As we have just started the new trading year I thought it worthwhile to reflect on how some of the issues we may have carried over from the previous year can put this year’s used car and new car performance in jeopardy, before the year is even a quarter of the way through.
Firstly, let me say that I appreciate that this article may not be so prevalent to all of you, after all our readership and customer base extends to all manufacturers, from the producers of supercars, through all the prestige manufacturers to the volume suppliers. On top of this, some of you will have widely varying levels of used car professionalism, experience and performance within your franchised dealer networks, but one thing I can assure you all of, (from the analysis of our posts being delivered to dealer networks), is that the one major subject concerning owners and those responsible for running dealerships, is the level of “Pre-Registrations” and how this is impacting on financial liquidity and therefore their ability to trade their way out of the levels pre-registered stock being carried over into the New Year.
So why should you as the manufacturer be concerned about this, after all the new car registrations targets were achieved last year; sure we have some challenges this year, but registrations targets will be achieved, they always are! However for many of you reading this article, this year will be different and to understand why we have to understand what is happening within franchised dealer networks and the financial and business pressures that your franchise partners are under.
Many of your franchise partners have returned to the business and used car operations that have stock holdings that no longer represent used car demand within the locality, therefore stifling their ability to trade as a used car business, and eventually this will impact on their ability to achieve the new car objectives you require this year. Why? Well in order to achieve the new car registrations targets last year, many of them “Pre-Registered” large volumes of new car stock, which is now heading to the used car operations of the dealers concerned.
Now this is a problem for the dealerships concerned and the ramifications are widespread, everything from;
- Lack of financial liquidity.
- Two internal competing businesses.
- Inability to trade as a used car business.
- No sound foundations for used car and new car success.
It is an inconvenient truth for everyone that sometimes unsold new car stock has to be “Pre-Registered” in order for the new car business objectives to be achieved, but the ability of your franchise partners to trade their way out of this stock holding is critical to your on-going new car success, and many of them have returned to their businesses with a used car stock holding that is actually going to be in competition with their new car business during the first quarter.
You as the manufacturer want to get off to a great start this year with the new car objectives for the first quarter achieved, unfortunately though there is a problem because the volume of pre-registered stock is in danger of compromising your new car objectives either in the 1st quarter of this year, or the 2nd quarter, depending on how your franchise partners are able to trade their way out of this challenging period.
So what in all likelihood will dictate this? Well this will be varied and entirely dependent on the business concerned, but the business determined to return financial liquidity to both their business as a whole and their used car operation, (so they can begin trading as a used car business once again), will have to make the conscious decision to trade out of their “Pre-Registered” stock holding as soon as possible. Why? Well this is a very expensive stock holding which is reducing the ability of the used car operation to invest in the more traditional used car stock holding that reflects demand. Therefore it must be sold and the quicker the better, because whilst this stock holding remains in stock, the funds required to acquire traditional and more profitable profiles of used car stock are reduced, thus enabling the independent businesses in their locality to gain access to this stock holding and the customers concerned, which is only going to undermine the stature of their used car operation with local customers.
Unfortunately the “Pre-Registered” stock holding is in effect a new car stock holding that puts the used car operation in direct competition with the new car business and your new car aspirations for the 1st quarter. As I have said before, just because you have double the volume of stock doesn’t mean you will have double the amount of customers, so new car customers will be entering the businesses of your franchise partners and the used car operation will be able to supply them a car cheaper than the new car business can, and this is highly likely to have a direct impact on your ability to achieve the new car objectives required!
The franchise partner determined to ensure that his new car objective is achieved in the 1st quarter will, in all likelihood, deal with things differently. They will ignore the problems of the “Pre-Registered” stock holding in their used car operation and direct their focus to the new car objective for the first quarter. Unfortunately as this is happening the problems are only building up in the used car operation; not only will the “Pre-Registered” stock holding remain unsold, but whilst time is passing its disposable trade value is dropping, it is reducing the financial liquidity of the business as a whole, resulting in a situation where it is no longer trading as a used car business; it can’t, there will be no funds available to acquire traditional profiles of used car stock, resulting in all the problems mentioned previously.
In reality for this dealer the problems are only multiplying and in the worst case scenario, your franchise partners will be left unable to afford the price of returning financial liquidity to their business, leaving them dealing with the problem of the “Pre-Registered” stock holding during the 2nd quarter, not the 1st quarter. They will have to do this; financial liquidity must be returned to the business, it is vital! Remember that businesses don’t always fail due to a lack of profit, but they will always fail due to a lack of funding!
This is also when your franchise partners are likely to compound matters by taking the short term decision to make stock available to 3rd party independent businesses, those that are becoming very powerful within the sector and who actually threaten your medium to long term new car aspirations. Some of these 3rd party independent internet based new car supply businesses are actually now embedded in the businesses of some large franchise dealer groups, to the point of conducting sales training on site at dealerships then posting the training days on business social media platforms! But this is another post!
So what’s the answer? Well in reality, unless the connection is made between the importance of used car success, when it comes to continual new car success, manufacturers will continue to be threatened by the business threats discussed in greater detail in our last 3 posts and used car success can only be delivered by successful franchised used car networks.
Unfortunately though, the strong and resilient franchised used car dealer networks, (those capable of trading themselves and you, as the manufacturer, 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 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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