An interesting question for you to ponder this morning, but an important one because it goes straight to the heart of how planning for your future new car and used car success can be guaranteed.
Depending on whose figures you read it is estimated that between 80% and 85% of cars sold in the UK today are now sold via a form PCP agreement, a form of finance that has revolutionised the new car and used car market place in the UK. Those of you who follow my Used Car Business Development Blog and read my previous articles;
PCP’s Are Vital!,,,,, They Do Not Make Us The “New Bankers!”
PCP’s = Retaining Customers and Growing Your Used Car Business!
will be left in no doubt as to my thoughts regarding the benefits that PCP’s delivered to the industry as a whole; I won’t repeat them in this post, but please feel free to follow the links above to the original articles, which explored the commercial advantages and benefits of PCP’s in great detail.
I am returning to the subject of PCP’s because, as much as they deliver tremendous commercial benefits to your door, they do fundamentally change the perceptions and understanding of the purchasing process with your customers, so therefore it must also change the way that your business, along with the manufacturer you represent, must operate and approach your customers. Regardless of the brand you represent it is the understanding of how PCP’s enable manufacturers and their franchise dealer networks to control and exploit existing customer bases that will provide the foundations for future new car success.
However, in order to do this we must first appreciate how we have changed perceptions with customers and how the advent of PCP’s has made the purchasing process more complicated and difficult to understand for the majority of customers. This process has resulted in many dealers becoming disconnected from the customers understanding of how these financial products work, resulting in some sending out confusing messages which, in some cases, and especially with more premium brands, are actually diluting the ownership experience by sending out distress messages.
LinkedIn and other social media platforms have been flooded during the first 2 months of the year with posts from dealership based staff that include pictures of dealerships dressed up like “Sofa Stores,” with “Sale” banners all over the windows, and I wonder what message this actually sends to both their existing customers and those whom they are trying to attract. For the owners of cars associated with the more premium brands, I am sure that this is lessening the feel good factor associated with owning the product they have strived so hard to be able to afford, and just as seriously, I doubt that many customers can relate to what they are seeing, in terms of them being able to afford to change their car.
I want to challenge conventional thinking here because I think that in the here and now, and to the customer owning a car on a PCP, just what good does this business having a “Sale” or “Ex-Demo Event” actually mean to the customer; and let’s be honest, we see a “Sale” sign and we never think “Oh There Is A Successful Business,” no we think the exact opposite! Subconsciously sales are associated with a struggle for business in the eyes of your target audience, so as an exercise in weakening your hand, it probably has no peer!
It is important to remember that for the customer the world of the new car and used car purchase has changed beyond all recognition during the last 10 years; gone are the simplistic trading days of the customer either having car to part exchange, which was worth “X” amount of pounds and them having to find the balance; or of them having a company car supplied via a 3rd party leasing company which they changed every 2 or 3 years. Now we have 80 to 85 percent of the cars being sold via a PCP agreement, a far more complex ownership model to understand, and I would argue that for most reading this post, this fact fundamentally changes the approach required from your sales operations.
Effectively, the majority of customers now enter the market with a monthly budget, the actual purchase price is almost irrelevant, and as much as I don’t want to wonder on to the territory of “Teaching My Grandmother To Suck Eggs,” it is important to remember that if the customer has a monthly budget in mind, because of the complexities of PCP’s and how they are constructed, the customer actually has no idea of when they can afford to change, or into what!
They have no ongoing sight of the new car incentives at play or the residual values that will be set, let alone the monthly cost of ownership! So the industry has created a beast, but it is a beast that can be tamed and those who set their businesses up accordingly, will be the first to secure their future used car and new car success.
I would argue that once the sales operations of your franchised dealership are set up to operate this way, i.e. to sell finance ownership models first and cars second, they will be able to avoid the constant peaks and troughs of the market and secure your long term new car success. As discussed in my previous articles above, PCP’s give manufacturers and their franchised dealer networks many advantages, the first being a captive audience in terms of all their customers currently driving a car supplied on a PCP agreement.
If managed and leveraged effectively the PCP agreement gives your franchised dealership the ability to control their vehicle park, their cyclical new car performance and the ability to supply their used car operation with an ongoing supply of desirable used car stock, which can then be utilised to grow the customer bank of the business as a whole, whilst supplying the new car customers of the future, therefore further securing your new car and used car success.
