PCP’s = Retaining Customers and Growing Your Used Car Business!,,,,,

 

Let’s be honest from the outset, PCP’s are at the very core of your continued success as a business; in general terms, (the perspective for every brand will be slightly different), they have been at the very foundations of the growth experienced by the new car industry in the UK. There is no doubt that desire and aspiration of ownership are important but the ability to be aligned with the change in customer attitudes towards car ownership, (to a monthly rental focus), has revolutionised the way new cars are purchased and in general made new cars more affordable than ever.

Those of you who read my first post on the subject of PCP’s and/or who follow my blog, will know that I’m an enthusiastic advocate for PCP’s, in fact I would argue that they may be one of the most important developments for the automotive industry in the last 30 years. Not only because of how they have revolutionised the new car market but because of the numerous on-going operational advantages they present to the dealership, who takes full advantage of all that they can deliver to their business.

Of course new car sales success is vital to all franchised dealers, but the foundations of this on-going success lie in the used car market and having a used car operation that is both successful and profitable, (this is the market after all, that is over 3 times the size of the new car market). So just why is this?

Well at the very heart of success in the new car market is cost of ownership for the customer; desire and aspiration for the brand is one thing but if we live in a world where the monthly rental figure is effectively the customer’s budget, (and this is the case in the majority of purchases), and the customer can’t afford the monthly rental and/or it looks expensive when comparing it to the competition? Well, this I would advocate, will put your business at a disadvantage.

PCP’s give the manufacturer, their in-house finance company and their franchise dealer networks the opportunity to influence the cost of ownership, at the same time as locking customers into the brand for long periods of ownership, all of which present many on-going opportunities to the business set up to take full advantage of them.

I am not going to write a post that effectively verges on “Teaching My Grandmother To Suck Eggs;” the ability to set guaranteed residual values and as such, control monthly rentals, whilst locking customers into the brand, are business advantages not likely to need much clarification with this audience. However the ability to plan for what happens when the car returns at the end of the term of the finance agreement most certainly is, because what happens here is of paramount importance to both your continued new car and used car success; why? Well it will do more to effect actual future residual values than any manipulating at the front end done by the manufacturer and/or in-house finance company.

The used car market is an unforgiving market place where entrepreneurs outside of the control of the manufacturer are making the rules, but at the foundations of any ones success in this market is the ability to get used car stock in the volumes required to grow and to then make that stock holding available at a price that the customer perceives as “Value.”

Any used car operation will only be able to sell as many cars as they can acquire, those of you who read my last post and/or follow my blog, will know just how important proactive and effective used car stock acquisition policies are to the successful used car operation. The success of your used car operation falls first on your ability to acquire the used car stock holding required, (your used car sales volumes are inextricably linked to this), and PCP’s present an opportunity for you to guarantee that your new car sale of today becomes your used car sale of the future, and a successful used car operation is not only paramount to your new car business of the future, it is also paramount to the success of your business as a whole. 

When managed effectively PCP’s give you the opportunity to lock customers into the business for extended periods of time and over many purchases. Many of you reading this post will represent brands that have in-house finance companies offering PCP’s now on used car purchases and with new car ranges that offer the new car customers every genre of car, therefore you can now capture customers very early on in their ownership cycle and retain them.

The majority of new car customers will transition from a used car purchase and capturing customers early on in their car ownership cycle is vital, because the business who first captures the customer purchase is then in control of where that customer purchases their car from that moment on and customers are the most precious commodity of all; without them, we don’t have a business.

Handled professionally and in a relationship where trust exists that business has then got the advantage over your business, so much thought must be given to the used car vehicle park returning at the end of finance agreements, because every car returning is a valuable business commodity that leads to a customer. Every car returning at the end of a finance agreement or indeed any purchase arrangement, is a customer of the futures car, so I would recommend that everyone reading this post gives much thought as to what happens to that car when it returns.

Whenever a car is “Traded” or disposed of you are effectively handing a customer over to another business; therefore losing the immediate opportunity to build the relationship with that customer that will involve them transitioning to the new car sale of the future. Who knows how many sales that will mean your business misses out on, in reality we will never know, but as trading conditions become more challenging, (as they invariably do), you will want to have as large a customer base as possible, in order to keep your business growing. 

