Effective Used Car Stock Practices Will Lie At The Heart Of Your Future New Car Success! (UK Dealer Article)

In my last post, Want To Grow Your New Car Business? Never Take Your Eye Off Your Used Car Business, I began to answer the questions surrounding that statement and the effects that your used car performance will have on your new car performance. The central theme to the post and the up and coming suite of posts, will be the understanding of what can happen when manufacturers are not supported by resilient and successful used car franchise partners and the effect that this will have on your business as a whole, as well as the combined objectives for the new car business that you share with the manufacturer.

As we all enter a more challenging new car environment, I commented on the potential for increasing amounts of stock returning to dealerships and manufacturer owned finance houses, (that were originally sold on a PCP agreement), where the actual market values are less than the guaranteed future values agreed when the car was sold. Now this unfortunate situation can always happen, but it is what happens at this stage that can dramatically affect future residual values and thus the cost of new car ownership, especially if it begins to happen in larger volumes.

If your business is supported by an effective, successful and profitable used car operation, in the eyes of the manufacturer you will be a franchise partner who is a successful retailer of used cars and therefore you will have businesses with a shared objective to work towards, where deals can be done, incentives put in place and you can trade your way out of these challenges by retailing the stock concerned, retaining more customers in the process and actually increasing the overall bottom line for both your business as well as for the manufacturer.

However, if you are not supported by a used car operation successful in retailing used cars, well then you have some problems and there is a danger then that future residual values are out of your control, and let me explain why. Every car has a value and a there is a customer for every car, provided of course that the car is priced correctly within the market place; so let’s focus on what happens to used car stock, when it is not retailed via your business or the franchised dealer network.

Well at this stage it still has to be disposed of and the money concerned returned to the business; and in the UK we are lucky because we operate the world’s only 24-7-365 trading environment for used car stock; a stock market for cars if you like. We may not like the price we are offered, but unlike other worldwide used car markets, stock can always be disposed of and funds returned to the businesses concerned.

So what’s the problem I here you say? Well the problem lies within the market dynamics at play here and what then happens to that stock when it is disposed of outside of your business or the associated franchised dealer network. For the funds to be returned, someone has to purchase the stock concerned and the people acquiring this stock are more than likely to then use that stock holding to undermine your business, those of your franchise partners and the future residual values of your new car product, in fact everything you as a business hold dear.

This stock is not being purchased by a charitable organisation, it is being purchased by another business, the owner of which will, in all likelihood, have a far greater understanding of the global used car business than maybe you or the manufacturer you represent, because this is all their business does, and because it does it on a massive scale across the whole of the market.

Invariably this stock will end up at an independent specialist, who will be in direct competition with your business or that of your franchise partners. So you can end up in a situation where stock is sold and then being advertised for sale at a business in direct competition with yours or one of your franchise partners; so in effect you haven’t got rid of the problem, you’ve created many more because this business is now undermining your business or that of your franchise partner and taking customers from your businesses.

On top of this, the process will also be undermining and reducing the residual values of your own product, thus increasing the cost of new car ownership, so undermining your future new car performance as well; why? Well for the independent specialist to be a successful business, invariably they have to offer the same stock for sale at a lower price than similar cars priced under your approved used car programme, either at your business or that of your franchise partners, but to be able to do this, they have to buy at a lower price, thus driving down actual used car values, therefore future residual values over the medium to long term.

If you don’t believe me, but want to get an idea of the size of the threat these organisations represent, I would recommend that every owner and senior professional, whether dealer based or manufacturer based, who has a responsibility to the future sales success of your business and your brand, goes to visit one of these organisations in the guise of a potential customer. And I don’t mean your local budget car supplier, I mean one of the new used car supermarkets that are springing up around the country.

Just walk around the site, look at the breadth of product available for sale and the opportunity it presents; basically a customer looking at a car on a specific budget or as a genre of car, need now only visit one site to see the majority of stock on offer for sale within the local market, and guess what, with time at a premium in busy lives and the way technology is changing purchasing habits, especially in regard to price and value driven purchases, this is exactly what a lot customers do.