However, the ability to succeed within this new business model, the model of selling financial ownership products and the manipulation of markets, requires a totally different and continually proactive approach to be effective, as well as the effective and successful running of both the new car and used car sales operations. Yes your franchised dealership will still need the traditional skills that have got it to where it is today, and your sales departments will still need to be masters in “The Art Of Selling,” but it is the financial understanding of that process and how that can be utilised to secure future new car and used car success, that will need to be grasped.
However, for the dealership bold enough to grasp this trading reality and to build the new car and used car sales operations capable of exploiting the business advantages available, the rewards are startling; everything from;
-
Increased new car sales and profitability.
- Increased used car sales and profitability.
- A more resilient business capable of growing during market down turns.
- The ability to take back control of actual residual values.
- Decreasing cost of new car ownership.
- Eliminating the genuine threat posed by independent 3rd party businesses who are currently targeting your existing trading model.
In fact we would argue that for dealerships that don’t grasp these new trading realities, there is a danger that their business continues down its current path where some elements of the new car purchasing process are now being targeted by independent 3rd party technology businesses, the likes of We Buy Any Car and Carwow, to name just a few. This path is dangerous and their success is currently weakening the stature of your franchised dealership, because you and your franchise partners are now not being seen as a “1 Stop Shop” by customers, therefore you are losing control over the customer.
These third party independent businesses are now changing consumer behaviour and becoming very powerful in your market place, (something I will be commenting about in a future article). Luckily though, at the moment, all is not lost but for some of you the situation is serious, because of how the perception of the purchasing process is being manipulated and changed in the eyes of the customer by these businesses; and let’s not forget that these businesses are not your partners, they are in this for themselves!
So as a successful dealership just what is the answer to these challenges? Well at the foundations of your future new car success will be an effective and successful used car operation, which is capable of supporting the new car aspirations of both your business and of the manufacturer you represent; and just what is the secret to building effective and successful used car operations? Well, and in brief, 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 dealership, 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, as well as your new car and used car aspirations, and this of course does not happen overnight.
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 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.
I will start this article with a quote from a friend of mine who, although is extremely successful in his professional life, (like the majority of your customers), has absolutely no idea of how the automotive sector works, but his story and the quote below should be a stark warning to European Automotive Manufacturers.
In fact he has always come to me for advice when looking to change his car, which he did in January, but this time he was far further down the path of a decision than he had ever been in the past. A busy professional he dreads the whole concept of changing his car but he had been introduced to an independent internet based new car supplier via their recent TV advertising campaign. Below are his actual words;
“I couldn’t believe it, I just logged on and saw the discounts available. I had no idea that the company existed or that discounts like this were possible on a premium brand of car; so I took a screen shot, emailed it to the dealer I had been speaking too and they immediately beat the quote for me!”
Those of you who follow my blog and/or read my used car business development articles, know that I have been promising to write this article for a while, because if any story should send a shiver down the spines of European Automotive Manufacturers, (as well as their franchised dealer networks), it is the one above; and before you think well it is OK for us we are probably not the manufacturer concerned and I’m sure that this is not happening with our product, or that this is only happening in the UK, I would caution to think again.
Why? Well the independent third party internet based business that enabled my friend to achieve this level of discount, and to have both his current and future purchasing behaviour manipulated, is now up and running in Germany, which will no doubt be the gateway to launching in other European markets.
I won’t be naming names in this article, we all know who the internet based companies are and there is no need, besides the companies concerned have a right to run the business of their choice and as a manufacturer, you have the right to choose who has access to your product, but let’s at least explore where these decisions to allow the “Status Quo” to remain unchanged, may be heading. My advice in the first instance; log onto these websites and see the discounts listed for your products, some of you are going to be reassured but some will be choking over their breakfast because in the eyes of the customer, just like my friend, the easily accessible websites of independent new car suppliers are now beginning to set the pricing agenda on new cars.
I have seen most things during my 25 + years in the automotive sector but even I was surprised at how undermining some of the discounts stated were to the brands concerned and how surprised I was that some of the usual suspects for this heavily discounted pricing model, were actually the manufacturers making a stand and therefore showing the smallest discount levels available. You will all have to look yourselves to see which category you fall into and therefore whether or not you feel the distressed prices shown are where you want the brand you represent to be.
