With franchised dealerships and used car retailers now shutting their doors for at least 3 weeks we are all effectively in what I call “Cabin Fever” mode. Be in no doubt that this will be challenging for us all and the mental disciplines required to look after the “Top 2 Inches” are going to be vital.
Most of you reading this article will have staff who are now at home fearing for their immediate futures and looking for leadership, so my advice would be to not waste this period of time. Like me you all have some decisions to make and who you listen to, (or don’t listen for that matter), during this period will also be very important.
Important because used car retailing and motor trading has come to a halt so all we can do is prepare for how we feel the future will look and make sure that we are ready to hit the ground running when the world begins to get back to normal. So the very first thing we all have to do is decide what environment we think we will be trading in and then plan accordingly; unfortunately at best this will be educated guesswork, only history will show who was right and who was wrong on this, thus the importance of choosing who to listen to.
So it is time to make some “Big Calls” because what we do now will probably determine whether our business survives in the long term or not and be in no doubt, every business will not survive; so what would I be doing if I was in your shoes? Well this would depend on whether I ran a PLC, a small privately owned group of franchised dealerships or a single franchised dealership, because I think you all have different challenges in terms of execution.
Funnily enough I think smaller will be beautiful in the new world because your business is more agile, so can therefore think differently and react more quickly; so in terms of the recommendations being made in this article they are being made with you in mind.
Effectively there are actually 2 trading periods to plan for; the first 3 months after the doors of your business have been reopened and then the period after that, and in many respects how you operate in these 2 periods may be different. But the one question that needs answering before any planning can take place is this.
Do You Want Things To Go Back To The Way They Were?
Now the answer to this question will probably depend on whether or not you were running a “Selling” or a “Priced Based” business before the lockdown, and whether or not that was delivering on your financial objectives? Now let me explore this because the answer to this goes right to the heart of what I would recommend you be planning to do when you open the doors of your business again.
Now in order to do this let me shine some light on how the typical used car business, (and new car business for that matter), based at a franchised dealership was operating, because 95% were not “Selling” businesses they were “Priced Based” businesses.
Now I say this not to be disrespectful but because it is the truth and I fear that in a market awash with used car stock and one also lacking in consumer confidence, that this model is no longer financially viable; I will expand on this in a moment.
But in the first instance let me explain why 95% of used car businesses were not “Selling!” At most used car businesses based at franchised dealerships a piece of used car stock arrives on site, it gets prepared, it is then advertised and your sales team waits for a customer to enquire on the car concerned. Now this operational model does not involve “Selling” at all, this is the “Priced Based” model of selling on price which you are operating under because you haven’t got any sales professionals in your sales department. Now this is how 95% of used car businesses operate and if you are doing exactly the same as everyone else it can only be about price!
This “Modus Operandi” leads most used car businesses in franchised dealerships to be operating in a “Race To The Bottom” on price, because the only way they know how to generate an enquiry is to ensure that it is the cheapest car of its kind advertised on the internet. So if I had to sum up why 95% of used car operations don’t make any profit it would be simple;
95% Of Used Car Operations Based At Franchised Dealerships Don’t Know How To Buy Or Sell Used Cars!
In reality 95% of used car operations were paying far too much for used car stock because they have no skills in used car stock acquisition; so they are paying over market value for stock and then retailing in a “Priced Based” retailing environment! No business can make money in this environment; but if you want to return to this, and in far more challenging conditions, then that is your choice!
For those who don’t there is another way but succeeding will be down to planning and then ensuring you have the right people in place.
For sure there is a difficult period to navigate when the doors of businesses open again, but the period of time preceding that moment may just be the time to make the changes required, if you want things to change.
But if you do want things to change then at the foundations of every decision you make must be the decision to return to being a “Selling” business and this may involve some difficult decisions; probably decisions that were coming anyway it is just that this period has brought everything into sharp focus, and quickly. Now, more than at any time in the recent past, having the right team will be critical to your survival because I can assure everyone, continuing to operate a “Priced Based” business in the used car market to come is very likely to be the trading equivalent of “Death By A Thousand Cuts!”
