As much as we appreciate that the majority of senior professionals based at European manufacturers, working in European markets, will not give the UK new car market much thought on a daily basis, with used car markets in Europe now evolving at a pace, we think there is much to be learnt from the market in the UK, in terms of how we feel the dynamic of European markets will change, if used car markets continue to evolve and therefore then mimic the market in the UK.
And more, there are some warnings for European manufacturers to be taken from the UK market; those of not preparing for this evolution in the market and therefore ensuring the survival of their current trading model.
Why do I say this? Well with the new car registration figures for the UK now out for September, the overall decline in the new car market this year in the UK can no longer be under question; for sure and as ever there are winners and losers, (and some even bigger losers), within the market, but as a whole new car registrations in the UK were down by 20% when compared to September 2017 and year to date new car registrations are down by 7.5%.
Now this article is not being written to tear into the minutia of the figures nor is it meant to be doom and gloom; I have been working in the automotive sector for over 25 years and there have always been peaks and troughs in new car registrations, (as I’m sure there are in European markets), and guess what, we will have them again in the future! However unlike previous down turns, today manufacturers and their franchised dealer networks in the UK face an array of different challenges, in terms of the evolution of the market, and for some in the UK their current model may be under threat.
By that I mean the traditional model that manufacturers employ in all markets, that of being supported in their aims by a network of heavily invested franchise partners in order to retail, service and support their new car product, and in truth, I wonder how sustainable this model will be for some manufacturers operating in the UK? Now this concern has nothing to do with the quality of the product they may be producing but everything to do with the challenges that the evolving trading landscape in the UK will bring to their franchise dealer networks and how some of the investors required may then question the model and whether to invest in their franchise at all?
Now this is a big statement but one I think some manufacturers in the UK will need to begin to address, as well as those manufacturers in European markets. Reading the new car registration figures supplied by the SMMT I think the UK market is becoming split between the “Haves” and the “Have Nots” in terms of their ability to survive the challenges coming to the market. Some of these are fiscal but the majority of these challenges come from the combination of the fiscal challenges and surviving in the evolving new car market in the UK, a subject that has also been covered for European Manufacturers in many of our articles, (some of which are below), as the aggressive models changing the trading landscape in the UK begin to target European markets;
Internet New Car Sales 2, Judgement Day!
“Wow An Internet Company Got Me Over 10,000:00 Euros Off My New Car!”
Now, if we accept that European used car markets are evolving and that this in turn will affect the new car market, (which it will), then how much at threat you are will then, (over time), depend on the strength of your total franchise package and the ability to continually attract investment in your franchise partner programme. Now in the UK there’s no doubt that for many manufacturers, this will not be a problem; many manufacturers have an established brand, consumer desire on their side and will have built a financially resilient franchise dealer network, strong enough to ride the peaks and troughs of the new car market and in supporting the their product after the sale; servicing, warranty etc.
But, and even in the UK, for many I fear there could be some problems as the trading model continues to be evolved by the aggressive independent technology based businesses targeting the sector, both for the sale of new cars and the servicing of their vehicle park.
So, as we have done for our UK based manufacturer audience, I thought it worthwhile looking at the likely considerations that investors in your franchise are going to look at in the future, (in terms of their decision to invest and to take your franchise model on board), should European used car markets continue to evolve into markets akin to the used car market operating in the UK. In our opinion this could well be the challenge for some European manufacturers moving forward; the building of the franchise dealer network required in order to ensure your long term success.
In other words the perennial problem for all franchisors for years, that of attracting investment from the right investors, something that has always been of paramount importance to the success of your business model, but which might be about to get a lot harder for some manufacturers. Those manufacturers that may lose some franchise partners over the next 12 to 24 months and will therefore need to plug new gaps in their network before they can then go on to expand.
In our opinion, (for many manufacturers), potential investors in the UK will now begin to look more forensically at a plethora of new concerns when looking at which franchises to invest in and it will take a lot more than an exciting range of new car product to tempt people and institutions into investing. With new car margins in the UK under threat from the curse of the internet new car supplier and more competition for servicing revenue once warranty periods have expired, the financial model for the franchisee is becoming a lot more challenging. But as the manufacturer you need a franchised dealer network to survive, after all who is going to service your cars, support your warranty programme and sell your product, if you are unable to attract the right quality of investor into your franchise model.
Now if it were me and I was investing in a franchise, as much as this post is not designed to go into this in great detail, at the very least the issues below would be going through my mind;
- The strength of the new car model range both now and in the medium term.
- The length and depth of the warranty cover.
- How susceptible is the new car retailing model to the aggressive internet based new car supply companies and how will this affect my margin retention.
- What is the manufacturer doing to protect residual values?
- What is the strength of the manufacturer’s customer finance programme?
- What guaranteed servicing model do I need to support?
- How is the manufacturer supporting approved used car networks?
By the nature of what we do, we speak to a lot of motor trade professionals now questioning the financial success of the current model and for many manufacturers in the UK, “Rome Is Burning” because some networks are questioning the current franchise business model and what manufacturers are doing to ensure their on-going success? And one area that is becoming critical is the area of approved used car programmes and what manufacturers are doing to support growth in the used car market. I
nvesting franchise partners in the UK understand the weaknesses of the current model, they appreciate that new car model ranges, along with the new car market, go in cycles and to reassure you all, most accept that the trading model is evolving because the purchasing behaviour of consumers is evolving. They also accept that the servicing model is under threat, consumers expect more when it comes to warranty cover and the servicing market is becoming a lot more competitive. Consumers in the UK have the luxury of an app on their smart phone for both the cheapest price for supplying their new car and then the cheapest price for the servicing it; technology has targeted our trading model and it, (as well as margins), will probably never be the same again!
But their salvation in the UK, and therefore the salvation for the manufacturers, lies in the used car market; it is both the hardest market for the third party independent businesses to target and unlimited, in terms of potential and therefore the profits that can be made. So my recommendation to European manufacturers, those not currently running successful approved used car programmes, would be to not make the mistakes of some of your UK based counterparts and under invest in the programmes required to ensure that you can build successful used car networks, because in the near future these will be paramount, in terms of the franchise partners you attract and therefore the future success of your business model.
But of course there is a problem; unfortunately building successful approved used car programmes and franchise dealer networks that are successful at retailing used cars, is not a 5 minute job, and then there is the issue of the professionals with the skills required, to deliver your used car success, both at manufacturer and franchised dealer level, as explored in the recent articles below;
Do Successful Used Car Professionals Exist For European Manufacturers?
Successful Used Car Professionals Exist For Franchised Dealers?
Now we appreciate that finding genuinely successful used car professionals is very difficult for both manufacturers and their franchised dealer networks 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 both in the UK and in 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 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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