But what is important here is the perception of the customer because, to the customer, “Perception Is Reality!” I have no idea of the business objectives of these independent internet based new car suppliers, but one thing I do know is this; If you can change consumer behaviour and control the most valuable of commodities, the customer, you can effect change in the market you choose to target.
You could argue that the company concerned didn’t get the business of my friend on this occasion and you would be right, not this time, but they have changed his purchasing behaviour forever and this situation will be resulting in some major shifts within the Automotive Sector.
-
It has massively reduced the profit margin of the franchised dealer concerned.
- It has changed the individuals purchasing behaviour; where do you think he will go first the next time he wants a quote on a new car?
- It will no doubt generate many other potential customers for the company concerned, once this individual has spoken about this experience to his many friends and associates.
- It is making these companies very powerful with consumers and therefore within the sector, and no doubt they will not be bothered about losing this sale in the here and now as this will all be part of the “Long Game!”
Now what the independent internet based new car suppliers are achieving is very clever and a very similar business model to those employed by other tech entrepreneurs, the likes of Amazon, We Buy Any Car, Uber and on a another scale, how Purple Bricks are targeting the real estate sector in the UK. They are engaged first and foremost in the attacking of established markets, via the successful manipulation of consumer behaviour.
Now the Automotive Sector is not alone as an industry in being targeted by outside forces and having our established markets put under threat. This is the business model of choice for technology entrepreneurs who see how advances in technology can change the way business is done in long standing established markets, and appeal to the changing purchasing habits of a proportion of our customers.
Now as challenging as this trading landscape is, the internet based new car suppliers are, in my opinion, not as threatening a proposition as you may think, provided manufacturers and their franchised dealer networks make the correct business decisions, and make them quickly. So why do I say this? Well the independent internet based new car suppliers will only ever be as strong as the weakest link in your franchised dealer network is weak. Like Virgin Cars, (in the UK), before them, they can only be successful if they have access to stock and access to stock is in your hands, as the manufacturer, and your franchise partners; make stock available to these businesses and guess what, they will have a flourishing business, (one which is now advertising on National TV in the UK), but if you don’t make stock available to them, then they won’t!
There is no doubt that some manufacturers might have a decision to make and that action might need to be taken because there is a long term danger here that, at first glance to your franchise partners, the internet based independent new car suppliers may actually appear to be a necessary evil; if you as the manufacturers are not more supportive and creative in how product ranges reaching the end of their production cycle are retailed/disposed of.
However, and as much I as I add the very respectful caveat that it is not for me to tell any franchise dealer group how to run their business, I have been left bewildered by some posts on LinkedIn showcasing training days delivered by the staff of these independent internet based businesses, actually at the sites of some of the biggest dealer groups in the UK. Again it is not for me to tell manufacturers how to run their franchise dealer networks, I can only advise from my own perspective, but if it were me?,,,,, Well I would be taking a very dim view.
No matter which brand you are representing, you have models that become more difficult to retail as they progress through their life cycle. It is an inconvenient truth that only one car can be the market leader, (in its class), and that no car can be the market leader throughout its production life cycle, and in the past I have seen many excellent manufacturer based initiatives to keep control of this product, reduce the perception of distress marketing and protect residual values.
This has included one luxury car maker in the UK actually selling cars at cost and guaranteeing to purchase them back in 12 months at the same price! Which at the time was a stroke of genius; not only did it bring customers to the brand who would not have otherwise purchased these cars, but it also avoided the perception of market wide distress marketing and most importantly, ensured their used car operations had a future supply of quality used car stock, which helped to protect residual values; key to on-going success in the new car market.
Your franchise dealer networks will always have both business based and cyclical pressures to register new cars, and at the end of the production cycle, (and when market fluctuations cause sales to begin to slow down), margins come under pressure and registration targets need to be met. At this moment the up and coming independent internet based companies may be an attractive proposition for your franchise partners, (in terms of disposing of this stock holding), if they are not supported by manufacturer initiatives, and this is when you are in danger of letting the wolf in through the door, as has happened in the UK.
