Well the state of the new car market in the UK has been laid bare by the SMMT registration figures for the 1st Quarter in 2019; for some there are extremely positive signs yet for others? Well some of you appear to be stuck in a continual downward trend but for some we are sure that the downward trend will be temporary. However in truth the warning signs are there for everyone delivering business models to the UK new car market, so we thought this article should be shared with our European subscribers and contacts, so you can avoid making the mistakes of your UK counterparts, as your used car markets continue to grow and evolve.
There is no doubt that the new car market has been challenging over the past 12 months in the UK and for a myriad or reasons; on top of that confusion over Brexit, and all that Brexit entails for the Automotive Sector, hasn’t helped businesses to plan and no doubt affected consumer sentiment. But in truth and just like any other retail market, there are always pressures and trading challenges in new car markets and it is also true that all manufacturers have the ability to protect their business models from any turmoil affecting new car markets, providing their trading model encompasses a broad enough selection of business opportunities.
Unfortunately the narrow and extremely vulnerable new car – parts –servicing franchise model is now never going to be broad enough to survive the challenging and evolving new car trading conditions we are likely to see over the next 2-5 years and there is a danger for manufacturers that soon many of their franchise holders will give up on the franchise model, the model where 2-4% returns are trumpeted as success.
Now we speak to a lot of senior personnel owning and running your franchise models and delivering on their investment via their dealer operations; thus we have an insight perhaps not enjoyed by yourself, (as the manufacturer and master franchise holder), and we promise you all that the question posed in the title of this article is a question you should all be pondering, because for some of you, desire to invest in your franchise model is dwindling amongst your franchise partners and many are questioning the financial returns being enjoyed and those that are likely in the future, should your business model not change.
Now franchise networks questioning their long term commitment to the manufacturer is about as serious as it gets for manufacturers. Although this delicate balance of power in the franchisor/franchisee relationship is different for all manufacturers, it is important to remember that, (as the manufacturer), you get the franchise dealer networks you deserve, and for many of you right now the tail might be about to wag the dog, because we wonder who has the most to lose in any future “Mexican Stand-Off” between you and your franchise dealer networks; you as the manufacturer or your franchise partners?
There is a genuine threat here to some manufacturers, those who, (like all of you), need a franchise dealer network to sell their new car products, support the ever lengthening warranty programmes/servicing packs and to service their vehicle park, but with an increasing lack of control over, (and reducing), new car margins, lengthening warranty/servicing packages to support and vehicle parks that are too small to ensure continual 100% overhead absorbency in the service department, your franchise model is beginning to not stack up on a financial investment basis.
And the ramifications of this are already beginning to play out with many of the, what we call “Up And Coming” marques, now beginning to run out of investors putting their franchise business into standalone showroom sites and now only finding representation under a dual franchise model within one facility. Even in affluent parts of the country it is staggering to see how some of these “Up And Coming” marques are beginning to struggle to secure standalone investment and having to then share showroom facilities with a competitor marque, not associated with their marque whatsoever, and this is not ideal, not when they represent their competition and when some of their cars are now costing in excess of 40,000 Euros, so let’s explore why.
Well firstly this is not a picture of success in the customer’s eyes, for either marque being represented under the one roof; the perception of the marque that was already there and in situ is that it is not successful enough to stand alone, and you as the incoming marque get tarred with the same brush. Let’s not kid ourselves, as a franchise holder, if you had a site that was running at full speed, containing a successful used car operation, the last thing you would do is muddy the waters and inhibit further growth at an already successful site, (by adding another franchise), so the perception to the customer is that this long standing business is seen as not being successful.
So why of why would you as the incoming marque looking to share the single facility want to be associated with this? In all likelihood you are going to be the second class citizen in this relationship and in the eyes of the customer you have a business that can’t support a standalone operation either; this is not the ideal foundations from which to then try to convince the customer that they should spend over 40,000 Euros on one of your new cars?
Now we are not sure that this can be pulled off and It is no coincidence to us that some of the manufacturers now having to adopt this dual franchise per site model are now, (despite growing over the last 5-10 years), reporting double digit declines in year on year new car registrations for the first quarter of 2019.
And worse than this, under this model, you also have no ability to then invest in the business so overlooked by some manufacturers; the used car business, the business that you, (as the manufacturer), are going to need in the coming years to provide the foundations for your new car trading model and the financial resilience of your franchise dealer network. Just because you move your franchise model into an existing site, does not mean the site grows in size and if there is already a used car operation in situ, and let’s face it there probably will be, how are you going to ensure that there is a used car presence for your product?
Either way there can only be one winner here so one of the manufacturers represented here will have no used car business to represent and support the new car trading model and this will have only one eventuality, the slow demise of one of the businesses associated with the site, so we are also just as surprised that the existing manufacturer at the site will allow another competitor franchise to share the same building.
