In our last article; Used Car Retailing? There Is No Secret, It’s Just Hard Work we made reference to the recent comments made by KPMG in their Global Executive Automotive Survey, regarding their predictions for the sector in the UK and we promised we would return to this survey, due mainly to the fact that this survey should, (we feel), be sending shivers down the spines of Manufacturers trading in the UK new car market.
One of the most startling predictions in the KPMG survey was that 50% of franchise dealer networks will fail during the next 10 years, and we agree entirely with this sentiment. The reasons for which are varied and differ for every manufacturer, but we think the 50% is as a total of the whole network of franchise dealerships, not equivalent to 50% of each network; some manufacturers, those that enjoy dealer networks that are successful used car retailers and are therefore more financially resilient, and those that have market leading products, may remain fairly unscathed but our prediction is that for some, their whole franchise model may be broken and once again some marques will disappear from the UK new car market.
This article can’t possibly go into all the reasons and those effecting every manufacturer, it has to be generic because our audience base covers every manufacturer in the UK and continental Europe. As much you all have your individual challenges and, apologies in advance, this article is designed to be forthright, frank and to the point; it will make reference to some trading models, although not by name, so if you feel this is either unfair or not applicable in your case, please say so and open up debate with us, (should you feel it is needed), when as usual this article will be posted on LinkedIn; but only if you wish to openly discuss sensitive trading models via this medium? Those wishing to discuss any element of this article in confidence are free to contact me on my personal mobile or via my personal email address below; I will gladly make time to speak to everyone who wishes me too.
Quite rightly the KMPG Global Executive Automotive Survey cited many reasons for why the current new car trading model is in a perilous state in the UK, but one thing not mentioned, (which was a surprise), was the lack of emphasis from some manufacturers on building successful used car retailing franchise dealer networks. Now we appreciate that we may sound like a broken record on this point, but the fragility of the narrow new car sales and parts supply model being deployed by some manufacturers, where 2-4% returns are lauded as success, really is leaving some manufacturers and their franchise dealer networks terribly exposed and the risk of failure is now a clear and present danger.
In our last post we mentioned the groups of manufacturers we feel are most at risk; the up and coming manufacturers, the previously failed but recently revived brands and the new hybrid brands being launched to add prestige to existing brands and in the main, due to very favourable new car trading conditions during the last 10 years, we have seen much success for these new car manufacturers, but now the cracks are beginning to show.
For example let’s say that, as the manufacturer, you have experienced a journey over the last 20 – 30 years of not being previously associated in the automotive sector, then launching a car brand by purchasing licences to manufacturer models, (long since dropped by another manufacturer), under licence in the UK on the basis of value but where you are now looking to sell new cars in the UK that are priced in excess of £30,000 - £40,000. Well listen, that is fantastic and the hard work involved in this journey is not be underestimated. You might quite rightly point out that the purchase price, (to a point), is irrelevant now that the new car customer has embraced PCP agreements and is therefore buying on a monthly rental amount basis!
Now, do you know what, we would agree but we would also point out that strong used car residual values are going to be imperative, in terms keeping new cars competitively priced on a PCP agreement and at the moment we would ask you who is protecting and determining the short to medium term residual values of your new £30,000 - £40,000 plus cars; is it your franchised dealer network or is this unknown?
We would also point out that there are going to be very few customers who will have travelled this whole trading journey with you and as much as you will be working very hard to tempt some customers away from the longer established competition in your market, keeping them will be key. This profile of customer, those spending in excess of £30,000 - £40,000 will expect more from every area of your business, because they have grown accustomed to these high standards and guess what, they don’t like to then pay a privilege for owning and driving your product; the minute this happens and your new car product becomes uncompetitive, in terms of the price of ownership, then they will flock back to the manufacturers you have worked so hard to tempt them away from.
But in our opinion no one reading this article should feel immune from the challenges coming to the UK automotive sector; you are all under threat, it is just that the nature of the threat is different. For example, if you run a search through Google for retailers of used cars for a well-known prestige German brand in one of the counties in the South East, a county directly bordering London so an affluent commuter belt where a lot of aspiring professionals will be living; (just the socio-demographical target audience for this manufacturer), well only one franchised dealer appears on the first page of Google, and towards the bottom.