It is important to remember that these businesses are not charities, they are in business to make money and by allowing these businesses to set the market price of your new car product, regardless in how small a proportion of the market, you are not only allowing them to manipulate consumer behaviour, you are putting future residual values in the hands of third party businesses with no loyalty to you, only their own business and their own aspirations, and it is unlikely that they are going to be aligned with yours.
They like you need customers to survive, but without product they have no customers, so much thought must be given to the long term ramifications of allowing your franchise partners to give their new car problems of today to these new third party businesses, in this misguided perception that they have gained the advantage, because they, and you as the manufacturer, have not.
For sure both you as the manufacturer and your franchise partners have got money in the bank, you have disposed of product and reached your registration targets, but this has been achieved by handing a business over to your competitors on a plate! In effect this means you have supported a competitor business and my advice would be to be mindful of the “Trojan Horse” business model of these new up and coming technology based businesses.
Like We Buy Any Car did all those years ago now, they see the inherent weaknesses in your business model and they are targeting it, just as they are many other established markets, because they see the revenues to be made; and before you know it they have customers of their own, who should be your customers, and they have grown too powerful.
My challenge to manufacturers would be this; if these purchasing models of business are viable, why are you not employing them yourselves? And if you are, like some manufactures who are moving to online purchasing models, deploy some joined up thinking to this process and look beyond the immediate business needs of the new car sale.
There is no doubt that consumer purchasing habits are changing and evolving at a rapid pace, (both within the UK and other European markets), and the technology model will be vital to your on-going success in the new car market. In fact I was chatting recently to someone who has been instrumental in launching on-line purchasing models for manufacturers within the UK and was enthusing about just how brilliant the platform was, and having looked at it, I agree. But one thing troubled me; during the conversation I asked just one simple question; “How is any part exchange valued?” The answer; “Via third party auction software!”
Now the long term ramifications of strategic business decisions like these are a post in themselves and I will be returning to this subject in a future post, because I am concerned for some manufactures, those I see handing over the most important business they have, (in terms of their future new car success), to third party partners, thinking it is a short term price worth paying for new car registrations today.
Now out of respect, I will add the caveat again that it is not for me to tell anyone how to run their business, but at the risk of repeating myself, I cannot stress enough that the success of your future new car business has it’s foundations in your success in the used car market; it is the shared and common objective that binds manufacturers to their franchise dealer networks and you must be careful in applying too much short term thinking to the new car challenges of today.
This will be a challenging period and I fully accept that resilient and successful used car operations are not “A Given” for manufacturers, but luckily 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, both within the UK and Continental Europe. 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.
An interesting question for you to ponder this morning, but an important one because it goes straight to the heart of how planning for your future new car and used car success can be guaranteed.
Depending on whose figures you read it is estimated that between 80% and 85% of cars sold in the UK today are sold via a form PCP agreement, a form of finance that has revolutionised the new car and used car market place in the UK. Those of you who follow my blog and read my previous article; PCP’s = Retaining Customers and Controlling Markets, will be left in no doubt as to my thoughts regarding the benefits that PCP’s delivered to the industry as a whole; I won’t repeat them in this post, but please feel free to follow the link above to the original article, which explored the commercial advantages and benefits of PCP’s in great detail.
I am returning to the subject of PCP’s because, as much as they deliver tremendous commercial benefits to your door, they do fundamentally change the perceptions and understanding of the purchasing process with your customers, so therefore it must also change the way that you as the manufacturer, along with your franchise partners, must operate and approach your customers. Regardless of the brand you represent it is the understanding of how PCP’s enable manufacturers and their franchise dealer networks to control and exploit existing customer bases that will provide the foundations for future new car success.
However, in order to do this we must first appreciate how we have changed perceptions with customers and how the advent of PCP’s has made the purchasing process more complicated and difficult to understand for the majority of customers. This process has resulted in many dealers becoming disconnected from the customers understanding of how these financial products work, resulting in some sending out confusing messages which, in some cases with more premium brands, are actually diluting the ownership experience by sending out distress messages.
LinkedIn and other social media platforms have been flooded during the first 2 months of the year with pictures of dealerships dressed up like “Sofa Stores,” with “Sale” banners all over the windows, and I wonder what message this actually sends to both their existing customers and those whom they are trying to attract. For the owners of cars associated with the more premium brands, I am sure that this is lessening the feel good factor associated with owning the product they have strived so hard to be able to afford, and just as seriously, I doubt that many customers can relate to what they are seeing, in terms of them being able to afford to change their car.