Now if you make the time to do this you will leave with many questions but also having learnt a lot, you may even recognise some customers that you have seen visiting your business, but if you are honest, you are unlikely to leave unimpressed. They may not represent what you consider “The Brand” and you may be tempted to look down a little on these businesses, but they are selling thousands of used cars a year, so by default they are doing something right, and the fact that they are will have a direct effect on both your used car and new car success, because they are becoming more representative of the true stock market of car values because they will purchase anything, providing there is consumer demand and there is a profit available; perhaps the time to really worry is when they are not purchasing your used car product?

So as the owner of a franchise dealer, what is the answer to the challenges of building effective and successful used car businesses within franchise dealer networks? Well the answer to this question is that it will take a standardised and fit for purpose approved used car programme from the manufacturer, aligned with the ability to deliver the investment and support required to your used car business, in order to ensure you develop the used car operation capable of trading effectively and retailing the volume of used car stock required, at the prices required, to support residual values and both your used car and new car aspirations, and this of course does not happen overnight.

If you don’t there is a danger that the industry continues down its current path where some elements of the new car purchasing process are now being targeted by third party technology entrepreneurs, the likes of We Buy Any Car and Carwow, to name just a few. This is dangerous, as your franchise dealership is now in danger of not being seen as a “1 Stop Shop” by customers, therefore you are losing control over the customer, because these businesses are reacting to changes in consumer behaviour and becoming very powerful in your market place; something I will be commenting about in my next post.

Luckily though help is available, so 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.

Effective Used Car Stock Practices Will Lie At The Heart Of Your Future New Car Success! (UK Manufacturers Article)

In my last post, Want To Grow Your New Car Business? Never Take Your Eye Off Your Used Car Business, I began to answer the questions surrounding that statement and the effects that your used car performance will have on your new car performance. The central theme to the post and the up and coming suite of posts will be the understanding of what can happen when manufacturers are not supported by resilient and successful used car franchise partners and the effect that this will have on their new car businesses.

As we all enter a more challenging new car environment, I commented on the potential for increasing amounts of stock returning to dealerships and manufacturer owned finance houses, (that were originally sold on a PCP agreement), where the actual market values are less than the guaranteed future values agreed when the car was sold. Now this unfortunate situation can always happen, but it is what happens at this stage that can dramatically affect future residual values and thus the cost of new car ownership, especially if it begins to happen in larger volumes.

If you are supported by a network of franchise partners who are successful retailers of used cars you have a network of businesses with a shared objective to work towards, where deals can be done, incentives put in place and you can trade your way out of these challenges by retailing the stock concerned, retaining more customers and actually increasing the overall bottom line for both yourself as the manufacturer and your franchise partners.

However, if you are not supported by a dealer network successful in retailing used cars, well then you have some problems and there is a danger then that future residual values are out of your control, and let me explain why. Every car has a value and a there is a customer for every car, provided of course that the car is priced correctly within the market place, so let’s focus on what happens to used car stock, when it is not retailed via your franchised dealer network.

Well at this stage it still has to be disposed of and the money concerned returned to the business; and in the UK we are lucky because we operate the world’s only 24-7-365 trading environment for used car stock; a stock market for cars if you like. We may not like the price we are offered, but unlike other worldwide used car markets, stock can always be disposed of and funds returned to the businesses concerned.

So what’s the problem I here you say? Well the problem lies within the market dynamics at play here and what then happens to that stock when it is disposed of outside of your franchised dealer network. For the funds to be returned, someone has to purchase the stock concerned and the people acquiring this stock are more than likely to then use that stock holding to undermine your franchise partners and the future residual values of your new car product, in fact everything you as a business hold dear.

This stock is not being purchased by a charitable organisation, it is being purchased by another business, the owner of which will, in all likelihood, have a far greater understanding of the global used car business than maybe you or your franchise partners, because this is all the business does, and because it does it on a massive scale across the whole of the market.

Invariably this stock will end up at an independent specialist, who will be in direct competition with your franchise partners. So you can end up in a situation where stock is sold and then being advertised for sale at a business in direct competition with one of your franchise partners; so in effect you haven’t got rid of the problem, you’ve created many more because this business is now undermining your franchise partners and taking customers from their businesses.

