As automotive professionals and the sector as a whole, continues to come to terms with the evolving new car retailing landscape, we would argue that the importance of having a network of successful used car operations has rarely been so important, in terms of your long term success and in protecting your business model.
We can debate forever on where we all think the new car sector is heading and the changes we are likely to see, in terms of how the franchise dealer network model remains financially viable, but that is for another post. This post is all about returning to the business that will be at the foundations of your future success; the used car business.
With the new car market fragmenting and being attacked by entrepreneurial and aggressive internet based businesses who are looking to manipulate consumer behavior, as well as control and hold to ransom vast amounts of consumer data, we would argue that the new car market may never be the same again. Not because manufacturers can’t compete head on with these threats, but because the purchasing behaviour of consumers is being changed and the traditional franchised dealership model within the sector, (in the main), is in danger of being caught out by the speed at which the new car trading conditions have been evolving, let alone how they are likely to keep evolving.
As much as some manufacturers have performed above the challenging new car market conditions during the first half of 2018, there is no doubt that there will still be many challenges to be faced by all manufacturers in the new car market. But the foundations of your long term success in the new car market and the answers to how you face the many challenges mentioned above, are in your own hands as they will lie directly in your success in the used car market.
With national used car markets in Europe beginning to outperform new car markets the potential of the used car market is huge and we have no doubt that European used car markets will follow the growth path of the used car market in the UK where it is still over 3 times the size of the new car market.
This growth in the used car market changes forever the dynamic of the market as a whole and how manufacturers and their franchised dealer networks must set up their business model. It will be no coincidence that within UK based franchise dealer networks, the businesses that are most successful at retailing new cars are also the ones that are most successful at retailing used cars.
As the dynamic of the market has changed they have become the businesses achieving all of the KPI’s set by the manufacturer, adhering to all the standards required, they are model businesses that work with and support everything that the manufacturer is trying to achieve. Unfortunately though as the shift in market dynamic towards higher volumes of used car sales then becoming the governing factor to new car success, those dealers within franchise dealer networks not enjoying the platforms and skills to ensure success in the used car market, begin to struggle on all fronts, both used car and new car sales, because at the core of their success is the business that the manufacturer can’t control, in the way that you can control the new car business.
Although manufacturers can aid success, unfortunately the used car business is not one that can be leveraged and controlled so much by manufacturer initiatives. It is the tertiary and potentially most profitable part of all the businesses making up your franchise dealer network, but it is also the business where there is no agreed level for volumes of stock, to any specific model mix and, of course, all the stock acquired for this business will need varying levels of preparation in order to meet the stipulations set by the underwriters of the manufacturer’s warranty.
But once the transformation of the market is under way the benefits to the manufacturer of a strong dealer network that is successful in the retailing of used cars are numerous, everything from:
- Increased new car profitability for both the manufacturer and their franchise dealer network.
- Increased overall profitability of the dealer network, resulting in a financially stronger and more resilient dealer network.
- The ability to increase levels of part exchanges, therefore more new car business.
- The maintaining of core standards set by the manufacturer.
- Larger customer bases therefore the opportunity to take more customers on the journey from used car to new car ownership.
- Increased opportunities for repeat sales and increased levels of margin retention.
- Increased levels of customer loyalty to the brand.
- The control and protection of residual values.
- More competitive financial packages and reducing costs of ownership for customers.
- More control over the new car and used car vehicle parks.
- Protection of the brand.
- A business model that is then not vulnerable to the aggressive business models attacking the established new and used car retailing model.
However, to get to here and enjoy these benefits your dealer network will need to embrace and take responsibility for the challenges presented by the used car market place and making this task more challenging, will be the inconvenient truth that every dealer in your network will be at different stages in their used car development.
And on top of this for many of your franchise partners, in order to grow their used car businesses, they will need to meet “Head On” the challenges posed by independent third party used car businesses operating in their locality. The growth of independent third party used car operations has been substantial over the last 10 years and this is unlikely to stop; the owners of these businesses will be targeting further growth and their business model is unhindered by the terms of franchise agreements.
To add to the challenge; well with the 3rd party internet based new car businesses that are now obtaining a strong foothold in the new car market, also now beginning their expansion into the used car market, we will no doubt begin to see the fragmenting of the used car market, as we have the new car market, including all the market evolutionary challenges that this will involve. So the importance to the manufacturer and their franchise partners of planning and building a successful used car franchise network, has never been more pressing.
However in order to remain successful in the market trading conditions of near future it is an inconvenient truth that manufacturers will only be able to develop strong and resilient franchise dealer networks, those capable of supporting their new and used car aspirations, and free from high levels of manufacturer support and subsidies, if they invest in and promote the expansion of approved used car business development programmes, those that will be required to ensure that a network of successful used car operations can be built.
Unfortunately though, strong and resilient used car dealer networks 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 in both the UK and in 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 me on 0044 7796 260261.
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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