In the here and now, and to the customer owning a car on a PCP, just what good does this business having a “Sale” or “Ex-Demo Event” actually mean to the customer; and let’s be honest, we see a “Sale” sign and we never think “Oh There Is A Successful Business,” no we think the exact opposite! Subconsciously sales are associated with a struggle for business in the eyes of your target audience, so as an exercise in weakening your hand, it probably has no peer!
It is important to remember that for the customer the world of the new car and used car purchase has changed beyond all recognition during the last 10 years; gone are the simplistic trading days of you either having car to part exchange, which was worth “X” amount of pounds and you then having to find the balance; or of you having a company car supplied via a 3rd party leasing company which you changed every 2 or 3 years. Now we have 80 to 85 percent of the cars being sold via a PCP agreement, a far more complex ownership model to understand, and I would argue that for most reading this post, this fact fundamentally changes the approach required from your franchised dealer network.
Effectively the majority of customers now enter the market with a monthly budget, the actual purchase price is almost irrelevant, and as much as I don’t want to wonder on to the territory of “Teaching My Grandmother To Suck Eggs,” it is important to remember that if the customer has a monthly budget in mind, because of the complexities of PCP’s and how they are constructed, the customer actually has no idea of when they can afford to change, or into what!
They have no ongoing sight of the new car incentives at play or the residual values that will be set, let alone the monthly cost of ownership! So the industry has created a beast, but it is a beast that can be tamed and those who set their businesses up accordingly, will be the first to secure their future used car and new car success.
I would argue that once the sales operations of your franchised dealer networks are set up to operate this way, i.e. to sell finance ownership models first and cars second, they will be able to avoid the constant peaks and troughs of the market and secure your long term new car success. As mentioned in my previous article above, PCP’s give manufacturers and their franchised dealer networks many advantages, the first being a captive audience with all their customers currently driving a car supplied on a PCP agreement.
If managed and leveraged effectively the PCP agreement gives your franchised dealer network the ability to control their vehicle park, their cyclical new car performance and the ability to supply their used car operation with an ongoing supply of desirable used car stock, which can then be utilised to grow the customer bank of the business as a whole, whilst supplying the new car customers of the future, therefore further securing your new car success.
However, the ability to succeed within this new business model, the model of selling financial ownership products and the manipulation of markets, requires a totally different and continually proactive approach to the effective and successful running of both new car and used car sales operations. Yes your franchised dealer networks will still need the traditional skills that have got them to where they are, and they will still need to be masters in “The Art Of Selling,” but it is the financial understanding of that process and how that can be utilised to secure future new car success, that will need to be grasped.
However, for the manufacturer bold enough to grasp this and to build the franchised dealer networks capable of exploiting the business advantages available, the rewards are startling; everything from;
-
Increased new car sales and profitability.
- Increased used car sales and profitability.
- More resilient franchised dealer networks.
- The ability to take back control of actual residual values.
- Decreasing cost of new car ownership.
- Eliminating the genuine threat posed by independent 3rd party businesses who are currently targeting your existing trading model.
In fact we would argue that for manufacturers that don’t grasp these new trading realities, there is a danger that their business continues down its current path where some elements of the new car purchasing process are now being targeted by independent 3rd party technology businesses, the likes of We Buy Any Car and Carwow, to name just a few. This path is dangerous and their success is currently weakening the stature of your franchised dealer networks, because your franchise partners are now not being seen as a “1 Stop Shop” by customers, therefore you are losing control over the customer.
These third party independent businesses are now changing consumer behaviour and becoming very powerful in your market place, (something I will be commenting about in a future article). Luckily though, at the moment, all is not lost but for some of you the situation is serious, because of how the perception of the purchasing process is being manipulated and changed in the eyes of the customer by these businesses; and let’s not forget that these businesses are not your partners, they are in this for themselves!
So as a manufacturer just what is the answer to these challenges? Well at the foundations of your future new car success will be a franchised dealer network of successful used car operations, who are capable of supporting the new car aspirations of the manufacturer; and just what is the secret to building effective and successful used car programmes for franchise dealer networks? Well, and in brief, 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.
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.
An interesting question for you to ponder this morning, but an important one because it goes straight to the heart of how planning for your future new car and used car success can be guaranteed.
