Not Listening Will Ensure That Franchise Dealers Fail!,,,,,
Five years ago in June 2017, when my Used Car Business Development Blog was in its infancy, I wrote and published the article below;
Now this is not an “I Told You So” article that just isn’t my style! However in the article I predicted many things that have come to pass, and I wanted to revisit this article and the themes covered, as today they are more important than ever. Plus it helps to expand upon the two previous articles I have written recently, (in a series of four), designed to cover the vital role that successful used car stock acquisition initiatives are going to play in the survival of franchise dealers (in fact all used car business) over the next 2-3 years.
I won’t spend time here revisiting the topics covered in the two articles above, which would only ensure that we lose the important thread to be explored in this article. But for those looking in some understandable bewilderment at used car stock acquisition, I would recommend you find the time to read them both, as then this article, (along with the last in the series to be published next week – the one to cover the professionals required), will make a lot more sense.
Those of you who have already read the articles above will know that, in this article, I wanted to explore the decreasing size of the used car market and the impact that this will have on all used car businesses and franchised dealers. It is fair to say that a “Perfect Storm” is forming over the automotive sector at the moment; one which will render the successful transitioning, a very challenging process, one that not everyone reading this can survive.
Now as much as your trading landscape is nuanced depending on the manufacturer you represent and therefore the market place you inhibit, you all have your challenges. Many of you are now learning about your parent manufacturers’ desire to transition to an Agency Model for new car retailing, (Volvo, Alfa, Lotus and Cupra come to mind), many will know it’s coming and are awaiting clarity.
Running alongside this evolving new car retailing landscape is a fragmenting, decreasing and evolving used car market; one that is breaking up into individual specialist markets, all of which will have their own unique operational and trading challenges; so there is a lot happening. To most reading this, the evolution of the new car market presents some problems, the main one being reduced levels of profitability and too late for some, it brings successful used car retailing into sharp focus; and I say too late for some because it is just that.
For many there is going to be too much work to be done. The businesses concerned are so too far behind the curve (in terms of used car business development acumen, operational expertise and the professionals required) that the harsh financial realities of business will result in their business failing sometime during the next 12 – 36 months. All because they ignored articles and market place commentary, such as was contained in my article from 2017. That, or they just couldn’t be bothered to my make the investments required; along with completing the hard work required?
And I make this assessment because of the used car markets of both today, and more importantly those coming in 2023, 2024 and 2025; those effected by the reduced used car vehicle parks, coming as a consequence of the drastically reduced new car registrations during 2020, 2021 and 2022; and maybe thereafter. The result of which has delivered the same existential operational challenge to everyone; that of successful used car stock acquisition.
If your new car market is over 680,000 registrations down on the previous trading year, as it was in 2020, then the used car market is about to suffer, (in terms of stock availability), and the fight for these stock holdings is well and truly underway. Without the expertise to secure access to, and the expertise to lock future used car stock holdings into returning to successful used car retailing operations, you will unfortunately experience a used car business in terminal decline.
To add context let’s look at some of the challenges facing a few manufacturers and their franchise dealer networks. To do this I will compare new car registrations between 2019 and 2020 (the first year effected by the pandemic) and break down what it means for used car retailing.
So let’s start with Volvo, a manufacturer who has brought immediate focus upon their used car retailing model; following their recent announcements covering their transition to an Agency Model for new car retailing and their Volvo Selekt Direct, (direct to the consumer), used car offering. Subjects covered in great detail in the article below;
Well in the challenging markets to come for the Volvo franchised Dealer Network, there is a major “Elephant in the Room!” In 2019 Volvo registered 56,208 new cars in the UK; a number reduced by 17.4% in 2020 to 46,403. 9,805 fewer new car registrations; a number that flows straight through to the used car markets of 2 -4 years’ time.
Aside from competing with the manufacturer for used car stock holdings, this reduction equates to an average of 100 less used cars for each of the 98 Volvo franchised dealers in the UK. This (along with the announcements explored in the article above) leaves the Volvo franchise dealer network in a trading environment best described as a fight to survive. One with successful used car stock acquisition initiatives at the foundations of any future success.
For BMW franchised dealers the picture is just as troublesome; In 2019 BMW registered 169,753 new cars in the UK; a number reduced by approximately 32% in 2020 to 115,500. 54,253 fewer new car registrations and again a number that flows straight through to the used car markets of 2 -4 years’ time.
That equates to an average of 362 less used cars for each of the 150 BMW franchised dealers in the UK.
Finally I thought I would look at the Lexus franchised dealer network; unfortunately the picture here is just as troublesome. In 2019 Lexus registered 15,713 new cars in the UK; a number reduced by approximately 12.6% in 2020 to 13,727. Although only 1,986 fewer new car registrations, it is once again a number that flows straight through to the used car markets of 2 -4 years’ time.
That equates to an average of 43 less used cars for each of the 46 Lexus franchised dealers in the UK. This doesn’t sound much when compared to the reductions explored above, but with smaller new car allocations this number (along with the associated profits) will be just as difficult to make up.
So, coming back to the beginning; every franchised dealership and used car business is in a battle for survival. Even if you just want your business to stand still, in terms of profitability, you have a monumental fight on your hands; and that’s before we start looking at what will be required to grow retail profits.
Unfortunately not everyone will survive this Darwinian process; and to add further context let’s look at the trading reality coming to the BMW franchised dealer network. From the figures above, and assuming the BMW network are making an average of £1,500 RGP per used car, (it will be greater or lesser in reality – depending on the current size of your used car business), they all have a £543,000 hole in your trading accounts to fill!
So with the clarity provided by these figures, if I was still running a BMW sales operation, I would planning from which of my competitors (fellow franchise holders) I would be taking future business from and how I was going to do it?
In truth this will only be achieved via aggressive and successful used car stock acquisition programmes; those that you won’t know how to construct and deliver, or have the professionals required within your employ. I can say this because I know how the used car stock acquisition landscape has been evolving and franchised dealers are being left behind in the battle to secure future used car stock holdings; both in the volumes required and at the prices required to ensure that they remain profitable.
The successful used car stock acquisition professional is a professional not recognised by many franchised dealers, and certainly not by manufacturers. The role has become a highly specialised role over the last 10 years and whilst franchised dealers are still leveraging the initiatives of 20 years ago, others have moved the role on to a degree that would leave franchised dealers dizzy; at the thought of comprehending what is going to be required to be able to compete.
In my next and final article in this series I will further expand upon the role of the successful used car stock acquisition professional, and what is required to construct and deliver the used car stock acquisition initiatives required, in order to claw back used car market place share and to then grow profitability.
However for those wanting to take immediate action, (now that used car market opportunities are identifying themselves), I will be working with three businesses over the next 12 months to deliver the used car stock acquisition expertise and initiatives required, for those businesses to survive and prosper in the used car market to come.
Should you wish to explore synergies and the potential to collaborate in this regard, please do not hesitate to contact me so we can arrange a mutually convenient time for an exploratory call.
Andrew.
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