As the Automotive Sector continues to navigate its way around the turbulence in the new car market, I thought it worth reflecting on a question we have been asked by both manufacturers and their franchise partners over the last 6 months; “Used Car Retailing, What’s The Secret?”
Now in a used car market containing both what we affectionately call “The Haves” and “The Have Nots” the answer to this question varies considerably depending on who we are talking to. For those manufacturers and franchise partners enjoying franchised dealer networks that are, (in the main), successful at used car retailing and therefore enjoying franchised dealer networks and independent businesses that are more financially resilient, the answer moving forward will be completely different to some of the up and coming new car manufacturers and the businesses making up their franchised dealer networks.
These manufacturers and their franchise partners have a totally different set of challenges and for many reasons, but in all these cases the major problem is that there has been no approach or long term used car business strategic thinking that is fit for purpose, (in terms of developing successful used car retailing and therefore building solid financial foundations within their franchised dealer networks from successful used car retailing), and looking at the new car registration figures for January published by the SMMT, it would appear that for some, the understandable in the past but ultimately narrow approach of new car retailing at all costs, is about to come back and bite some manufacturers and their associated franchised dealer networks.
As much as we know that the used car market as a whole, just like the new car market, was down during 2018, used car retailing performance by manufacturer is statistically difficult to find, but it is always linked to new car performance, the two do tend to go hand in hand; primarily because only successful used car retailing leads to long term successful new car retailing.
Over the past decade it has been fascinating to see how the approach and the mind-set of different manufacturers has played out in the UK and we now have a totally different market to that of 10-15 years ago. For example, all manufacturers and their franchise partners have had to embrace technology and how that has both disrupted the market and changed consumer behaviour, and all have ridden the wave of new car growth off the back of cheap interest rates, changing consumer purchasing habits and the uptake of PCP in the purchasing process; in fact I am sure that we will look back at this time as the recent “Halcyon Days” for the new car market.
We have also seen recently failing marques brought back to life, via massive injections of cash from investors either from outside the automotive sector, or perhaps even backed by some sovereign wealth funds; we have also seen manufacturers splitting brands to either revive some past heritage or to add some exclusivity to certain elements of their brand; all in all it has been a fascinating period for the new car market in the UK and only time will tell, in terms of how successful some of these ventures will be.
But one thing has struck us during this period; despite the used car market still being over 3 times the size of the new car market in the UK, we have not seen any of the manufacturers, (or their franchise partners), who fall into the trading environment above, aggressively targeting the used car market or proposition, and this is interesting. Leaving all the new car market challenges likely to be coming to the doorstep of manufacturers and their franchised dealer networks during the next 6 years aside, (something recently discussed in a KPMG automotive sector discussion and strategy document), new car markets can be cruel mistresses that are linked to a dangerous cocktail of consumer sentiment, the age of your model range and timing.
You only need to look at the SMMT new car registration figures for January to see how some of “The Haves” have seen a dramatic decrease in new car registrations at the start of the year, which of course can be unavoidable. But when this happens, (as it invariably does), those manufacturers with financially resilient franchised dealer networks and businesses that are successful at retailing used cars and therefore supporting the manufacturer’s new car aspirations, will find it a lot easier to ride the new car market rollercoaster and changes to the new car market business model.
One thing we do know though for the franchise partners of these revived brands, the new breed of up and coming manufacturers and these new hybrid brands for existing and well established manufacturers, is that a successful used car business will be paramount, in terms of the survival of your business and the manufacturers new car business model, and many of the owners of these parent manufacturers do not seem to grasp the importance of this, when it comes to success in the UK new car market.
Now we understand that the UK market can have some different investment needs for the manufacturer, when compared to other markets, but to ignore fact this will leave the UK based new car model in peril. I don’t want to name names but all those in our industry know that there are many examples in the recent past, (as well as in the present), of manufacturers falling into these trading categories and failing.
And for the manufacturer who, by the way, will always have the network they deserve, this can present some difficult challenges; for one the used car business cannot be systemised in the same way that the new car business can, for sure it can leverage technology but the used car business model is completely different today from the new car business model, whilst also being inextricably linked to the success of your new car business. So it requires a completely different profile of professionals, both within your business as the franchise holder and within the manufacturer’s organisation, in order to deliver your used car retailing success.
And don’t forget that as the investing partner and as the manufacturer you are building delicate relationships via a franchising model and just like any other franchisor, the manufacturer will attract the quality of investment that their franchise business model deserves. So we predict that those just offering a traditional new car, parts and servicing franchise business model will begin to struggle to find investors of the quality required, if they are to drive their new car business to success.
As discussed in our article from September last year; Is Your Current Franchise Dealer Business Model Fit For Purpose, as investors you will look at the manufacturer’s business model forensically, in terms of your ROI, (why wouldn’t you), and those with no used car offering and training programmes will begin to look like the poor relations and therefore struggle to attract the network they both need and desire.
This is why there is no easy answer for these manufacturers in the UK, in terms of their future used car retailing success. At the moment many do not have the professionals employed within their organisations with the experience required and this leads to a lot of short term thinking and the “Papering Over Of Cracks!” Too many don’t think of the medium to long term investment requirements of their business as a whole, (as well as those of their franchise partners), when it comes to used car retailing and all too often the whole subject gets kicked into the long grass, especially when new car retailing is buoyant.
But now we are in challenging new car trading conditions combined with a new car trading landscape that is continuing to evolve at a startling rate, and we agree with KPMG that vast swathes of franchised dealer networks will not be in a position to survive the coming changes to the new car market; something we will be exploring in our next articles. Why do we say this, well in a world where 2-4% returns are lauded as success, there is little margin for error and some of these manufacturers do not have an established used car business proposition and a franchise dealer network that is successful at retailing used cars, to help support the new car ambitions during this turbulent time for new car retailing. And worse, as discussed in our recent article below, the people both you, (as the franchise partners) and the manufacturer need right now, (in fact it might already be too late for some), are going to be very difficult, if not impossible, to find.
Do Successful Used Car Professionals Exist For Franchised Dealers?
Now we appreciate that finding genuinely successful used car professionals is very difficult so in your hour of need finding these used car professionals is going to be very difficult for both you, as the franchised dealer, as well as the manufacturer you represent, 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 in the strictest of confidence; 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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