Depending on whose figures you read it is estimated that between 80% and 85% of cars sold in the UK today are sold via a form PCP agreement, a form of finance that has revolutionised the new car and used car market places in the UK, in the same way as it is also now changing European markets. Those of you who follow my blog and read my previous article; PCP’s = Retaining Customers and Controlling Markets will be left in doubt as to my thoughts regarding the benefits that PCP’s delivered to the industry as a whole; I won’t repeat them in this post, but please feel free to follow the link above to the original article, which explored the commercial advantages and benefits of PCP’s in great detail.
I am returning to the subject of PCP’s because, as much as they deliver tremendous commercial benefits to your door, they do fundamentally change the perceptions and understanding of the purchasing process with your customers, so therefore it must also change the way that you as the manufacturer, along with your franchise partners, must operate and approach your customers. Regardless of the brand you represent it is the understanding of how PCP’s enable manufacturers and their franchise dealer networks to control and exploit existing customer bases that will provide the foundations for future new car success.
However, in order to do this we must first appreciate how we have changed perceptions with customers and how the advent of PCP’s has made the purchasing process more complicated and difficult to understand for the majority of customers. This process has resulted in many dealers becoming disconnected from the customers understanding of how these financial products work, resulting in some sending out confusing messages which, in some cases with more premium brands, are actually diluting the ownership experience by sending out distress messages.
LinkedIn and other social media platforms have been flooded during the first 2 months of the year with pictures of dealerships dressed up like “Sofa Stores,” with “Sale” banners all over the windows, and I wonder what message this actually sends to both their existing customers and those whom they are trying to attract. For the owners of cars associated with the more premium brands, I am sure that this is lessening the feel good factor associated with owning the product they have strived so hard to be able to afford, and just as seriously, I doubt that many customers can relate to what they are seeing, in terms of them being able to afford to change their car.
In the here and now, and to the customer owning a car on a PCP, just what good does this business having a “Sale” or “Ex-Demo Event” actually mean to the customer; and let’s be honest, we see a “Sale” sign and we never think “Oh There Is A Successful Business,” no we think the exact opposite! Subconsciously sales are associated with a struggle for business in the eyes of your target audience, so as an exercise in weakening your hand, it probably has no peer!
It is important to remember that for the customer the world of the new car and used car purchase began to change during the last 10 years; and if European consumers embrace PCP’s to the extent that consumers in the UK have, then it will mean the end of the simplistic trading days of you either having car to part exchange, which was worth “X” amount of pounds and you then having to find the balance; or of you having a company car supplied via a 3rd party leasing company which you changed every 2 or 3 years.
If European consumers continue to embrace PCP as an car purchase option, (and there is every sign that they will), then as in the UK, European manufacturers could also have 80 to 85 percent of the cars being sold via a PCP agreement, which is a far more complex ownership model to understand for consumers, and I would argue that for most reading this post, this situation will fundamentally change the approach required from your franchised dealer network.
Once embracing PCP agreements, the majority of customers are then effectively entering the market with a monthly budget, the actual purchase price is almost irrelevant, and as much as I don’t want to wonder on to the territory of “Teaching My Grandmother To Suck Eggs,” it is important to remember that if the customer has a monthly budget in mind, because of the complexities of PCP’s and how they are constructed, the customer will actually have no idea of when they can afford to change, or into what!
They have no ongoing sight of the new car incentives at play or the residual values that will be set, let alone the monthly cost of ownership! So the industry has created a beast, but it is a beast that can be tamed and those who set their businesses up accordingly, will be the first to secure their future used car and new car success.
I would argue that once the sales operations of your franchised dealer networks are set up to operate this way, i.e. to sell finance ownership models first and cars second, they will be able to avoid the constant peaks and troughs of the market and secure your long term new car success. As mentioned in my previous article above, PCP’s give manufacturers and their franchised dealer networks many advantages, the first being a captive audience with all their customers currently driving a car supplied on a PCP agreement.
If managed and leveraged effectively the PCP agreement gives your franchised dealer network the ability to control their vehicle park, their cyclical new car performance and the ability to supply their used car operation with an ongoing supply of desirable used car stock, which can then be utilised to grow the customer bank of the business as a whole, whilst supplying the new car customers of the future, therefore further securing your new car success.
