I think it is fair to say that we live in interesting times at the moment! I will leave all mention of the geo-political issues aside other than to emphasise that they can bring turbulence to all markets, especially commodities markets driven in the main by sentiment and confidence, markets just like the automotive sector.
However, turbulent markets can be a time of great opportunity for those businesses prepared for, and with the skills in-house to do so. When it comes to investment in asset derivatives it was the great American Business Magnate Warren Buffett who said “Be Fearful When Others Are Greedy And Greedy When Others Are Fearful” and used car stock is just another form of asset derivative.
Sadly though, and if I’m honest, in the main the automotive sector is not ready to take advantage of the opportunity that exists at the moment and many franchise dealer networks are not agile enough and/or employing the professionals with the skills-sets required, in order to grow their businesses in turbulent markets, where the values being achieved for used car stock in the trade will drop.
It is important to remember that most franchise dealer networks reflect the ambitions of the manufacturer they represent and over the last 10 years the understandable desire to take advantage of the opportunity to grow new market share, off the back of cheap interest rates and the uptake in PCP agreements as a purchasing model by consumers, has been the main driving force within dealer networks and guess what, the staffing structure at both manufacturers and franchised dealer networks is reflective of this.
Now this has been a great success, but at a time when new car retailing has been, and is becoming more challenging, many manufacturers do not enjoy franchise dealer networks that are successful used car retailers and this is about to become a serious operational oversight. As the manufacturer you need a financially resilient franchise dealer network to support your new car ambitions and businesses that are just retailing new cars will begin to look like a “One Trick Pony” as the customer begins to look for “Value” in what may well be a recessionary market over the next 12 – 24 months.
I say this because when it comes to new car retailing, supply and demand is key, (the delicate relationship that drives pricing and profitability), and with new car retailing you can end up with a franchise dealer network all selling the same cars, at the same price, to too few customers; and when this happens you will invariably end up in a race to the bottom on price. However, it is also important to remember that turbulence can hit new car markets at any time, but your new car retailing model and your franchise partners are better able to weather these storms when you have a franchise dealer network that is successful at retailing used cars.
In truth though for most of you reading this post, your network is probably not prepared to take advantage of the turbulence building in the used car market because of both, a chronic under investment in used car professionals at franchise dealer level over the last 10 years and the over systemising of the new car purchasing process. And I’m sorry but when you under invest in your people, you do not invest in the future of your business and to quote Mr Buffett once again; “Someone Is Sitting In The Shade Today Because Someone Planted A Tree A Long Time Ago!”
Now these issues will be the thread for the next couple of articles so I will be covering many of the issues raised in isolation and more depth in the coming weeks, but for now let’s return to the original quote from Mr Buffett at the start of this article, because it is inextricably linked to a very important question in our business, that of “How Much Is A Used Car Worth?”
The answer of course is “As Much As Someone Is Prepared To Pay” and this goes to the heart of the discussion for today, because the retail price of assets is normally set by the consumer in turbulent markets and that is where we are heading, but for those businesses that invested in used car professionals the future will be very bright, but why?
Well turbulent markets, those where confidence and sentiment waivers and competition for used car stock reduces, present the most profitable purchasing and retailing opportunity for the business with the professionals required and in situ, in order to take advantage of the opportunity now presenting itself. The main reason for this is a simple one, only the businesses with the used car professionals required will know what the market value for used car stock is going to be and therefore what the consumer is prepared to pay.
This is critical because only good buying can lead to good selling and to quote Mr Buffett again; “Price Is What You Pay. Value Is What You Get!” So those businesses employing proven and successful used car professionals can now be ambitious and out purchasing used car stock when others aren’t, purchasing that used car stock at reduced prices because there is little or no competition, therefore setting pricing in the used car market and actually increasing margins and overall used car profitability. But this opportunity has not happened by chance; these will be the dealers who retained and trained used car professionals when other businesses thought that it wasn’t necessary; they weren’t sending all their part exchanges to auctions and removing themselves from the responsibility for part exchange and used car values, by leaving them in the hands of an independent third party auction business with no loyalty to anyone apart from their shareholders. It is important to remember that auction houses do not write cheques out for used car stock on a speculative basis, they present used car stock for sale and send you a cheque when the car is sold, which is great, right up until the moment when people stop buying!
So there will be many challenges out there in the used car market during 2019 and for the manufacturer and the manufacturer based in-house finance company, these truly successful used car operations will be vital to your cash flow and on-going success, but unfortunately they know this, and the fact that they have their pick of used car stock to invest in, and at prices that they want to pay. If I was running a used car operation with the team in place and the funds available for stock right now, I would be licking my lips happy in the knowledge that I probably wouldn’t need to be paying market value for any used car stock, including used car stock returning from PCP and hire agreements to the manufacturer owned finance company!
And herein lies one of the many problems for manufacturers when they do not enjoy a franchised dealer network that is successful at retailing used cars; you have a network that is not capable of returning the values required for your own stock holding and that of your in-house finance company, so you invariably lose money now and drive residual values down, thus increasing the cost of ownership for new cars and putting your new car business under threat.
So if you are not prepared for these used car market conditions what’s the answer? Well in truth there is not a simple solution to the immediate problems coming to the sector, other than to learn from these lessons and ensure that it doesn’t happen again. The market is fast moving and the professionals required to thrive in these conditions are not available “Off The Shelf” and sadly haven’t been invested in enough, either a manufacturer or franchised dealer level, so there is a shortage, as covered in my recent posts;
Do Successful Used Car Professionals Exist For Manufacturers?
Do Successful Used Car Professionals Exist For Franchised Dealers?
So in your hour of need finding genuinely successful used car professionals is going to be very difficult for both you as the manufacturer and your 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 and deliver a successful and profitable used car business development 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 in the strictest of confidence; Andrew Banning at ajb@autoformance.com or Malcolm Thomas at mgt@autoformance.com
Alternatively please feel free to call me on 07796 260261.
For more information about our services please visit our website at www.autoformance.com
Andrew Banning.
Used Car Business Development Director.
No comments:
Post a Comment