Unfortunately before you can plan to launch any strategies and used car sales initiatives you will have to “Grasp The Nettle” and make a call on whether or not you think you have the sales professionals required; we can no longer pretend that the trading landscape will be different for “Us” because the trading landscape is being formed by the events of “Now!” If you haven’t got the sales professionals you require you will be forced to get involved in the price war that 95% of used car businesses will be entering; only those with the deepest pockets, able to sustain large losses over a prolonged period of time, are likely to be standing at the end.
Luckily this period of time offers an unrepeatable opportunity to assess how your current sales team was operating; if you are able to, you can go to your business and audit the “Selling” capability of your sales department because you have a snapshot in time of what exactly was going on. You can review the diaries of your sales team, forensically audit your CRM system and look at how your used car stock holding and demonstrator fleet was being utilised in the pursuit of sales.
If you know where to look and how to carry out this essential sales auditing discipline, you will know immediately whether or not you have sales professionals in your employ or not. You will never get an opportunity like this again, this is your opportunity to know exactly who you are employing and to identify who is likely to be “Market Ready” for the challenges of the future and those who aren’t. This process may require some steely resolve and may sound unpalatable but this is your business and the used car market of the future is not likely to be an environment in which to be carrying passengers.
It must be your decision as to who you keep, who you develop because you see potential and who sadly you just can’t afford to keep; this may sound mercenary and I am certainly not telling you what to do, but this process will give you an immediate insight in to the “Selling” capabilities of your sales team. Done correctly this process will more than likely make you weep, especially when you see the opportunities that were being lost; sadly there is nothing you can do about this now but the lessons learnt from this process are likely to be some of the most valuable lessons you have ever learnt.
Unfortunately though, this process of sales evaluation is a very skilled process in itself, but anyone wishing to know how to complete this forensic audit of their sales department can feel free to contact me when I will gladly expand on how to get the most valuable information out of their sales department.
Once you have clarity on the skills contained within your sales department you can make the decisions required and aligned to the objectives of your business when you next open. Most of you are going to find out that you don’t have genuine sales professionals in your sales department; I can say this because 95% percent of people working in sales departments at franchised dealerships aren’t sales professionals and to be fair this is because the industry hasn’t been training sales professionals for over a decade now. I won’t explore this further in this article but anyone seeking justification for my statements need only read the articles below on my Used Car Business Development Blog;
You Start Negotiating When You’ve F@#ked Up The Sales Process!
Why Would The Best Sales Professionals Choose The Automotive Sector?
Why Won’t The Automotive Sector Embrace Entrepreneurial Operators?
The major challenge for many is going to be the securing of top sales professionals, the professionals with the skills to ensure that your business avoids becoming further involved in the “Race To The Bottom” on price. Genuine sales professionals will also not be inactive during this period, many, (ourselves included), are looking at how events are going to re-shape the trading landscape across all sectors; the challenge for those reading this will be to entice the best talent into the Automotive Sector and their business, when all sectors are going to be looking for those capable of driving sales success to their businesses.
Luckily for you successful Sales Professionals are creative and entrepreneurial in their approach and already building the teams required to be able to work within businesses and deliver success, but these may be difficult for an industry who has given up on sales professionals to identify.
However, anyone wishing to explore any of the issues raised in this article, especially the subject of sales professionals, how they operate and what they can offer your business, can feel free to contact me to arrange an exploratory conference call; either on my mobile, 07796 260261, or at ajb@autoformance.com
Although current events are driving the content of my articles at the moment, as they should, I will explore the role of the successful sales professional in my next “Sunday Briefing” article; thereafter some of the challenges to be faced during the first 3 months of trading.
Regards.
Andrew.
Andrew Banning.
Used Car Business Development Director.
There is no doubt that the Coronavirus is going to present some hefty challenges to the Automotive Sector, as it is many others, and I have been reflecting this week on both my business and the tone and content for my used car business development articles during this period; and it made me realise that we actually don’t have clarity on much so this makes planning very difficult.