But the problem for the franchise holder and thus the question posed in the title of the article, is that you as the manufacturer are not providing genuine business solutions that will provide the long term solution, and this is also true of some manufacturers seeing growth in new car registrations during the first quarter of this year, although the reasons may be different.
We would advise these manufacturers, don’t be fooled by success this year, maybe off the back of new model launches taking you into new markets and therefore increased demand from loyal customer bases; this can be a warm glow of Summer, with Autumn and Winter just around the trading corner. If there is no expanding business model to support your expanded new car model range and trading model, (and over the term of the new models production life), this will take your franchise holders into new and unchartered territory with many of them needing business development and personnel training provision to adapt and survive.
We think we can all agree that the pace of evolution in the new car market is dizzying and we sympathise with manufacturers trying to come up with more and more answers to the questions posed by the new car market, but in truth many of you are looking in the wrong place. Remember you can only expect so much from one area of your business and for many of you reading this the new car market has evolved beyond all recognition. Disruptors and technology entrepreneurs targeting our established markets have changed the new car market forever, so although you must adapt to the challenges of an evolving new car market, you must also look to add and/or expand other income revenue streams if your new car trading model is to be protected, and you are to also to attract investment from the franchise partners you require.
But whilst doing this you must also appreciate that for many franchise networks, they have become a new car sale via PCP agreement “One Trick Pony” business over the last 10 years, a time when new car retailing has experienced some tremendous success. But the “High” of these new trading environments is over; for sure they are here to stay but we have allowed third parties to target our consumers and we have the spectre of a new car customer with declining confidence and questioning personal debt levels to contend with over the next few years.
Now the new car market will peak again, it always performs in peaks and troughs so it always will, but surviving the troughs is becoming more challenging and it is changing the face of franchise dealer networks, and unfortunately the last 10 years of this trading environment has left many dealer networks and manufacturer organisations missing the professionals now required for the challenges that lie ahead.
If you want a bullet proof franchise business model, one that can protect new car trading models and the financial resilience of your franchise dealer network, it must contain and business with genuine “Barriers Of Entry!” A business that cannot be targeted by market disruptors from outside the Automotive Sector, (businesses like the technology based platforms), and this is the used car business. Why? Well the answer to that question is an article in itself and a subject we will return to for our next article but just ponder this; in a market where 2 – 4% returns are lauded as success a successful used car operation is returning 7.5-10% returns and is the most successful and profitable operation contained within the franchise dealership.
On top of that the benefits that a successful used car operation delivers to the new car business are immeasurable, yet many manufacturers choose to pay lip service to the used car business and/or offer no programmes of used car business development to franchise holders and/or training for their personnel.
So we wonder why any manufacturer would ignore the market that is most beneficial to their new car aspirations and the financial wellbeing of their franchise partners, and what’s worse, your franchise holders are beginning to ask this question as well. Your business partners with huge costs of investment in buildings meeting the manufacturer’s satisfaction and numerous unprofitable “Cost Of Franchise” issues and product lines to deal with on a daily basis.
Your franchise partners are beginning to understand the need for investment in the used car market, after all they are the ones paying the bills on the building and seeing new car margins and overall profits decline and of course, (and this may be wrong), it is understandable that having built both their business and their personnel structure around what was required over the last 10 years, (in terms of the new car market and remaining profitable), that they will now look to you as the manufacturer to provide the solution.
So what’s the answer? Well for most reading this article there is much work to do and the dangers of doing nothing now have been explored in many of our articles, most recently the article below;
Will Your New Car Franchise Model Be The First To Fail?
We also appreciate that used car professionals do not grow on trees and that growing successful used car businesses is a highly complex and specific skill-set, but would ask all manufacturers, where do you expect these professionals to come from, those capable of delivering the results both you and your franchise partners require? We also appreciate that finding genuinely successful used car professionals is very difficult for both manufacturers and their franchised dealer networks, we discussed this very same operational problem in our articles below;
Do Successful Used Car Professionals Exist For European Manufacturers?
Do Successful Used Car Professionals Exist For Franchised Dealers?
So something has got to change; as the manufacturer you must make a decision, do you want to secure your long term new car success and ensure that you enjoy a financially resilient franchise dealer network, the one that will be required to support your new car warranty programme and service your vehicle park? Because if you do, then this will only be achieved via successful used car retailing, and 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 and training programmes, because you would like to partner with an organisation of professionals who have faced the challenges of fast paced evolutionary used car 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, or to discuss any part of this article in greater detail, please do not hesitate to contact one of our Used Car Business Development Directors in the strictest confidence; 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.
https://autoformance.comUsed Car Business Development Director.
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