On top of this, the process will also be undermining and reducing the residual values of your own product, thus increasing the cost of new car ownership, so undermining your future new car performance as well; why? Well for the independent specialist to be a successful business, invariably they have to offer the same stock for sale at a lower price than similar cars priced under your approved used car programme, at the businesses of your franchise partners, but to be able to do this, they have to buy at a lower price, thus driving down actual used car values, therefore future residual values over the medium to long term.

If you don’t believe me, but want to get an idea of the size of the threat these organisations represent, I would recommend that every senior professional, whether dealer based or manufacturer based, who has a responsibility to the future sales success of your brand, goes to visit one of these organisations in the guise of a potential customer. And I don’t mean your local budget car supplier, I mean one of the new used car supermarkets that are springing up around the country.

Just walk around the site, look at the breadth of product available for sale and the opportunity it presents; basically a customer looking at a car on a specific budget or as a genre of car, need now only visit one site to see the majority of stock on offer for sale within the local market, and guess what, with time at a premium in busy lives and the way technology is changing purchasing habits, especially in regard to price and value driven purchases, this is exactly what customers do.

Now if you make the time to do this you will leave with many questions but also having learnt a lot, you may even recognise some customers that you have seen visiting your business, but if you are honest, you are unlikely to leave unimpressed. They may not represent what you consider “The Brand” and you may be tempted to look down a little on these businesses, but they are selling thousands of used cars a year, so by default they are doing something right, and the fact that they are will have a direct effect on your new car success, because they are becoming more representative of the true stock market of car values because they will purchase anything, providing there is consumer demand and there is a profit available; perhaps the time to really worry is when they are not purchasing your used car product?

So as a manufacturer, what is the answer to the challenges of building effective and successful used car programmes for franchise dealer networks? Well the answer to this question is that it will take a standardised and fit for purpose approved used car programme aligned with the ability to deliver the support required to your franchised dealer networks, in order to ensure you develop the used car network capable of trading effectively and retailing the volume of used car stock required, at the prices required, to support residual values and your new car aspirations, and this of course does not happen overnight.

If you don’t there is a danger that the industry continues down its current path where some elements of the new car purchasing process are now being targeted by third partner technology entrepreneurs, the likes of We Buy Any Car and Carwow, to name just a few. This is dangerous, as your franchise networks are now not being seen as a “1 Stop Shop” by customers, therefore you are losing control over the customer, because these businesses are reacting to changes in consumer behaviour and becoming very powerful in your market place; something I will be commenting about in my next post.

Luckily though 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.

Effective Stock Disposal Will Lie At The Heart Of Your New Car Success! (European Markets Manufacturer Article)

 

 

Although you may be struggling to immediately see the link between these two very different sides of the business, it is an inconvenient truth that effective and continual used car stock disposal techniques and procedures are at the foundations of the success of your franchise dealer partners and therefore your shared objectives for your new car business.

Having worked with many European manufacturers, written and presented used car strategy documents and run the subsequent programmes, we have seen the importance that this business discipline plays, in terms of your new car success, and unfortunately it is very hard for you as the manufacturer to control. Why? Well because it lies squarely in the hands of your franchise partners and the funding they have available to operate their businesses.

Those of you who read my previous post; Want To Grow Your New Car Business? Start With Your Used Car Business, and/or regularly follow my blog, will understand our view and understanding that long term new car success can only be built from used car success, that much is proven beyond doubt within the industry. However, for funds to be available to support and grow used car operations, (therefore supporting your shared new car objectives), these funds must not be tied up in used car stock or part exchanges for which there are no buyers.

This situation effectively starves your franchise partners of the funds required to operate effectively in the used car market, therefore support residual values and your shared new car objectives. It really is a vicious downward spiral with no “Up-Side” what so ever, and the damage that this status quo causes to your new car success in incalculable. I have lost count of the times I have visited compounds with used car stock/part exchanges stored in them that nobody knows what to do with, in order to release the funds and make them available to the business, to grow their used car operation, and therefore their new car business and their profits as a whole.

