my mind;
- The strength of the new car model range both now and in the medium term.
- The length and depth of the warranty cover.
- How susceptible is the new car retailing model to the aggressive internet based new car supply companies and how will this affect my margin retention.
- What is the manufacturer doing to protect residual values?
- What is the strength of the manufacturer’s customer finance programme
- What guaranteed servicing model do I need to support?
- How is the manufacturer supporting approved used car networks?
By the nature of what we do, we speak to a lot of motor trade professionals now questioning the financial success of the current franchise model being run by some manufacturers and for many manufacturers’ business models, “Rome Is Burning” because some investors are now questioning the model and what manufacturers are doing to ensure their on-going success? And one area that is becoming critical is the area of approved used car programmes and what manufacturers are doing to support the growth of their heavily invested franchise partners in the used car market.
By and large, investing franchise partners understand the weaknesses of the current model, they appreciate that new car model ranges, along with the new car market, go in cycles and most accept that the trading model is evolving because the purchasing behaviour of consumers is evolving. They also accept that the servicing model is under threat, consumers expect more when it comes to warranty cover and the servicing market is becoming a lot more competitive. Consumers have the luxury of an app on their smart phone for both the cheapest price for supplying their new car and then the cheapest price for the servicing it; technology has targeted our trading model and it, (as well as margins), will probably never be the same again!
But your salvation lies in the used car market; it is both the hardest market for the third party independent businesses to target and unlimited, in terms of potential and therefore the profits that can be made, so my recommendation to some manufacturers, those not currently running successful approved used car programmes, would be that these will be paramount, in terms of the franchise partners you attract and therefore the future success of your business model.
But of course there is a problem; if ever franchise dealer networks needed the ability to support their businesses via the benefit of a growing and successful used car operation, it has been this year, and it will be in the years to come as well. Now unfortunately building successful approved used car programmes and franchise dealer networks that are successful at retailing used cars, and therefore financially resilient in the current trading conditions, is not a 5 minute job. Then there is the issue of the professionals with the skills required to deliver your used car success, a subject that was explored in the recent article below; Do Successful Used Car Professionals Exist For Franchised Dealers?
So as a potential investor in the franchise dealer model there is a potential problem and therefore a very important consideration; what is the strength of the manufacturer’s used car business offering? And this will lead to many other questions and considerations, in terms of the support and initiatives required in order to support your success, key to which will be the professionals required in order to secure your success in the used car market.
Now we appreciate that finding and/or training and developing genuinely successful used car professionals is very difficult for both manufacturers and their franchised dealer networks, and the fact that building strong, resilient and successful used car operations does not happen by accident, but luckily help is at hand. 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 operation 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 me on 07796 260261.
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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