Operationally, the ability to sell both used cars and new cars on PCP’s is the key to controlling your future, in fact PCP’s can do more to guarantee your future financial success than perhaps you would imagine, everything from;

• Increased used car sales and levels of profitability.
• Increased new car sales and levels of profitability.
• Increased levels of finance commission.
• Increased levels of aftersales profitability.
• Reduced marketing costs per customer and therefore per sale.
• Capturing customers earlier on in the purchasing journey.
• The ability to sell more cars to the same customer.

However, ensuring that the operational procedures required are in place within your business, in order to ensure that you can take full advantage of this opportunity, are another matter and far too numerous to be outlined in just one post.

Most of you by now will have the foundations of a successful used car operation in place that, with continued development of dealer staff and investment in the business, can ensure that success in the used car market place is assured. But for many of you reading this, your used car operations will be at different stages in their used car business development journey and as it is the part of business that is paramount to the long term success of your new car business, just how do you take your used car operation through the process of structured used car business development required, in order to ensure that you can take advantage of the opportunity that is available in the used car market place?

And this will be vital because the used car business is very different to the new car business, yes at its core it involves the selling of cars in order to be successful, but operationally it is a different animal and requires different skills-sets from those required for success in the new car market.

Luckily help is available and 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 business 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; Andrew Banning at ajb@autoformance.com or Malcolm Thomas at mgt@autoformance.com

Alternatively please feel free to call us on 0345 057 3177.

For more information about our services please visit our website at www.autoformance.com.

Andrew Banning.
Used Car Business Development Director.

PCP’s = Retaining Customers and Controlling Markets!,,,,,



 

 

Let’s be honest from the outset, PCP’s are at the very core of your continued success as a manufacturer; in general terms, (every manufacturer’s perspective will be slightly different), they have been at the very foundations of the growth experienced by the new car industry in the UK. There is no doubt that desire and aspiration of ownership are important but the ability to be aligned with the change in customer attitudes towards car ownership, (to a monthly rental focus), has revolutionised the way new cars are purchased and in general made new cars more affordable than ever.

 

Those of you who read my first post on the subject of PCP’s and/or who follow my blog, will know that I’m an enthusiastic advocate for PCP’s, in fact I would argue that they may be one of the most important developments for the industry in the last 30 years. Not only because of how they have revolutionised the new car market but because of the numerous on-going operational advantages they present to the manufacturer, who takes full advantage of all that they can deliver to their business.

 

Of course new car sales success is vital to the manufacturer, but the foundations of this on-going success lie in the used car market and having a franchised dealer network that is successful in the used car market, (this is the market after all, that is over 3 times the size of the new car market). So just why is this?

 

Well at the very heart of success in the new car market is cost of ownership for the customer; desire and aspiration for the brand is one thing but if we live in a world where the monthly rental figure is effectively the customer’s budget, (and this is the case in the majority of purchases), and the customer can’t afford the monthly rental and/or it looks expensive when comparing it to the competition? Well, this I would advocate, will put you at a disadvantage.

 

But PCP’s give the manufacturer the opportunity to influence the cost of ownership at the same time as locking customers into the brand for long periods of ownership. I am not going to write a post that effectively verges on “Teaching My Grandmother To Suck Eggs;” the ability to set guaranteed residual values and as such, control monthly rentals, whilst locking customers into the brand, are business advantages not likely to need clarification with this audience. However the ability to plan for what happens when the car returns most certainly is because what happens here is of paramount importance to your continued new car success, because it will do more to effect actual future residual values than any manipulating at the front end done by manufacturers and/or in-house finance companies.

 

The used car market is an unforgiving market place where entrepreneurs outside of your control are making the rules, but at the foundations of anyones success in this market is the ability to get used car stock in the volumes required to grow and to then make that stock holding available at a price that the customer perceives as “Value”. Now this is where the manufacturer loses control, because in the used car market they cannot dictate the wholesale price at which a used car enters a business, whether it be one of their franchised dealers or an independent business.

In the new car market allocations and the pricing of the product is tightly controlled but too many manufacturers seem to breathe a sigh of relief when the new car objective has been achieved and give not enough strategic thought to what happens in the market place thereafter. But controlling this market is paramount in terms of residual values, which are key to the cost of ownership and monthly rental payments on new cars.

 

The moment that control of this valuable future used car vehicle-park is lost to outside forces, is the moment that future residual values lie in the hands of businesses not in your franchised dealer network and therefore outside of your direct control. So in effect you are in danger of losing the ability to set the monthly rental payments of your new cars in the future, unless you potentially bridge the gap between the future guaranteed values required, (in order to keep new car monthly payments competitive), and the actual future value, and this will leave a rather large sized hole in your new car profits.