My worries, (and I add the caveat that my opinion is no more valid than yours – because none of us have traded through market conditions like this before), are that “Fear” and the “Unknown” are a contagion in asset markets and we forget that we are trading in an asset market; we have no idea how long this disruption is likely to last and I have a sneaking suspicion that when we are trading again, things will be very different to how they were before recent events, thus preparing for the used car market of the near future will involve a lot of guesswork.
So over the coming weeks and as the trading landscape evolves, I make a commitment to share as much experience, expertise and knowledge as I can, (including my rationale), whilst accepting that conditions will be different for every manufacturer and every franchised dealer, so in order to give specific advice, we would need to arrange a free used car business development conference call, something I’m sure you have all seen that I have committed to offer to all of you.
In this weeks’ Sunday Briefing Article I wanted to cover two things, one that will be difficult to read and one important question, the first question I think we should all be asking ourselves. The difficult issue to discuss is one of predictions surrounding business failures because not for one moment do I think that every franchised dealership and independent new or used car business can survive this period.
Now before everyone gets upset with me, I readily accept that this includes my business, in fact my life’s work, but like you, the world is not going be a worse place because my business does not exist; so I think we must be prepared to accept that we really are likely to go through some seismic changes.
So let’s get on to some serious and valuable used car business development advice and the first question I think all those running a used car business must face; whether that be at a franchised dealership or an independent business, is:
What Is The Value Of My Used Car Stock Holding In A World Where No One’s Buying?
The only time I have traded through a similar period to this, (I do still own and run a specialist used car stock acquisitions company), was during the financial crisis during 2007 and 2008. I remember vividly having approximately £500,000 worth of used car stock that no one wanted to buy, which really focuses the mind. During that period there was some “Calls” to be made, once you accepted that this period was all about losing as little money as possible;
- Do I take the losses required now to become “Liquid” and have cash in the bank, to then be able to be buying when others can’t?
- If I decide to do this, what is the maximum loss I am prepared to take.
Now at the time these were big calls; it was my money and in truth the biggest lesson was to ensure that it never happened again, and it hasn’t this time round. Now before you all accuse me of being smug, the decision to make myself liquid was taken as a gamble 2 months ago, so I have already lost 2 months trading income, so in some ways my losses are greater than yours right now!
And let’s not forget that there is another critical point to this and that is whether I or anyone should be buying again now, and for me the answer is no; why? Well I don’t think we are any near the bottom of the market yet and a stock holding that looks cheap today, could easily look expensive again if no one is buying.
Now this is the conundrum for us all; when will the retail public be buying en masse again? I don’t think changing their car will be on many people’s minds any time soon so there are some critical decisions to be made and some valuable lessons to be learnt here.
Now life has a habit of sending us valuable lessons wrapped up in as a mistake, so my advice to you all would be to reflect on this period, learn the lessons and ensure that you do things differently in future; all of which I will be covering in my articles over the coming weeks.
So in order to do this and to bring the maximum value, let’s assume you have a £1,000,000 used car stock holding; many reading this will have more invested in stock and many will have less; what are the options?
Well they are no different to mine but unfortunately many of you are not set up to trade in these conditions; I don’t say this to be pious but to help us all from making these mistakes again. So if I was with you right now this is the market analysis I would be providing, the questions I would be asking and also what I would be advising.
My Market Overview
My reading of this will be that all businesses will now be in a race to be “Liquid” and have cash in the bank; cash flow is the oxygen of business and without it the bills can’t be paid, resulting in hitherto viable businesses going under!
Unfortunately we have a used car market awash with stock and customer enquiry levels very likely to fall off a cliff; I say this because I fear that the disruption to business and people’s lives could be huge, so therefore it is unlikely that many will be looking to change their car any time soon.
However, some can be induced to change and provided you have the sales professionals required and not the customer handling professionals churned out by the manufacturer’s training academy, (those waiting for customers to contact the dealership, who probably won’t be bothering for a while), you can make a decision to join the aggressive race to sell used cars in the here and now.
