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.
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