As we approach this traditionally very challenging time of year for the new car business, one that will no doubt be a little more challenging for some of you this year, I thought it worth exploring the ramifications of some of the practices deployed at this time of year, in regard to the achievement of new car registrations, and how the decisions you make now have ramifications reaching far into the future, in terms of how it will change your trading environment.
Let me start by saying that I am entirely sympathetic to the situation, I have had to come into the dealership myself in the past having to overcome the problems you will face today, so I appreciate the strengths and the skills required to trade yourselves out of challenging trading environments, although in all honesty, the long term threats to your trading existence that are around today, were not there waiting to catch us all out.
Those of you who read my previous post; Only A Successful Used Car Operation Can Protect Your New Car Success, will now appreciate the threat I think outside forces currently pose to your traditional trading model and your future success. I don’t want to go over that post here, but the link to it is important because at this time of year, some of you will inadvertently be playing the role of architects in your own long term downfall. It may be unavoidable in the short term, but our advice would be that discussions need to be taking place between successful franchise partners and the manufacturers that they represent, if the industry is to avoid this continual cycle of encouraging a trading environment where in reality, 3rd party independent businesses are inadvertently made more successful, thus threatening both the current trading model and your long term existence.
The feedback from delegates at the training courses we run and the dealer groups we are working with at the moment, is all to do with the volume of pre-registrations, and this year it is causing more genuine concerns and trading problems than ever before. Now I will not use this post to argue the merits one way or the other of this practice, it has always gone on and we all know that, in reality, production numbers dictate registrations, not actual sales, and that we can’t roll over into a new calendar year with unregistered new car stock from the previous year. After all the job has to be done!
But I thought it worthwhile exploring the issues it causes and how it both feeds businesses that threaten your own success and restricts the ability of you and your fellow franchise partners to then operate effectively, grow your used car operations and therefore support the new car aspirations of the manufacturer. Quite understandably the pressure at this time of year is to get the job done, all unsold new car stock registered and then look away, but in reality the problems are building up and just beginning. I won’t use this post to discuss the remedies and the trading solutions that are going to be required, because the remedy will be different for every manufacturer and slightly different for all dealers, but I am happy to discuss openly, any trading solutions, with anyone who wishes to contact me directly, so please feel free to do so.
So whilst we can agree that there are no easy answers, there are answers to the problems, so let’s start at the beginning; new car supply and demand! Time for some honesty, I have rarely met a senior member of a manufacturer who is prepared to accept, (openly), that manufacturers shouldn’t budget occasionally to produce and sell less cars, because this is perceived as going backwards, but if manufacturers continue to produce too many cars for the level of demand in the market, then not everyone can be a winner. Again, I will not delve into the market dynamics of supply and demand now, it is a post and a “White Paper” in itself, but let’s all agree that regardless of what you are trying to sell, the moment you have more product than you have customers, you are going to have some trading challenges, because the trading environment has changed.
So let’s look at the problems that oversupply, in terms of production, and the process of pre-registering cause, further down the retail chain, and how it is actually harming your long term new and used car aspirations, not supporting them.
Well! The first and most serious problem that this process causes is that, unless you have access to unlimited funds, it effectively “Shuts” your used car operation and those of your fellow franchise partners! Now if that was not serious enough in isolation, there are further dangers lurking at this point, because whilst your business is restricted in its ability to trade effectively, the trading environment is now actually supporting, (albeit inadvertently), the independent businesses that threaten your trading model.
So accepting this is a huge issue causing many problems that many of you will still be dealing with as you enter the new trading calendar year, and that there are too many to be discussed in one post, let’s look at the likely problems caused by the “Pre-Registration Process” and I will explore them all separately over the coming weeks in my posts. So in the worst case scenarios these are the problems that the “Pre-Registration” process can cause for your business and those of your fellow franchise dealers;
- Reduces financial liquidity.
- Results in 2 competing stock holdings, invariably competing for the same customer.
- Effectively “Shuts” your used car operations and those of your franchise partners.
- Forces desirable used car stock into the hands of competitor businesses, therefore feeding the growth of your competitors.
- You and your fellow franchise partners are now more likely to have to make new car and pre-registered stock available to competing internet based new car supply businesses.
- Drives your customers to competitor businesses.
- Drives down the residual values of your new car product.
- Increases the cost of new car ownership.
- Undermines the stature of the franchised dealer network in the eyes of the customer.
Let’s start from the perspective of your Used Car Operation, the part of your business at the core of your future success, which has taken years to build to where it is today and as part of this journey you will have worked very hard to develop internally, or acquire the professional with the skill set required to run your used car operation. Part of the job description of this individual is the responsibility of managing a very large sum of money and investing that money in stock for which there is a demand, whilst ensuring that the stock acquired enters your business at a price that is reflective of it’s true market value and that will, allowing for any reconditioning, enable your business to make it’s budgeted profit margin per unit.
This is a position of huge responsibility within your business and quite rightly you would demand of this individual that the stock holding being acquired should always be reflective of demand within the used car market place, but the moment you disturb this trading environment and stock profile, both the used car and the new car businesses within your business begin to unravel. As we are all aware, when you pre-register new car stock, that stock has to be paid for and this is a very expensive stock holding, so liquidity within your used car operation invariably dries up, leaving it unable to purchase and stock more desirable profiles of used car stock.
Worse than this, you will now have a very difficult and conflicting stock holding to retail that is at direct odds with your new car business and in many instances you will then have 2 businesses within your business that are competing for the same customer! As we all know, there are not 3 different profiles of customer; the new car customer, the pre-registration customer and the ex-demo customer; they are one of the same, effectively a new car customer that can be persuaded into one of the 3 profiles of stock, depending on the immediate business needs of your business.
And it is important to remember that you don’t increase the number of new car customers, just by increasing the amount of stock available for them to buy, so invariably it becomes a race to the bottom on price, in order to ensure that the problem of this excess stock is dealt with, so your used car operations can retail this stock, release the funds back into the business and begin trading and operating as a used car operation again. But whilst they are doing this guess what, they are in direct competition with the new car business within your dealership and 9 times out 10, I would back the successful and well run used car operation to win.
It has to, because the moment you restrict the ability of the member of your staff responsible for running the used car operation, to do their job and to earn the salary their skills can command in the open market, well guess what, this talented individual, (whose commercial skills are in high demand at the moment), will leave. Why? Well tell a used car professional that they are going to inherit a stock holding at a value that they know is not reflective of the true market value, then in effect their position is compromised, as is their ability to provide for themselves and their families.
I will explore the other points above in forthcoming posts as I am sure that the requirement to retail and handle this stock holding will be the central theme for the UK Automotive Sector as we go into 2018. You will all have your own challenges in trading through this period, which will require a resilient and effective used car operation that is successful at retailing this challenging stock holding and therefore leaving your business less likely to make valuable new and used car stock available to the independent new and used car businesses, (the likes of which I have mentioned in my previous post and that I will revisit in more detail in forthcoming posts), who will ultimately, only undermine your used and new car businesses and all that you are trying to achieve.
Unfortunately though, strong and resilient used car operations, (those capable of trading themselves and you, as the owner of the business, out of these perilous trading conditions), 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 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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