My reading is that this is not a time to be sentimental, regardless of how hard you worked to acquire your current used car stock holding, the rules have changed and there are no guarantees where values are going to bottom out, so be ruthless and get your current used car stock sold, and within reason, regardless of the losses to be endured today!
I won’t explore this in too much detail in this article, anyone wishing to discuss this can feel free to contact me, but there are more than enough negative “Drivers” at play and on the horizon, to drive used car prices down; everything form enforced liquidation, closing businesses, repossessions, collapsing auction activity and cars returning at the end of PCP agreements.
But I also sense that procrastination during this time will be punished and in order to devise the strategy required to get retailing and/or liquidating, there are some questions that will need to be asked and answered very quickly; not an exhaustive list below, but the list of questions will certainly include;
- How Long Can You Trade With The Money You Have In The Bank?
- How Much Can You Afford To Write Off Right Now?
- How Many Outstanding Used Car Enquiries Are Sitting On Your CRM System?
- Do You Have The Sales Team You Need Right Now?
- If Not, Who Can You Work With To Run This Campaign For You Right Now?
- Do You Have A Trade Network That Can Be Leveraged At This Moment, Or Are You Totally Reliant On A Soon To Be Failing Auction Based Disposals And Liquidation Policy?
The answers to these questions will set the foundations for how you should proceed; now is not the time for recrimination but a determination to succeed combined with a willingness to learn and avoid the mistakes that may have left you with the wrong answers to the questions above, is going to be vital.
In coming articles I will address the issues covered by the questions above, all of which will be an article in themselves because the answers are going to be pivotal, in terms of how you proceed from here. Sadly those without the right sales professionals at this moment and those reliant on the auctions for disposals and liquidation in order to return cash to your business, have some huge challenges ahead, but those “Grasping The Nettle” now can be amongst the first able to trade in the new trading landscape that emerges.
But I promise you all, this is not a time for burying your head in the sand and hoping that things will get back to “Normal,” because we are going to have to have to see what “Normal,” looks like. One thing I am convinced of though is that those able to be out there buying stock in the market at this time will be the businesses that set market values in the months to come.
These businesses will be the ones that set pricing and will be out there buying stock at below the new market values, because they will be out there with cash to spend when others aren’t and this will bring intolerable pressure to bear on all those businesses who didn’t act earlier and are needing to sell stock at that moment. The worst thing for you at this time will be if you are the business holding used car stock at yesterday’s prices and in a market where consumer confidence is likely to still be very fragile; at this moment you are likely to see the losses to be taken today as having been very marginal in retrospect.
Now I have no doubt that the used car market will evolve and that many businesses will survive by making the “Big Calls” now, however, I also have no doubt that this evolution will be brutal and that those procrastinating will be the businesses that struggle to survive. I do not say this lightly and I am aware that for some this will be a difficult read but for those who want to explore the questions above and how I can help, please feel free to reach out to me either on my personal mobile, 07796 260261, or at ajb@autoformance.com in order to arrange an exploratory conference call.
I look forward to hearing from you.
Regards.
Andrew.
Andrew Banning.
Used Car Business Development Director.
Following on from last weeks’ article; CAZOO’s Numbers?,,,,,, WTF!? I wanted to thank everyone who engaged and commented on the article, and to those who reached out to me directly, this article constitutes the 2nd half of the article I promised to publish, and will hopefully answer the questions put to me during the week.
So time to come off the fence: Do I think CAZOO will hit their 5 year objectives? No I don’t and for a myriad of reasons; from an operational, fiscal, purchasing, personnel, sales and marketing perspective the objectives quoted are staggeringly ambitious and even if CAZOO had built a “Team” of proven and genuinely successful used car professionals with a level of success and experience, the likes of which has never been brought together in my working lifetime, I still don’t have confidence that the objectives stated could be met.
