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.
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