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.
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