 

So in effect what happens in the worst case scenario is that your dealers begin to turn away business that involves a part exchange, because the funds are not available to take any associated part exchange into stock, because there is no operational process in place ensuring the continual disposal of part exchanges and/or overage used car stock and the returning of the funds associated with this stock holding, back to the business. And cash is the oxygen of business, so having no effective stock disposal procedures in place at the businesses of your franchise partners, is just as serious as them deciding to close their service departments, in terms of the overall performance of their business!

 

And as the manufacturer, you would never allow one of your franchise partners to close their service operation, this would be a disaster for the business and the support required to your shared new car objectives; but the lack of an effective stock disposal operation within their businesses, is just as damaging to your new car objectives, so why are franchise partners allowed to operate without this part of their business?

 

In the UK we now operate with the worlds’ only 24-7-365 used car stock trading market, a stock market for used cars if you like, where stock is always traded and funds returned to franchise partners, in order to re-invest those funds in their businesses and support their new car objectives. You may not like the market value at the time of disposal, but like any commodity that is traded, it is only worth as much as someone is prepared to pay, but you can always liquidate and provide the oxygen of funds to your business.

 

But it wasn’t always like this, the importance of used car stock and part exchange disposal has grown as the used car market has evolved, but it does lie at the very foundation of successful used car programmes in the UK. Remove this and, just like in European markets, funds would not be returned to businesses for re-investment in manufacturer approved used cars, leaving them, and the residual values of these cars, at the mercy of 3rd party businesses with no priority towards your new car objectives and the protection of your brand.

 

So where do you start? You take on board the importance that approved used car programmes play in your new car success and the fact that an effective stock disposal business will lie at the heart of the foundations for these two business objectives. Unfortunately though, strong and resilient used car dealer networks with effective stock disposal practices do not happen by accident, but luckily help is at hand. 

 

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 0044 345 057 3177.

 

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

 

Andrew Banning.

Used Car Business Development Director.

Want To Grow Your New Car Business? Never Take Your Eye Off Your Used Car Business! (UK Manufacturers Article)

 

The question we are asked most frequently by manufacturers, especially during buoyant new car markets, is this; “Why is performance in the used car market so vital to our future new car success?” In fact we are asked this so often that I have decided to write some posts over the next couple of months, (it will take that long to cover this subject), in order to bring some much needed clarity to this issue.

 

In doing so though I readily accept that the issue is difficult to write about in a generic sense, especially with a contacts and readership base as large and as diverse as ours; you all have your own challenges, linked to the markets you are working within and the product you have to sell, but regardless of these factors one thing remains constant; if you want to build long term new car success you must plan for and deliver success in the used car market.

 

And I think we would all agree that regardless of the manufacturer you represent, trading conditions are becoming more challenging, and going to get more so as we enter, and plan for success in, 2018. I don’t want to spend any time going over the socio-demographical or the geo-political influences attacking the market at the moment, because they will affect you all differently, but let’s agree that there are many affecting sentiment with consumers; just how far they affect your performance will be governed by the vulnerability of your customer base to these factors.

 

Anyway, back to the headline statement; the mistake most people make, is in not understanding the all-embracing effect that the used car market place has on their new car success, regardless of how well the new car element of the business is performing. It is total and all-embracing and over the coming months I will look at all the integral effects that your performance in the used car market has, when it comes to new car success; including some vital issues such as, protecting residual values, cost of new car ownership, new car vehicle park turnover rates and the cost of funding new car businesses, all of which are directly linked to performance in the used car market place.

 

So where do we start? Well in this post let’s look at the cost of ownership of a new car, because this is vital in the customer’s decision to purchase and we must look at this, not from the manufacturer’s perspective, but from the customers! Now this may take a leap of faith for some manufacturers who, it would appear, never seem to take the perspective of the customer in mind, when setting the prices of new cars.

 

Why do I say this? Well as we enter a period of more challenging trading conditions and volatile customer sentiment, it is more important than ever to appreciate that the customer, of course, will purchase their new car on the basis of what he or she can afford, not on how some manufacturers appear to be pricing product at the moment, on the basis of how it compares to their competitors in the market place.