 

So much thought must be given to how this future used car vehicle-park is disposed of in the future because if you get this wrong, well from here the problems just multiply for the manufacturer. On top of losing control of future residual values, (and the dangers that poses to your new car aspirations), you are also in danger of supplying businesses in direct competition to your franchise partners with a very valuable commodity, a used car stock holding.

 

Now this is a very valuable commercial commodity and the key to the most precious commodity of all, to all businesses with successful selling at the core of their success; customers! Without stock there are no customers and every car a competitor business sells to a customer, is a customer not only lost, but lost for as long as they do the job of looking after them effectively. In reality you are giving that business the first opportunity to build a relationship with that customer and this relationship is key to where that customer then purchases their future cars, because it is built on the most precious of commodities; trust.

 

It is important to remember that the used car customer of today, if handled and nurtured correctly over time, will be the new car customer of tomorrow, but if your franchise dealer network is not getting the customer as a used car purchaser, well that natural transition is under threat. So the ability to sell the used car vehicle-park returning in the future will play a major role in your new car success in the future, and to be able to handle and retail this valuable commodity you will need both an approved used car programme that is fit for purpose and a dealer network capable of retailing this used car vehicle park, when it returns at the end of the finance agreement.

 

Most of you by now will have the foundations in place through your approved used car programmes to ensure that, with continued development of dealer staff and networks, the skills can be in place to ensure that success in the used car market place is assured. But for many of you reading this, your franchised dealer network will be at different stages of their used car business development journey and, as it is the part of business that is paramount to the long term success of your new car business, just how do you take your dealer networks through a process of structured used car business development?

 

And this will be vital because the used car business is very different to the new car business; yes at its core it involves the selling of cars in order to be successful, but operationally it is a different animal and requires different skills-sets from those required for success in the new car market.

 

Luckily help is available and 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, please do not hesitate to contact one of our Used Car Business Development Directors; Andrew Banning at ajb@autoformance.com or Malcolm Thomas at mgt@autoformance.com

 

Alternatively please feel free to call us on 0345 057 3177.

 

For more information about our services please visit our website at www.autoformance.com.

 

Andrew Banning.

Used Car Business Development Director.

PCP’s Are Vital!,,,,, They Do Not Make Us The “New Bankers!”

Probably like everyone else reading this post I am genuinely astounded by the bad press the industry is receiving regarding PCP’s and the alleged miss-selling of these products; there appears to be a rush to label the industry as the next Banking Sector, (to be blamed for the levels of indebtedness of the nation), and I shall make no comment here regarding the folly of these sentiments.

These posts and this platform are reserved for content regarding best practice and used car business development initiatives and strategies but I think it is important to remember the vital role that all forms of finance package involving a guaranteed future residual value, play in the building of successful new and used car operations for dealers. 

But first a history lesson because it is easy to forget where the structure of PCP’s came from and why they have been so important for the financial wellbeing of all dealer networks. In reality they have been around for over 20 years now and were available before that to business purchasers of cars, albeit under different names and slightly different structures. It is easy to forget that not that long ago, (the late 80’s and into the early 90’s), private purchasers invariably had only 2 methods of purchasing a car; one was an outright cash purchase and the other was a traditional hire purchase agreement.

In fact any finance agreement involving an element of a future residual value/balloon payment in those days, (Contract Hire, traditional Lease or Lease Purchase), was the preserve of the company or business purchaser. They were not available to the private purchaser and these were the days before in-house manufacturer owned finance companies; the majority of manufacturers and dealerships had credit supply relationships with independent finance companies and this left their business models vulnerable to outside forces. Why? Well because in this instance the success in the new car market for all manufacturers and their franchised dealer networks, was determined by the underwriters and those responsible for the setting of future residual values, employed at third party independent finance companies, and this was a situation that couldn’t be allowed to continue.

And let’s not forget just how vital this control is to the manufacturer and its franchised dealer network; it affords an element of control to the manufacturer that is pivotal in the success of its dealer network and their brand. It is important to remember that the moment any manufacturer doesn’t make the cars that customers want to purchase, available at a price that the customer can afford, (and via a method of payment that the customer wants to use), well then it’s franchised dealer network will be attempting to sell cars at uncompetitive prices and that invariably results in the manufacturer failing.