The first page of Google is dominated by well-run independent businesses, one of whom had over 500 of this make of cars in stock, and over 2,000 used cars in stock in total; an entire stock holding made up of premium brand German manufactured cars. The reality is that for any time poor aspiring professional living in this area looking to buy a used premium brand German car, they need only go to one business to have all the choice they will ever need.
So we may say to these manufacturers, for sure your problems are different but what is your used car trading footprint in this very affluent commuter county next to London? Who do you think is setting residual values and therefore influencing new car pricing? Well it is this business, the one who is probably not really bothered about the uncertainty being caused by Brexit, because they are using this market to purchase stock cheaper than ever before because there will be far less competition; we have no doubt that this will be a very profitable time for this business.
And therein lies the sad irony; regardless of the manufacturer you represent, as the manufacturer you have to appreciate that for your franchised dealer network their used car businesses should be the most profitable part of their business; why? Well used car professionals know that there are no pre-defined trading margins and that they make their money when they purchase used car stock. They also grasp the market reality that it maybe the market that sets retail prices, but that they, as the used car professionals determine the price they pay for stock, because these are skilled individuals who recognise opportunities and they increase margins via skilled acquisition.
For many of you reading this there will be much to do if your new car trading model is to be protected via a dealer network that is successful at retailing used cars. Unfortunately we are not sure that your networks are going to immediately come to the rescue either because as margins and profits have been driven down, manufacturers have acquired the dealer networks they deserve. Not many of the big PLC’s or the larger private groups are running long term used car business development programmes for their own personnel, not when there is no support from the parent manufacturer, so these professionals are not, (in the main), working in your franchise dealer networks; and why would they, any used car professional working in the business high-lighted above will have a tremendous opportunity to earn a far higher salary working there, when compared to a comparable franchised dealership.
So if your networks are unprepared, how prepared are you as the manufacturer? In our experience not many are and very few of you have the professionals within your organisations to get the strategy in place to grow used car retailing and protect your new car trading model in the UK. In reality it is a huge job, no more highly skilled than any other, but too few manufacturers in the UK have genuinely successful used car entrepreneurs to call upon at this time of need, as we explored in our recent article below;
Do Successful Used Car Professionals Exist For Manufacturers?
We will return to the issues raised in the KPMG Global Executive Automotive Survey over the coming articles and discuss the issues raised in isolation, but there are no easy answers. Although you may have to radically change your new car model to meet the challenges coming to the new car market “Head On” we can’t see any of these changes fundamentally increasing profitability, the new car market is just too fractured to put back as it was.
No, the answer will always return to the used car market and successful used car retailing, in terms of building financially resilient franchise dealer networks, those needed to support your warranty programmes and to service your vehicle park, and the decision to do nothing is the hands of you and your franchise partners. Many of your franchise partners may not have the stomach for the fight, we can tell you now that these journeys are not for everyone, but the used car market still offers tremendous opportunities to franchise dealer networks to increase revenues and to protect your new car aspirations.
But as the manufacturer you must also look at yourself; a quick meeting and a tinkering of your warranty cover, a hastily put together standards programme, a rebranding of your used car point of sale material and/or any other “Sticking Plaster” initiatives are just not going to get you to where you need to be. Look around your organisation, into the whites of people’s eyes, who wants to and more importantly, who has the experience to get this massive task by the scruff of the neck and get the job done. The brief is outlined in the article above so we won’t repeat ourselves here other than to stress that this role is not, in our opinion, a sideways move for someone from another area of your business, or with no experience in delivering at this level in the used car industry, the days of growing into the role over a couple of years are gone.
You need a professional with the experience of building successful used car businesses at both franchise dealer and manufacturer level, because only they will know what will be required from all areas contained within the manufacturers organisation and also know how to then deliver the business development and personnel training required, to your franchise dealer network.
Now we appreciate that finding genuinely successful used car professionals is very difficult for both manufacturers and their franchised dealer networks 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 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, or to discuss any part of this article in greater detail, please do not hesitate to contact one of our Used Car Business Development Directors in the strictest 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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