There has been much traffic and debate on business social media platforms recently about Carwow, brokers etc. etc. In fact comments on any business model that seems to be threaten the status quo within the automotive sector and I say: “Get used to these threats, this is the new normal!”
I don’t want this statement to sound overly harsh or to be dismissive of the threats posed by some of these aggressive business models, but it is the truth and perhaps we should stop worrying about these threats and begin to gain confidence from the fact that, unlike a lot of businesses models being targeted by technology entrepreneurs, you as the franchise dealer network and the manufacturer you represent, still hold the all the aces and must not repeat the mistakes that we made when we sleep walked into the threats that We Buy Any Car presented at our doorsteps!
The Automotive Sector is not alone as an industry in being targeted by outside forces and having our established markets put under threat. This is the business model of choice for technology entrepreneurs who see how advances in technology can change the way business is done in long standing established markets, and appeal to the changing purchasing habits of a proportion of our customers. If you don’t believe me, just ask your local estate agent or a taxi driver, to see how technology entrepreneurs are targeting established markets with no barriers of entry, changing the way business is being done and taking the profits that they once took for granted!
Some of these we should be worried about; We Buy Any Car is a case in point, and some we shouldn’t, (yet), Carwow is a case in point. So why do I say this? Well Carwow will only ever be as strong as the weakest link in your franchised dealer network is weak. Like Virgin Cars before them, the idea is an excellent one but Carwow can only be successful and a threat to your business, if they have access to stock and access to stock is in your hands and the hands of your fellow franchise partners; make stock available to Carwow and guess what, they will have a flourishing business! If you don’t make stock available to Carwow, then they won’t!
However, in my opinion, although Carwow do not present the initial threat that We Buy Any Car did, they do present more of a threat to your long term new car success than you might at first imagine. Why? Well because they appear to be being rather clever by exploiting weaknesses in new car sales, and matching this to a demand from a proportion of purchasers, who always want to buy at the cheapest price.
The long term danger here is that at first glance to you and your fellow franchise partners, they may actually appear to be a necessary evil, if manufacturers are not more supportive and creative in how product ranges reaching the end of their production cycle are retailed/disposed of. No matter which brand you are representing, you will have models that become more difficult to retail as they progress through their life cycle. It is an inconvenient truth that only one car can be the market leader, (in its class), and that no car can be the market leader throughout its production life cycle, and in the past I have seen many excellent manufacturer based initiatives that have helped their franchise dealer networks to keep control of this product, reduce the perception of distress marketing and protect residual values.
This has included one luxury car maker actually selling cars at cost and guaranteeing to purchase them back in 12 months at the same price! Which at the time was a stroke of genius; not only did it bring customers to the brand who would not have otherwise purchased these cars, but it also avoided the perception of market wide distress marketing and most importantly, ensured their used car operations had a future supply of quality used car stock, which helped to protect residual values; key to on-going success in the new car market.
As a franchise dealer you will always have to register new cars and at the end of the production cycle, and when new car sales begin to slow down, margins come under pressure and registration targets need to be met. At this moment Carwow may appear to be an attractive proposition for you, in terms of disposing of this stock holding and achieving a registration target/bonus, if you are not fully supported by manufacturer initiatives, and this is when you are in danger of letting the wolf in through the door.
It is important to remember that these businesses are not charities, they are in business to make money and by allowing Carwow, (or any similar business for that matter), to set the market price of your new car product, regardless in how small a proportion of the market, you are putting future residual values in hands of third party businesses with no loyalty to you, only their own business and their own aspirations and it is unlikely that they are going to be aligned with yours.
Like you they need customers to survive, but without product they have no customers, so much thought must be given to the long term ramifications of handing your stock problems of today over to third party businesses, in the misguided perception that you have gained the advantage, because you have not.
For sure both you as the business and the manufacturer you represent have got money in the bank, you have disposed of product and reached your registration targets, but this has been achieved by handing a business over to your competitors on a plate! In effect this means you have supported a competitor business and my advice would be to be mindful of the Trojan Horse Business Model of these new up and coming technology based businesses.
Like We Buy Any Car they see the inherent weaknesses in your business model and they are targeting it, just as they are targeting many other established markets, because they see the revenues to be made; and before you know it they have customers of their own, who should be your customers, and they have grown powerful.
If you want to know the size of threat, take 30 minutes out of your schedule and imagine you are a customer; then log on to the Carwow website and have a browse and look at the broad selection of product on offer and the savings listed, then ask yourself two honest questions; “Should I Really Be Supporting This Business?” and “Where Is This Going To End?”
The first is not a question for me to answer, it is your business and your future success at risk, not mine. We at Autoformance could just as easily be supplying Used Car Business Development expertise to Carwow, as we can for franchise dealer networks. The second is all conjecture at the moment but I have seen the website and I can only imagine the investment required to launch this business.
Institutional investors like this will have a plan, today it is apparent that they are targeting the new car market, but how long will it be before they move on to the other markets, especially the used car market? With the platform they have, it would not take them long to be attacking more of the business you currently take for granted.
My challenge to franchise dealer networks and the manufacturers you represent would be this; if these models of business are viable, (and they obviously are as they reflect the changing purchasing habits of our customers), why are you not employing them yourselves? As Oscar Wilde famously said; “Imitation is the Sincerest Form of Flattery” so if the on-line model is so successful and growing, the way to challenge these threats, is to meet them head on.
There is no doubt that consumer purchasing habits are changing and evolving at a rapid pace, and an evolving technology model will be vital to your on-going success in the new car market. Some of you will be lucky and be representing some manufactures who are moving to online purchasing models, in fact I was chatting recently to someone who has been instrumental in launching on-line purchasing models for manufacturers and was enthusing about just how brilliant the platform was, and having looked at it, I agree.
But one thing troubled me; during the conversation I asked just one simple question; “How is any part exchange valued?” The answer; “Via third party auction software!” Now the long term ramifications of strategic business decisions like these are a post in themselves and I will be returning to this subject in a future post, because I am concerned for some manufactures and their franchise dealer networks, those I see handing over the most important business they have, (in terms of their future new car success), to third party partners, thinking it is a short term price worth paying for new car registrations today.
Now out of respect, I will add the caveat that it is not for me to tell anyone how to run their business, but at the risk of repeating myself, I cannot stress enough that the success of your future new car business has it’s foundations in your success in the used car market; it is the shared and common objective that binds manufacturers to their franchise dealer networks and you must be careful in applying too much short term thinking to the new car challenges of today.
With new car registrations declining year to date, how the UK automotive industry faces the challenges of tougher trading conditions in the new car market, will be interesting to observe, especially in regard to the used car market and individual manufacturer used car market strategy during this period. Will some manufacturers and their dealer networks continue to hand their new, nearly new or used car stock problems over to competitors and feed independent competitor businesses? I don’t know but it will be fascinating to observe.
This will be a challenging period and I fully accept that resilient and successful used car operations are not “A Given” for manufacturers or their franchise dealer networks, but as we move into these evolving markets, your success in the used car market is going to be vital to protecting your new car business as a whole.
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 operation 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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