However, that is not to say that there is not a business opportunity here, just because the structure and ambitions stated look unachievable, (at face value), on this occasion, does not mean that the business model of manufacturers and franchised dealer networks in the UK is not under threat, because it is; it’s just that someone hasn’t got the right people together, combined with the right model, in order to exploit the opportunity.
As I have said to many of you who have reached out for more information on this subject; you may have been saved by “Hubris” on this occasion, and for other reasons when it comes to the other models that have failed in the recent past, as covered in my article; Used Car Entrepreneurs ,,,,, Who Learnt The Most From Virgin Cars? But to expect people not to observe and learn from the mistakes of others and to then not enter the market with a different proposition, would be just as fanciful.
So my advice to manufacturers and their franchise partners; now is the time to look in the “Ugly Mirror” because whilst manufacturers and their franchise partners continue along their current paths, gaping holes will still exist in their business models and eventually someone will exploit the opportunities available, and even more ruthlessly than some are being exploited already.
So why do opportunities exist for those looking to disrupt the new and used car markets? Well to put it simply either a lack of commercial acumen or laziness; or perhaps both. Now by this I refer to the decisions made in the past that even at the time appeared to have terrible future consequences, but when you drill right down, to where all the problems began and what has led the Automotive Sector, (as a whole), down the path it is on today, at the heart of all the disruptive challenges being faced today by manufacturers and their franchised dealer networks, (encompassing all the opportunities to exploit the new and used car markets by independent disruptors), is the decision manufacturers and their franchise partners made to give up on “Selling,” developing used car businesses and the professionals associated with both.
Now it is impossible to explore all the operational and decision making errors, including the ramifications of these, in one article, so I will include some links to further articles on my Used Car Business Development Blog that will further expand on the issues mentioned. But in essence there were 4 critical errors that have been compounded over the years and have left manufacturers and their franchise partners years behind the curve. However, it is not too late, but the time for action is now, if manufacturers and their franchise partners are to protect all that they hold dear. So where do we start; well at the beginning.
Forgetting That Used Car Success = New Car Success; I have commented regularly on the relationship between manufacturers and used car retailing and in truth the vast majority of people I have met at manufacturers have zero interest in used car retailing. I have always found this situation very strange, although I appreciate that successful used car professionals and manufacturer personnel are a very difficult “Fit!”
Quite understandably the manufacturer is pre-occupied with new car retailing, but the irony is that success in the new car market, (and by success I include profitability), will only ever be built from a platform of successful used car retailing. Strong residual values have always been imperative to new car success, even more so now that the new car market is hooked on cheap interest rates and the PCP agreement.
The PCP agreement has transformed customer purchasing habits, resulting in 85% of customers now purchasing entirely with a monthly rental budget in mind, and key to being competitive will be the residual values being achieved by your cars in the future. High residual values are key to the overall cost of ownership for the customer because they impact directly on monthly rental payments, and residual values will not be supported by anything other than franchised dealer networks that are successful at retailing used cars; a subject discussed in our article; Want To Grow Your New Car Business? Never Take Your Eye Off Your Used Car Business!
And in my experience not one manufacturer retailing new cars in the UK has a franchised dealer network that is successful at used car retailing, which has led to a range of issues and problems, many of which will be discussed later, but alarmingly it has resulted in manufacturers and their franchise partners giving business away for free to competitors, many of whom now have a far more successful businesses than yours!?
Unbelievably though no one within manufacturers or the PLC’s owning vast swathes of franchised dealer networks in the UK wants to discuss this, or how we change the situation; thus my observation that the current trading landscape has been caused by a lack of business acumen and/or laziness.
I will point out again, (as this is not for the first time), that the highest paid used car professional in the UK Automotive Sector works at a company owning auction facilities, not for a franchised dealer group, a retailing PLC or a manufacturer. Just let that fact sink in for a moment; an auction business, a business that has been handed to someone on a plate by the Automotive Sector, because the sector abandoned the skills and the professionals required to never have had to use them!
