There is no doubt that the Coronavirus is going to present some hefty challenges to the Automotive Sector, as it is many others, and I have been reflecting this week on both my business and the tone and content for my used car business development articles during this period; and it made me realise that we actually don’t have clarity on much so this makes planning very difficult.
My worries, (and I add the caveat that my opinion is no more valid than yours – because none of us have traded through market conditions like this before), are that “Fear” and the “Unknown” are a contagion in asset markets and we forget that we are trading in an asset market; we have no idea how long this disruption is likely to last and I have a sneaking suspicion that when we are trading again, things will be very different to how they were before recent events, thus preparing for the used car market of the near future will involve a lot of guesswork.
So over the coming weeks and as the trading landscape evolves, I make a commitment to share as much experience, expertise and knowledge as I can, (including my rationale), whilst accepting that conditions will be different for every manufacturer and every franchised dealer, so in order to give specific advice, we would need to arrange a free used car business development conference call, something I’m sure you have all seen that I have committed to offer to all of you.
In this weeks’ Sunday Briefing Article I wanted to cover two things, one that will be difficult to read and one important question, the first question I think we should all be asking ourselves. The difficult issue to discuss is one of predictions surrounding business failures because not for one moment do I think that every franchised dealership and independent new or used car business can survive this period.
Now before everyone gets upset with me, I readily accept that this includes my business, in fact my life’s work, but like you, the world is not going be a worse place because my business does not exist; so I think we must be prepared to accept that we really are likely to go through some seismic changes.
So let’s get on to some serious and valuable used car business development advice and the first question I think all those running a used car business must face; whether that be at a franchised dealership or an independent business, is:
What Is The Value Of My Used Car Stock Holding In A World Where No One’s Buying?
The only time I have traded through a similar period to this, (I do still own and run a specialist used car stock acquisitions company), was during the financial crisis during 2007 and 2008. I remember vividly having approximately £500,000 worth of used car stock that no one wanted to buy, which really focuses the mind. During that period there was some “Calls” to be made, once you accepted that this period was all about losing as little money as possible;
- Do I take the losses required now to become “Liquid” and have cash in the bank, to then be able to be buying when others can’t?
- If I decide to do this, what is the maximum loss I am prepared to take.
Now at the time these were big calls; it was my money and in truth the biggest lesson was to ensure that it never happened again, and it hasn’t this time round. Now before you all accuse me of being smug, the decision to make myself liquid was taken as a gamble 2 months ago, so I have already lost 2 months trading income, so in some ways my losses are greater than yours right now!
And let’s not forget that there is another critical point to this and that is whether I or anyone should be buying again now, and for me the answer is no; why? Well I don’t think we are any near the bottom of the market yet and a stock holding that looks cheap today, could easily look expensive again if no one is buying. Now this is the conundrum for us all; when will the retail public be buying en masse again? I don’t think changing their car will be on many people’s minds any time soon so there are some critical decisions to be made and some valuable lessons to be learnt here.
Now life has a habit of sending us valuable lessons wrapped up in as a mistake, so my advice to you all would be to reflect on this period, learn the lessons and ensure that you do things differently in future; all of which I will be covering in my articles over the coming weeks.
So in order to do this and to bring the maximum value, let’s assume you have a £1,000,000 used car stock holding; many reading this will have more invested in stock and many will have less; what are the options?
Well they are no different to mine but unfortunately many of you are not set up to trade in these conditions; I don’t say this to be pious but to help us all from making these mistakes again. So if I was with you right now this is the market analysis I would be providing, the questions I would be asking and also what I would be advising.
My Market Overview
My reading of this will be that all businesses will now be in a race to be “Liquid” and have cash in the bank; cash flow is the oxygen of business and without it the bills can’t be paid, resulting in hitherto viable businesses going under!
Unfortunately we have a used car market awash with stock and customer enquiry levels very likely to fall off a cliff; I say this because I fear that the disruption to business and people’s lives could be huge, so therefore it is unlikely that many will be looking to change their car any time soon.
However, some can be induced to change and provided you have the sales professionals required and not the customer handling professionals churned out by the manufacturer’s training academy, (those waiting for customers to contact the dealership, who probably won’t be bothering for a while), you can make a decision to join the aggressive race to sell used cars in the here and now.
My reading is that this is not a time to be sentimental, regardless of how hard you worked to acquire your current used car stock holding, the rules have changed and there are no guarantees where values are going to bottom out, so be ruthless and get your current used car stock sold, and within reason, regardless of the losses to be endured today!
I won’t explore this in too much detail in this article, anyone wishing to discuss this can feel free to contact me, but there are more than enough negative “Drivers” at play and on the horizon, to drive used car prices down; everything form enforced liquidation, closing businesses, repossessions, collapsing auction activity and cars returning at the end of PCP agreements.
But I also sense that procrastination during this time will be punished and in order to devise the strategy required to get retailing and/or liquidating, there are some questions that will need to be asked and answered very quickly; not an exhaustive list below, but the list of questions will certainly include;
- How Long Can You Trade With The Money You Have In The Bank?
- How Much Can You Afford To Write Off Right Now?
- How Many Outstanding Used Car Enquiries Are Sitting On Your CRM System?
- Do You Have The Sales Team You Need Right Now?
- If Not, Who Can You Work With To Run This Campaign For You Right Now?
- Do You Have A Trade Network That Can Be Leveraged At This Moment, Or Are You Totally Reliant On A Soon To Be Failing Auction Based Disposals And Liquidation Policy?
The answers to these questions will set the foundations for how you should proceed; now is not the time for recrimination but a determination to succeed combined with a willingness to learn and avoid the mistakes that may have left you with the wrong answers to the questions above, is going to be vital.
In coming articles I will address the issues covered by the questions above, all of which will be an article in themselves because the answers are going to be pivotal, in terms of how you proceed from here. Sadly those without the right sales professionals at this moment and those reliant on the auctions for disposals and liquidation in order to return cash to your business, have some huge challenges ahead, but those “Grasping The Nettle” now can be amongst the first able to trade in the new trading landscape that emerges.
But I promise you all, this is not a time for burying your head in the sand and hoping that things will get back to “Normal,” because we are going to have to have to see what “Normal,” looks like. One thing I am convinced of though is that those able to be out there buying stock in the market at this time will be the businesses that set market values in the months to come.
These businesses will be the ones that set pricing and will be out there buying stock at below the new market values, because they will be out there with cash to spend when others aren’t and this will bring intolerable pressure to bear on all those businesses who didn’t act earlier and are needing to sell stock at that moment. The worst thing for you at this time will be if you are the business holding used car stock at yesterday’s prices and in a market where consumer confidence is likely to still be very fragile; at this moment you are likely to see the losses to be taken today as having been very marginal in retrospect.
Now I have no doubt that the used car market will evolve and that many businesses will survive by making the “Big Calls” now, however, I also have no doubt that this evolution will be brutal and that those procrastinating will be the businesses that struggle to survive. I do not say this lightly and I am aware that for some this will be a difficult read but for those who want to explore the questions above and how I can help, please feel free to reach out to me either on my personal mobile, 07796 260261, or at ajb@autoformance.com in order to arrange an exploratory conference call.
I look forward to hearing from you.
Regards.
Andrew.
Andrew Banning.
Used Car Business Development Director.
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