 

This strategy can result in a situation where we have the manufacturer thinking they have set pricing at a competitive level, when compared to their direct competition, but giving no thought to the actual cost of ownership of the new car, so when sales slowdown, as they are doing in the main, they start wondering why.

 

In the UK we have been successful, to a certain extent, in diverting the customers attention away from list prices when it comes to the purchasing price and cost of ownership for their new car, thanks to changing purchasing habits from outright purchase to PCP’s, (personal leasing arrangements), which still focuses the customers mind on pricing, but from the perspective of a monthly rental, not an ever growing list price.

 

Now critical to the cost of ownership of a new car is the future residual value of that car, because this directly influences the monthly rental and the overall cost of ownership, and if you allow residual values to fall, you are then in danger of trading in an environment where the customer has a 3-5 year old car which is still reliable but worth very little, thus increasing the cost to change to a new car. When this occurs the cost to change can become too large for the customer to justify and this causes apathy to change in the new car market, thus slowing new car sales.

 

Resilient residual values are vital in decreasing the cost of ownership of new cars, which then enable the manufacturer to sell more new cars, not because they are priced competitively, when compared to the competition, but because they are both desirable, cheaper to own than the competition and affordable to the customer. Without strong residual values nothing will change in the new car market and your future success will not be assured, and strong residual values will only be delivered by one thing; a strong and resilient dealer network that is effective at selling used cars and supporting manufacturer approved used car programmes.

 

One other important factor to remember in all this, for now; it is estimated by the SMMT that about 80% of new car purchases are now purchased via a PCP agreement and in the main these will be on 24, 36 or 48 month agreements. The customers driving these cars bear no overall responsibility or burden for the market value for these cars, this has been set by the manufacturer or the finance company when the vehicle was purchased, and it is this that could be the ticking “Time Bomb” for some manufacturers, those who do not enjoy the support of resilient and strong dealer networks, successful at selling used cars and supporting the new car objectives of the manufacturer.

 

The last 2 to 4 years have seen record new car registrations for many of you reading this post and these cars are out there and due back to the dealership or the finance company any day soon. Now for sure it will be inconvenient for the customer if the actual market value at that time falls short of the residual value set at the time of purchase, but the customer of course can walk away, you as the manufacturer can’t.

 

And for those manufacturers without dealer networks who are successful in the retailing of used cars and supporting manufacturer approved used car programmes, this will be when the challenges really hit home. But that is for my next post.

 

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.

Want To Grow Your New Car Business? Never Take Your Eye Off Your Used Car Business! (UK Dealer Networks Article)

 

The question we are asked most frequently by dealers, especially during buoyant new car markets, is this; “Why is performance in the used car market so vital to our future new car success?” In fact we are asked this so often that I have decided to write some posts over the next couple of months, (it will take that long to cover this subject), in order to bring some much needed clarity to this issue.

In doing so though I readily accept that the issue is difficult to write about in a generic sense, especially with a contacts and readership base as large and diverse as ours; you all have your own challenges, linked to the markets you are working within and the product you have to sell, but regardless of these factors one thing remains constant; if you want to build long term new car success you must plan for and deliver success in the used car market.

And I think we would all agree that regardless of the manufacturer you represent, trading conditions are becoming more challenging, and going to get more so as we enter, and plan for success in, 2018. I don’t want to spend any time going over the socio-demographical or the geo-political influences attacking the market at the moment, because they will affect you all differently, but let’s agree that there are many affecting sentiment with consumers; just how far they affect your performance will be governed by the vulnerability of your customer base to these factors.

Anyway, back to the headline statement; the mistake most people make, is in not understanding the all-embracing effect that the used car market place has on their new car success, regardless of how well the new car element of the business is performing. It is total and all-embracing and over the coming months I will look at all the integral effects that your performance in the used car market has, when it comes to new car success; including some vital issues such as, protecting residual values, cost of new car ownership, new car vehicle park turnover rates and the cost of funding new car businesses, all of which are directly linked to performance in the used car market place.