So both manufacturer owned finance companies and PCP’s were born but in reality all PCP’s are, is a form of Lease Purchase or Contract Hire, but for the private purchaser and why shouldn’t the private customer enjoy the benefits of the reduced monthly rentals by taking advantage of the cars future value, (just as the business purchaser was able to via a Contract Hire or Lease Purchase agreement), whilst the manufacturer retains more control over the factors affecting their success in the market place.

So why are PCP’s or indeed any finance package involving a guaranteed future value so important to the long term success of the manufacturer and it’s franchised dealer networks? Well if the commercial reality in the new car market is that the monthly rental amount that a car is available for, is the determining factor in the majority of new and used car purchases, then only a PCP, (or a similarly structured finance agreement), gives the customer the opportunity to reduce their monthly payments, by off-setting the future value of the car.

This ability to offset a balloon or final payment which is linked to the perceived and guaranteed future residual value has proved to be very popular with customers, who either want to reduce their payments or purchase a car of a higher capital cost for the same monthly budget. Therefore it is important to remember what factors determine what the monthly rental will be. One is the interest rate being levied and the other is the balance to be funded and it is the balance to be funded that is most critical.

Sure the interest rate being levied plays a part, but invariably these are set by forces outside of the manufacturer’s control, but the balance to be paid, well that is determined by the difference between the purchase price and the future residual value, both of which are in the control of the manufacturer. The ability to control these are vital, especially the future residual value, because the moment the future residual value goes down and the balance to be funded by the customer over the term of the finance agreement increases, the monthly rentals will have to go up and in a world where customers are purchasing on the basis of desire for a product and what they can afford for a monthly rental, well the cars are going to be more expensive to purchase and therefore harder to sell.

Just as importantly, the ability to control and set future residual values for the manufacturer gives both the manufacturer and its dealer network control over a very precious commodity, the future used car vehicle-park. This is vital because the manufacturer must retain, (as much as is possible), control and influence over future residuals because of the effect that falling residual values will have on future new car sales. Pivotal to this is control of the used car vehicle-park; not only is it valuable as a business commodity in its own right, (never lose sight of the fact that it was the market commodity that the founders and owners of We Buy Any Car borrowed £Millions for to target and acquire), but it is also the stock holding to support the growth of your approved used car operation in the future.

A successful and profitable used car operation is vital to the future of your dealership and too often I see manufacturers and dealers not giving enough thought to how cars returning to in-house finance companies, at the end of finance agreements, are disposed of. I appreciate that there are financial pressures for both the manufacturer and the in-house finance company, to achieve the highest value for all cars returning at the end of finance agreements, but in too many cases cars are auctioned to any anyone who can be bothered to come to the auction concerned.

Invariably this can result in them being sold to competitor businesses outside of their dealer network, which are then sold to customers living in conurbations serviced by your dealership. So in reality your manufacturer owned/approved finance company is selling valuable used car stock to competitors of your business and worse, the manufacturer is then in danger of losing control over residual values and putting them in the hands of outside influences.

If success in the used car market is at the very foundations of your success in the new car market, (and it will be), then manufacturers must never lose sight of the need to build effective and successful dealer networks that are successful and profitable retailers of used cars, (if they are going to have a network capable of disposing of the stock levels returning at the end of finance agreements), and franchised dealers will have to continue to invest in their used car operations, if they are to take full advantage of the opportunity that the used car market place presents, and this may take time.

Most of you by now will have the foundations of a successful used car operation in place that, with continued development of dealer staff and investment in the business, can ensure that success in the used car market place is assured. But for many of you reading this, your used car operations will be at different stages in their used car business development journey and as it is the part of business that is paramount to the long term success of your new car business, (I will explore this in more detail in my next post), just how do you take your used car operation through the process of structured used car business development required, in order to ensure that you can take advantage of the opportunity that is available in the used car market place?

And this will be vital because the used car business is very different to the new car business, yes at its core it involves the selling of cars in order to be successful, but operationally it is a different animal and requires different skills-sets from those required for success in the new car market.

Luckily help is available and 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 business 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; Andrew Banning at ajb@autoformance.com or Malcolm Thomas at mgt@autoformance.com

Alternatively please feel free to call us on 0345 057 3177.

For more information about our services please visit our website at www.autoformance.com.

Andrew Banning.
Used Car Business Development Director.