Now I have discussed this issue many times with manufacturers and there just is no interest in employing, (on any basis), the professionals required to develop successful used car retailing within franchised dealerships. So with manufacturers giving up on used car retailing, many of their franchise partners have given up on used car retailing as well and this benefits no one, neither the manufacturer nor the franchised dealer.
This almost “Needy” relationship leaves the franchise partner wholly dependent on the manufacturer for their survival, and as much as the manufacturers decision to turn its back on used car retailing is mind boggling, I can sympathise a little with the manufacturer because why are those owning and running franchised dealerships not investing in their own education and growing their used car businesses?
In reality neither manufacturers or the vast majority of their franchise partners know what successful used car retailing involves; most franchised dealerships in the UK don’t have a used car business, they are just retailers of part exchanges and ex-demos, so neither senior people based at manufacturers or those running franchised dealerships, would know the first thing about how to find and employ a genuinely successful used car professional, so here is the first of my free gifts, some links to a couple of articles covering the skills sets involved;
Do Successful Used Car Professionals Exist For Franchised Dealers?
Do Successful Used Car Professionals Exist For Manufacturers?
Giving Up On “Selling” and Developing Sales Professionals.
Now this has proved to be a prickly and controversial subject because many manufacturers think that they are but I can say without doubt that no one is training sales professionals! Now the ramifications of this were covered in my recent article; You Start Negotiating When You’ve F@#ked Up The Sales Process!
In truth the Automotive Sector gave up on attracting and/or training genuinely successful sales professionals over a decade ago, (a subject covered in another of my articles; Why Won’t The Automotive Sector Embrace Entrepreneurial Operators? ), when manufacturers and their franchise partners got seduced by the “Emperor’s New Clothes” that is technology and what it was achieving in transforming the FMCG markets, as explored in my article; A Pivotal Piece Of Used Car Business Development Advice!,,,, And For Free! But more on this later!
Thinking that technology was the answer to all their problems, manufacturers set about filling showrooms with polo shirt wearing customer handling professionals, whose main aim during the sale process and any interaction with the customer, was to be “Liked!” So these are the now the professionals being trained to work within sales departments and this more than anything is reducing new car profitability and making it impossible to grow used car retailing.
As much as I will not use this article to give all my secrets away for free, (those interested in any of our Sales Master Class and Mentoring Programmes need only contact me for more information), it is important to remember that at the foundations of successful “Selling” is the leveraging of effective systems and successful behaviours, the vast majority of which is done before a new customer even contacts the business.
But as a gift I would remind everyone that the dirtiest word associated with “Selling” is “Prospecting” but it is important to remember that this process is designed to give you choice!
A genuinely successful sales professional realises this and generates a trading environment that is capable of keeping margins, so therefore commissions, higher than you will ever achieve by employing lazy order takers who are hiding behind their basic salaries and waiting for the phone to ring; which to be fair is customer handling, all the current incumbents have been trained to do. The mistake is in telling them they are sales professionals upon leaving your training academy, because they are not! In fact the bigger mistake is in thinking that you can run a successful and profitable sales operation with these professionals.
Now in finishing this point, I’m afraid I must ask you to look in the “Ugly Mirror” once again because at the heart of the decision to give up on “Selling” and sales professionals was money and jealousy! You didn’t want to pay the money that successful sales professionals can command and the ramifications of this decision are adequately demonstrated in my recent article; Why Would An Automotive Manufacturer Give Up On “Selling?”
Here’s A Business,,,, On Us!
Let’s be in no doubt that all the internet based independent new car or commercial vehicle companies shouldn’t exist! The auction companies should have none of the power they wield over manufacturers and franchised dealer networks! In fact CAZOO should never have been a business that anyone one was thinking about launching!
But yet they exist; why? Well the “Why” goes right to the heart of all the intransigence that exists in the Automotive Sector, both at manufacturer and franchised dealer level, and I’m convinced that these businesses only began to flourish when the Automotive Sector began to think that the route to increased profits was to cut overheads, not to invest in businesses and their people!