So where do we start? Well in this post let’s look at the cost of ownership of a new car, because this is vital in the customer’s decision to purchase and we must look at this, not from the manufacturer’s perspective, but from the customers! Now this may take a leap of faith for some industry professionals who, it would appear, never seem to take the perspective of the customer in mind, when setting the prices of new cars.

Why do I say this? Well as we enter a period of more challenging trading conditions and volatile customer sentiment, it is more important than ever to appreciate that the customer, of course, will purchase their new car on the basis of what he or she can afford, not on how some manufacturers appear to be pricing product at the moment, on the basis of how it compares to their competitors in the market place.

This strategy can result in a situation where we have the manufacturer and their franchise partners thinking they have set pricing at a competitive level, when compared to their direct competition, but giving no thought to the actual cost of ownership of the new car, so when sales slowdown, as they are doing in the main, they start wondering why.

In the UK we have been successful, to a certain extent, in diverting the customers attention away from list prices when it comes to the purchasing price and cost of ownership for their new car, thanks to changing purchasing habits from outright purchase to PCP’s, (personal leasing arrangements), which still focuses the customers mind on pricing, but from the perspective of a monthly rental, not an ever growing list price.

Now critical to the cost of ownership of a new car is the future residual value of that car, because this directly influences the monthly rental and the overall cost of ownership, and if you allow residual values to fall, you are then in danger of trading in an environment where the customer has a 3-5 year old car which is still reliable but worth very little, thus increasing the cost to change to a new car. When this occurs the cost to change can become too onerous for the customer to justify and this causes apathy to change in the new car market, thus slowing new car sales.

Resilient residual values are vital in decreasing the cost of ownership of new cars, which then enables the manufacturer and their franchise partners to sell more new cars, not because they are priced competitively, when compared to the competition, but because they are both desirable, cheaper to own than the competition and affordable to the customer. Without retaining strong residual values cost of ownership for the customer will increase and your future new car success will be put in jeopardy, and strong residual values will only be delivered by one thing; a strong and resilient dealer network that is effective at selling used cars and supporting manufacturer approved used car programmes.

One other important factor to remember in all this, for now; it is estimated by the SMMT that about 80% of new car purchases are now purchased via a PCP agreement and in the main these will be on 24, 36 or 48 month agreements. The customers driving these cars bear no overall responsibility or burden for the market value for these cars, this has been set by the manufacturer or the finance company when the vehicle was purchased, and it is this that could be the ticking “Time Bomb” for some manufacturers and their franchise partners, those who do not enjoy the support of resilient and strong used car operations and dealer networks, successful at selling used cars and supporting the new car objectives of the manufacturer.

The last 2 to 4 years have seen record new car registrations for many of you reading this post and these cars are out there and due back to the dealership or the finance company any day soon. Now for sure it will be inconvenient for the customer if the actual market value at that time falls short of the residual value set at the time of purchase but the customer, of course, can walk away you as the franchise dealer and the manufacturer can’t.

And for those dealers without successful used car operations and manufacturers without dealer networks who are successful in the retailing of used cars and supporting manufacturer approved used car programmes, this will be when the challenges really hit home. But that is for my next post.

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.

Want To Grow Your New Car Business?,,,,,,, Start With Your Used Car Business! (European Markets Article)

 

The question we are asked most frequently by manufacturers is this; “Why is performance in the used car market so vital to our future new car success?” In fact we are asked this so often that I have decided to write some posts over the next couple of months, (it will take that long to cover this subject), in order to bring some much needed clarity to this issue.

 

The mistake most people make, is in not understanding the effect that the used car market place has on their new car success; it is total and all-embracing and in the UK we have learnt to build new car success, on the foundations of successful and effective used car operations and manufacturer approved used car programmes. So over the coming months I will look at all the integral effects that your performance in the used car market has, when it comes to new car success; including some vital issues such as, protecting residual values, cost of new car ownership, new car vehicle park turnover rates and the cost of funding new car businesses, all of which are directly linked to performance in the used car market place.

