Those of you who read my previous post How Safe Is Your New and Used Car Trading Model? will know that this is the last article in a series of 3, exploring the challenges of changing consumer behaviour, 3rd party independent businesses, pre-registrations and the importance that resilient and successful franchised used car networks will play in securing your long term new car business objectives.
In the first of the articles, Do We Need To Discuss The “Pre-Registrations” Elephant In The Room? I began to explore some of the ramifications of “Pre-Registering” unsold new car stock, especially when it is carried out during a period when challenging market conditions unfortunately coincide with a time of great change in our sector, and when our traditional trading models are being targeted by third party businesses who have identified changes in consumer purchasing habits.
During the first article I outlined some of the dangers and challenges that the sector faced, when this business strategy was not supported by franchised dealer networks successful at selling used cars and therefore supporting the new car business objectives, and we have been exploring them in greater detail ever since; so welcome to the last of these posts where we will discuss and expand on the last of the consequences and challenges, which are;
- 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.
There is no doubt that the Automotive Sector in the both the UK and in Europe is going through a time of great change, driven in the main by changes to consumer purchasing habits, and in order to survive manufacturers must change and adapt trading models, not expect ever more demanding customers to adapt to their offering. We are not alone in the UK in having our traditional trading model targeted by independent 3rd party businesses, mainly tech based businesses, the likes of We Buy Any Car and Carwow, (to name just a few).
In the last 10 years the purchasing dynamic in both the UK and in Europe began to change and at the heart of this has been PCP finance agreements which, in conjunction with low interest rates, have changed the way new and used cars are purchased. Depending on whose statistics you read it is estimated that up to 82% of all car purchases in the UK are now taking advantage of PCP funding schemes, (with European consumers also rapidly embracing this model of purchase), and this shift in consumer purchasing habits should have been a once in a generation opportunity for all manufacturers and their franchised dealer networks, to secure their new car futures from a foundation of successful used car retailing franchise partners.
Unfortunately few have grasped the opportunity that PCP finance agreements presented, and this was because the used car networks of the manufacturers were not ready to support the change in the used car business model and support the stock returning, when the PCP agreement ended and the customer purchased another car. It is important to remember that the used car operation is a business in its own right, it is a different business to run, compared to the new car business, it requires a different skill-set at every level of seniority, from sales professionals right through to the senior management, and those responsible for the running and the continual growth of the business.
Unfortunately too few manufacturers identified this and put the development and succession plans in place, to ensure that the professionals required were being developed by their franchise partners and therefore available to the network as a whole which, at the time, (when new car registrations were growing), didn’t seem that important but now that we enter more challenging times, the industry as a whole does not have the expertise required within the franchised dealer networks, in order to successfully trade through these challenging times and protect the new car business objectives.
So this now leaves the sector in a situation where more and more often, future residual values and therefore the future cost of ownership of the new car, is being influenced by, and is in the hands of, third party independent businesses that are in competition with your franchise partners, whilst undermining the importance of your franchise dealer network in the eyes of the customer.
At the moment we have the continual rise of third party independent businesses who are targeting your business model, or certain stages of the business model, and the reason why this undermines your franchise dealer network is that, in the eyes of the customer, these businesses are becoming the place to go to for that element of the used or new car supply process. It is no coincidence that they are not targeting the less profitable sides of the business, of course not; they are targeting the side of the business where there is “Scalability” and the opportunity to make money.
This subject is a post in itself and I will address this in greater detail in a future post, but for now let me just remind everyone reading this that if your franchised dealer networks do not have the personnel and/or the used car expertise required, to successfully trade during these challenging markets, (therefore supporting your used car and new car objectives), they will continually struggle to have the financial liquidity required to support cars returning to in-house finance companies at the end of PCP agreements, therefore allowing independent used car businesses access to this valuable used car stock holding, as well as having to make pre-registered and unsold new car stock available to independent internet based new car businesses.
And whilst this “Status Quo” remains just ponder on this for a while; when you give stock to a competitor business, you don’t just give them a stock holding, you give them the most precious commodity to any sales business, you give them the customers for that stock holding! Make 100 cars available and you hand over 100 customers, and customers are habitual, once they have dealt with a business, invariably, that is where they return to first when they look to change again!
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 over the 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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