So let’s look at some of these flourishing businesses in isolation, those that, (in reality), should not exist, and the decisions that allowed them to exploit the commercial weaknesses of manufacturers and their franchise partners. Well it all began with “All Auction Trade Disposal Policies” which were nothing about business improvement, they were all about lack of trust!
I have written many articles about this issue, most recently my articles;
Your All Auction Policy?,,,,, I Bet It Seemed Like A Good Idea At The Time?
The Madness Of “All-Auction” Disposal Policies And The Cost That Will Be Paid!
And no doubt I will get the usual comments from people again, those who have never run a successful used car business, (or any business for that matter), saying that the auctions offer such a good service and return more money for trade part exchanges etc. etc. etc.
However, this is not the article to fully explore the trading restrictions and ramifications of “All Auction Trade Disposal Policies;” the subject is too specialised and besides, I can’t train hostages, so don’t work under a “Stockholm Syndrome” like environment, when it comes to the complexities of used car business development. But I urge those who are curious and have that little niggle at the back their mind telling them that this can’t be right, to read the article above and to reach out to me to discuss this issue, should it raise any questions?
I guarantee anyone taking the time to do this, opening their mind, deciding to be a Lion not a sheep and then contacting me, that reversing policies like this will be responsible for putting more money on your bottom line than any other initiative you currently have planned. For all those who never worked in the Automotive Sector before “All Auction Trade Disposal Policies” came along, or refuse to look past the “Smoke and Mirrors” of the little bit of trade profit you may get after weeks of funding the auction houses, I’m sorry but you are more than likely in the 95% of people I can never work with.
Unfortunately I have neither the time nor the energy to take you hostage, open your mind and change your thinking; that is your responsibility and besides I know exactly the first thing you will say in your comment, so my gift to you is to give you my stock answer to your comment in advance; “Why Are You Employing People You Don’t Trust?” Please feel free to copy and paste it yourself.
However more baffling than the decisions discussed above is the allowing of access to new and used car stock holdings by internet based competitor businesses. What manufacturers and franchised dealers don’t appear to grasp is that if you control access to stock then you control access to your market; but if you give access to stock holdings to businesses in direct competition with your own, well you really are handing them a business on a plate for free, as you have done with the independent new car internet based companies.
Now the new car and used car internet companies are a case in point; something I explored in many of my articles over the last 2 years, two of which are listed below;
The Fatal Mistake Made By Motor Manufacturers Over The Last 10 Years?
Is This Really Your Future For Used Car Retailing?
Again these are meaty articles involving evolving business strategies, so not for repeating here, but hats off to many of them, they have duped manufacturers and franchise dealers into handing their business and their customers over to them, on a plate, and they are gaining traction.
They probably realised that manufacturers and franchised dealers had given up on “Selling” as well and therefore the process of building trust with customers, so guess what, they decided to do it themselves. So now we have internet based independent new car and used car retailers, who own nothing, setting the pricing on new and used cars, making money and leaving franchised dealers happy if they get to do all the hard work!
More alarming is whilst this is all going on these competitor businesses are enjoying the first and most influential contact with your customers, and this is allowing them to become the most trusted point of contact with your customers, something that will only make them more powerful in years to come. Now before your say it; I know they didn’t say this when they came to see you to negotiate relationships of supply, but I have an inkling about where this is heading, so please feel free to read the articles above if you want a more enlightening and alarming insight.
Especially the article covering their growth from new car retailing into used car retailing, because it shows just how emboldened they have become, due to the total lack action from manufacturers and franchised dealer networks, in terms of countering their aggressive overtures. How can an internet based used car retailing platform, one that owns no stock and/or has any proven and successful used car professionals in their employ, have the temerity to advise customers as to the pricing on used cars, effectively limiting your enquiries on used car stock that, in some cases, you are paying them to advertise?