 

So where do we start? Well in this post let’s look at the cost of ownership of a new car, because this is vital in the customer’s decision to purchase and we must look at this, not from the manufacturer’s perspective, but from the customers! Now this may take a leap of faith for some manufacturers who, it would appear, never seem to take the perspective of the customer in mind, when setting the prices of new cars.

 

Why do I say this? Well the customer of course will purchase their new car on the basis of what he or she can afford, not on how some manufacturers appear to be pricing product at the moment, on the basis of how it compares to their competitors in the market place. This results in a situation where we have the manufacturer thinking they have set pricing at a competitive level, when compared to their direct competition, but giving no thought to the actual cost of ownership of the new car, so when sales slow down, they start wondering why.

 

In the UK we have, to a certain extent, diverted the customers attention away from list prices when it comes to the purchasing price and cost of ownership for their new car, thanks to changing purchasing habits from outright purchase to PCP’s, (personal leasing arrangements), which still focuses the customers mind on pricing, but from the perspective of a monthly rental, not an ever growing list price.

 

Now critical to the cost of ownership of a new car is the future residual value of that car, because this directly influences the monthly rental and the overall cost of ownership, and if you allow residual values to fall, you are then in danger of trading in an environment where the customer has a 3-5 year old car which is still reliable but worth very little, thus increasing the cost to change to a new car. When this occurs the cost to change can become too large for the customer to justify and this causes apathy to change in the new car market, thus slowing new car sales.

 

Resilient residual values are vital in decreasing the cost of ownership of new cars, which then enable the manufacturer to sell more new cars, not because they are priced competitively, when compared to the competition, but because they are both desirable and cheaper to own than the competition. Without strong residual values nothing will change in the new car market and your future success will not be assured, and strong residual values will only be delivered by one thing; a strong and resilient dealer network that is effective at selling used cars and supporting manufacturer approved used car programmes.

 

In the UK the new car market, although slowing in terms of registrations, has remained stubbornly resilient to recessionary trading conditions, thanks to decreasing costs of new car ownership, changes in new car ownership habits and the fact that we are the world’s premier example of a continual 365 day trading environment for used car stock. You could argue that London may have some competition when it comes to being the financial centre of the world, but the UK does operate the world’s only effective used car trading market where stock is always bought and sold. It may have its problems, but these effective and successful foundations in the used car market mean that the UK new car market is far more successful for manufacturers, (in the main and over the long term), when compared to other European markets.

 

A good indicator of this can be to look at individual markets and the age profile of cars within markets; generally the higher percentage of new to nearly new cars and a lower percentage of older cars, is indicative of markets where people are not keeping cars for extended periods, and they are changing more frequently, thus the customer purchases new cars at a higher rate than they do in other markets.

 

I appreciate that there can be other socio economic factors at play but if we compare the most recent figures available for the percentages in the UK and Italy, the difference is quite startling. In the UK, during the last analysis of the market, 15.86% of the total vehicle park was under 2 years old, where as in Italy only 7.38% of the total vehicle park was under 2 years of age. And when we look at the percentage of the vehicle park that is between 10-20 years old, in Italy it is 49.64%, (nearly half of the total number of cars in the country), whereas in the UK it is only 32.04 %; clearly indicating that UK buyers are purchasing new cars more frequently than their counter parts in Italy.

 

This scenario can only happen when new car ownership is affordable and the cost to change to a new car is not prohibitive for the customer; a trading environment that can only be delivered to manufacturers off the back of high and sustained residual values, which in turn can only be enjoyed by manufacturers who enjoy strong and resilient dealer networks who are successful at selling used cars.

 

It really is the shared and common objective between manufacturers and their franchise partners, and not just in terms of new car success. There are many financial benefits to both the manufacturer and their franchise partners, in having effective and resilient used car programmes, which I will be sharing in my posts over the coming weeks, when we will move on to the critical process of stock liquidation, the part of your business that keeps funds available at all time; critical to the performance of your business as a whole.

 

Unfortunately though, strong and resilient used car dealer networks do not happen by accident, but luckily help is at hand. 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 0044 345 057 3177.

 

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

 

Andrew Banning.

Used Car Business Development Director.