Used Car Business Development

Is The Automotive Sector Entering A Recession?,,,,, I Hope So!,,,, 

There is much talk about an impending recession in the Automotive Sector at the moment and it is interesting to assess the perspective of some of those posting about the likely forthcoming market conditions; whether that be from a positive or a negative perspective. So now that we are all back from our holidays I thought I would add my “Two Pennies’ Worth.” 

Firstly I think it is important to understand that whether or not we are likely to think we are in a recession, is down to the prism of own lives and experience. For many in the automotive sector, I have no doubt that they will feel that they have been trading in a recessionary market for at least 3-6 months, because it will be their “Lived” trading experience. 

And it is how you look upon, and your attitude to, that experience that is key to how anyone or business, will prevail during the next 2-3 years; whether or not you see the coming market as a time of doom and gloom or of tremendous opportunity. Perception is reality so perception is important; as Harry S Truman said: 

“It’s a recession when your neighbour loses their job; it’s a depression when you lose yours!” 

Personally I think the next 2-3 years will represent a once in a generation opportunity for those with the skills and experience required, in order to take advantage (more on this later), because I think the Automotive Sector has the “Perfect Storm” of challenges building over it; a likely consumer led recession being just one of them. Unfortunately if you are an example of the average franchised dealer, then I think the vast majority of these businesses have never been so under prepared for the challenges on the horizon; and if I’m honest a lot of it is their fault. 

As much as the Automotive Sector has Agency Agreements, unfavourable economic headwinds, new car production problems and reduced used car vehicle parks to contend with, this will create a very profitable used car market based trading landscape for those agile enough to adapt. And for those possessing the skills and expertise required to take advantage of the trading conditions looming on the horizon. 

So I say bring it on! Now before quantifying these comments let me say that I do not make light of the “Darwinian” culling process that the sector will go through; many will lose their jobs but the successful businesses will create new jobs, only these will be different from the roles in place at businesses at the moment. They will be the roles required in order to succeed in the market conditions of tomorrow, when all businesses (not just used car businesses and operations) will need to be able to lean on some different and hitherto unknown professionals in order to survive; more on this in another article. 

So let me expand upon my own thoughts, predictions and experience. Firstly the used car market is no different to any other commodities market, and I know how commodities markets work; I have been acquiring used car stock (along with other commodities) and trading them for a profit for over 25 years. Commodities markets (and therefore prices and availability) are effected by many trading influences and I have a good idea how this market will play out. 

This knowledge is powerful, but is even more so when you also have an understanding of how the competition will then be forced into operating, in terms of the markets you are targeting. Being honest I think the competition has never been so under prepared and I (like the others who will take advantage of the opportunity presenting itself) have the financial crisis of 2007/2008 to thank for that. 

During that period and since, the vast majority of franchise dealer networks have become nothing more than an extension of the manufacturer and therefore a business that prioritises new car retailing. During this period of over supply of new cars, the vast majority of those that tried to embrace used car retailing, actually didn’t. In reality becoming nothing more than businesses retailing ex-demonstrators, pre-registered new cars and part exchanges; well those that they didn’t send to the auction or to their agreed re-marketing partner. 

These businesses (along with the manufacturers) also dispensed with the notion of developing used car retailing and business development professionals; choosing instead to outsource essential used car stock trading skills to third party businesses. And it is this, along with the “Perfect Storm” of trading challenges looming on the horizon, which makes me so positive about the trading conditions to come. You see I know that at the moment, very few businesses (if any) will have the professionals required to take advantage of the trading conditions that will prevail. 

And let me expand further; at the average franchised dealership alluded to above, this is how the period between September and Christmas will (in all likelihood) play out. Because these businesses have (and never have had) no used car business development and/or trading expertise to call upon, (especially used stock acquisition expertise), their used car stock holding will now be ageing, in terms of days in stock, looking expensive and ultimately loss making. 

Invariably the used car stock holding of these businesses will have been purchased many months ago, during the feeding frenzy for used car stock; the feeding frenzy entered into by all the used car businesses with no access to genuinely successful used car stock acquisition professionals, so therefore having no alternative. In an ideal world these businesses should not have been out buying used car stock in this market; not without the required skills and expertise, but they were! Probably because they were listening to, and believing all, the hype surrounding prices. The hype being peddled by those with no experience of buying and selling used car stock for a profit; HPI, auction/re-marketing companies and Autotrader for example. 

Now, many months on, this stock is not selling because we are now trading in a recessionary market. The consumer will not see “Value” and these businesses will not be able to sustain the losses required in order to sell this stock, release the associated funds and replenish stock at today’s prices. And it is just about now, that the “Accountants” will decree that these businesses are no longer buying; not until the stock level has been reduced! Now when this happens en masse (as it undoubtedly will) it leaves those businesses with liquid funds for used car stock investment, and the acquisition skills required, in an enviable position; that of choice and of setting market pricing. In brevity; 

Choice: When you are involved in used car stock acquisition full time you learn to read the behaviour of both the market and of your competition. You are blessed with the data required (your own – not the fairy tales available from HPI, Autotrader and/or auction/re-marketing companies) and the expertise to ensure that you are in a position to leverage this data and knowledge, in order to take advantage. 