However, the ability to succeed within this new business model, the model of selling financial ownership products and the manipulation of markets, requires a totally different and continually proactive approach to the effective and successful running of both new car and used car sales operations. Yes your franchised dealer networks will still need the traditional skills that have got them to where they are, and they will still need to be masters in “The Art Of Selling,” but it is the financial understanding of that process and how that can be utilised to secure future new car success, that will need to be grasped.
However, for the manufacturer bold enough to grasp this and to build the franchised dealer networks capable of exploiting the business advantages available, the rewards are startling; everything from;
-
Increased new car sales and profitability.
- Increased used car sales and profitability.
- More resilient franchised dealer networks.
- The ability to take back control of actual residual values.
- Decreasing cost of new car ownership.
- Eliminating the genuine threat posed by independent 3rd party businesses who are currently targeting your existing trading model.
In fact we would argue that for manufacturers that don’t grasp these new trading realities, there is a danger that their business continues down its current path where some elements of the new car purchasing process are now being targeted by independent 3rd party technology businesses, the likes of We Buy Any Car and Carwow, to name just a few. This path is dangerous and their success is currently weakening the stature of your franchised dealer networks, because your franchise partners are now not being seen as a “1 Stop Shop” by customers, therefore you are losing control over the customer.
As they are in the UK, these third party independent businesses are now changing consumer behaviour and becoming very powerful in your market place, (something I will be commenting about in a future article). Luckily though, at the moment, all is not lost but for some of you the situation is serious, because of how the perception of the purchasing process is being manipulated and changed in the eyes of the customer by these businesses; and let’s not forget that these businesses are not your partners, they are in this for themselves!
So as a manufacturer just what is the answer to these challenges? Well at the foundations of your future new car success will be a franchised dealer network of successful used car operations, who are capable of supporting the new car aspirations of the manufacturer; and just what is the secret to building effective and successful used car programmes for franchise dealer networks? Well, and in brief, 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.
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 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.
In one of our most popular articles from last year, Effective Used Car Stock Practices Will Lie At The Heart Of Your Future New Car Success! 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 article and the suite of articles that followed, as listed below;
Only A Successful Used Car Operation Can Protect Your New Car Success!
“Pre-Registrations” And Shutting Your Used Car Operation!
Was 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 and fragmenting 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 and/or that of your franchise partner and actually 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 a future 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.
In one of our most popular articles from last year, Want To Grow Your New Car Business? Never Take Your Eyes Off Your Used Car Business, I explored the answers to 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 article and that of the subsequent article below, was 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.
Only A Successful Franchised Used Car Network Can Protect Your New Car Success!
As we all enter a more challenging and fragmenting new car environment, one of the issues explored was 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.
Now future residual values are actually being targeted and threatened on many fronts; don’t think for one moment that the listing of your new car product on the websites of independent “E-Tailers” is helping the cause of strong residual values at all. Some of the discounts shown on these websites are mind boggling and terribly damaging to the perception of the brands associated, and just as threatening as this, is how these businesses are looking to manipulate and change customer purchasing habits. However this issue is a separate and in-depth post in itself, and I assure you all that I will return to this subject very soon.
But for now, let’s return to the original discussion point of cars returning when PCP’s have come to an end, because the long term strategy for these cars will be crucial to future residual values and the cost of new car ownership. It is important to remember that current statistics indicate that approximately 85% of new and used cars are sold using the PCP finance model so how this stock holding is manged, upon returning to your franchise dealer network, is going to influence the cost of new car ownership, and therefore your new car success, for years to come.
If you are supported by a network of franchise partners who are successful retailers of used cars then 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; therefore retaining more customers and actually increasing the overall bottom line for both yourself, (as the manufacturer), and your franchise partners, whilst protecting future residual values and securing your on-going new car success.
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, and the threats that then poses to your future new car success.
Well at this stage it still has to be disposed of and the money concerned returned to the business, if on-going financial liquidity is to be assured, 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 retailing used cars is all the business does, and because it does it on a massive scale across the whole of the market.
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 valuable 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 situation will also be undermining and, in all likelihood, be reducing the residual values of your own product, thus increasing the cost of new car ownership and 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 the businesses of your franchise partners, 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, as mentioned above, I will be commenting about in a future article.
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.