Successful used car stock acquisition professionals know that they are operating in a people business first, not a car business. They have the people skills combined with the acquisitions skills required, in order to position discussions about purchasing cars in their favour. And when there is little competition for stock (remember the average businesses will not be buying) combined with distressed selling consumers under pressure to reduce their overhead, there is opportunity to acquire used car stock well below market value, and in volume. 

Pricing: When you are purchasing used car stock at prices not enjoyed by others, you decide how to control market pricing in your favour; dependent of course on the profile of used car stock you are purchasing. You can play the market because you also understand how both the consumer operates within certain markets, as well as the trading weaknesses of your competition. 

Now in terms of being a “Useful Idiot,” the one thing Autotrader Is good at (for the successful used car business) is supplying a shop window to how the less capable used car businesses within franchise dealer networks are operating. Knowing full well that once a car has arrived unsold (“Selling” used car businesses see this as a failure) into their used car stock they are then, more than likely, entering the less profitable “National” used car market. 

However, the successful used car stock acquisition professional will be able to ensure that this stock can then be advertised as the cheapest available on the Autotrader platform, whilst also retaining a viable profit margin. if this successful used car business then decides that they wish to drive market pricing down they can; via volume of acquisition for this profile of stock, and by continually setting pricing below the cheapest available, and whilst still remaining profitable. 

This situation then becomes a devastating trading reality for the competition, because these adverts then go on to provide further sales enquiries for the successful used car business; the business that will no doubt be aligned to a successful used car stock acquisitions business/professional; the two tend to go hand in hand. 

However, all of the above will not happen by accident and these professionals will not be dealing in the used car stock acquisition market that the majority operate within; what I call the “Just In Time” market. This is the market that the vast majority choose to operate within, (because they have no alternative), the market served by the auctions and re-marketing companies. It is an inconvenient truth that stock purchased from these sources cannot be the most profitable; if at all? 

It is the acquisitions market of last resort, where you pay the absolute most amount of money for used car stock on any given day, because it is the last “Watering Hole” of those who don’t have the skills required to acquire used car stock in any other way. Those possessing the used car stock acquisition skills of the 1980’s and 1990’s, when unfortunately we are now operating in 2022. 

Be in no doubt though, the used car stock acquisition professionals alluded to above, those with choice and those dictating market pricing, will be doing so because they know how to build a ruthlessly effective and successful used car stock acquisitions business. The business required to target the most profitable target markets of supply and to build an acquisitions funnel of continual used car stock investment opportunity. 

And it is for these reasons that I am so positive about the likely market conditions coming to the sector during the next 2-3 years. Now I appreciate that for 95% of those reading this, the initiatives mentioned above are fanciful; I experience this a lot, and sadly I can’t (so don’t) work with hostages. But for the remaining 5%, those curious, ambitious, capable of opening their minds and taking their strategic used car business development thinking on the journey required, I would say this. In the used car markets to come, those with used car vehicle parks of 680,000 less vehicles, (in terms of available stock), my question would be; how well set up is your business to survive? 

In truth the vast majority aren’t. It is the inconvenient truth of our times that you can have the best sales professionals and operational procedures imaginable, but if you don’t have the professionals required to secure used car stock holdings in the volumes, and at the prices required to remain profitable? Well, it is all going to be for nothing. 

I have observed how the used car stock acquisition landscape has evolved during the last 12-24 months and I promise the vast majority reading this, you will not be ready for how the acquisitions landscape has evolved. To the point where (as mentioned above) all those relying on the used car stock acquisition initiatives and skills of the recent past, will be left floundering. 

For these businesses, those reactionary businesses still only purchasing stock on a hand to mouth basis and in the moment, (the “Just In Time” market), it will become a challenge to acquire used car stock at the prices (and in the volumes) that ensure your business remains profitable. 

But there are others, albeit very few, those who (like me) spent the lock downs monitoring the market and rewriting previously very successful programmes of used car stock acquisition, from the ground floor up, in order to develop the programmes and initiatives required to ensure that used car stock holdings are being secured for future markets right now. And via campaigns and initiatives that will leave the competition with years of work, in order to catch up; even if they can find the skills required already within the four walls of their business? 

The used car stock acquisition skills now required to secure success can’t be taught via any training programme, it is too fast moving a discipline and covering too vast an array of skills-sets. So in reality successful used car stock acquisition now necessitates an environment of strategic alliances via commercial arrangements. The market value of the skills involved would also make it too financially restrictive to employ genuinely successful used car stock acquisition professionals; there are too few of us, so for the moment those days are gone. 

That said I am working with two businesses, building and delivering the used car stock acquisition programmes they require; having made a commitment to work with three at all times. So for those grasping the seriousness of their current situation and wanting to take immediate action, I will be working with another business over the next 12 months, in order to deliver the used car stock acquisition expertise and initiatives required, for that business 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 via LinkedIn, so we can arrange a mutually convenient time for an exploratory call. 

Andrew.