However more alarming than this is that manufacturers and franchise partners are allowing this to happen; in fact these businesses shouldn’t even have a business, they should all be out of business within 6 months. All you have to do is stop giving them access to new car and/or used car stock! But, and here is when the penny will drop, you can’t do this because you haven’t got the franchised dealer networks capable of selling the new and used car volumes you require, because if you did, franchise dealers wouldn’t be giving these businesses access to their new and used car stock holdings, and manufacturers wouldn’t be turning a blind eye and allowing it; and why haven’t you? Because you gave up on “Selling” and the professionals capable of “Selling” all because you wouldn’t pay the money they can command!
So the decisions to effectively Give Up On “Selling” and developing sales professionals has led us to here; where the business model of manufacturers and franchised dealers is continually under attack from disruptors and I predict that the challenges will keep coming, whilst those who should hold the power in the Automotive Sector, manufacturers and their franchise partners, continue to lack the commercial acumen, the staff and experience to effect change.
Now those of you who read the original CAZOO’s Numbers?,,,,,, WTF!? article will no doubt remember my criticism of these independent tech based companies, especially CAZOO, in appearing to have made no investments in proven used car professionals, those who know how to run and grow used car retailing models; and this may be your saving grace, but only if manufacturers and their franchise partners avoid repeating their mistakes.
As an industry sector, the people working in the Automotive Sector are the worst at investing in their own education and I would warn you all of just one thing; STOP insulting proven professionals and trying to do things on the cheap! No one can fix your business in 2 days after years of under investment! An issue I explored in my recent articles;
Looking To Grow Used Car Sales?,,,, Beware The “One Trick Pony” Solution!,,, (Manufacturers Article)
Looking To Grow Used Car Sales?,,,, Beware The “One Trick Pony” Solution!,,, (Dealers Article)
However, I have begun to sense a change in attitude from some business owners, those running their own privately owned franchised dealership or small group. Now these businesses have a tremendous opportunity and an agility to exploit the current trading landscape, to their benefit, because these professionals are different to all manufacturer based staff and the staff employed at the 90 – 95% of franchised dealerships, those owned by the big PLC’s; they’ve got “Skin The Game,” it is their business so they think differently!
For the rest, especially those making the “Big Calls” at either PLC’s or at manufacturers, there is much to do if you want things to change, because it really doesn’t have to be like this. However, changing the direction of travel and getting your business back will take an open mind in the first instance, and anyone wishing to discuss solutions to the issues discussed in this article need only contact me directly to arrange a time for an exploratory conversation.
Andrew Banning.
Used Car Business Development Director.
I was listening to a national radio station the other week to hear an advert for an Automotive Manufacturer that left me astounded; in brevity it was marketed as their “Haggle Free Promotion,” or something along those lines; and what left me astounded was how the message was being delivered and the discounts on offer.
There was a confident and bold statement in the advert from the manufacturer concerned. That they appreciated that customers hate discussing pricing and discounts and listen some might, but the message that the offer portrayed, effectively savings of 20% off list price, is mind boggling, in terms of the damage it will do to the perception of the brand, for residual values and for the used car stock holdings contained within their franchise dealer network; all which will now need a hefty right down!
Be in no doubt, if I was a franchise partner of this manufacturer I would be having some frank and to the point discussions with very senior personnel based at the manufacturer; but perhaps the most damaging thing about this for the manufacturer concerned, is if franchise partners have not been making these calls?
So let’s explore the likely ramifications of this this messaging and the reasons why campaigns such as this, should never be considered as necessary.
The Customer’s Perception:
Be in doubt that this is damaging; “Perception Is Reality” and in the eyes of the customer this is a “Distressed Marketing Message” and although there may be an element of truth in the fact that some customers may not like haggling, after hearing or seeing this promotion, in all likelihood the haggling has only just begun and the offer to waive the VAT, effectively a 20% discount, will only be the starting point with many customers now heading to the showroom.
Don’t believe me? Well just look on the websites of any of the well-known independent internet based new car suppliers and you will see they are offering the same cars with larger discounts than the manufacturer’s promotional offer! What a shambles! Just how you expect to remain credible in your market when this disparity is out there, is astounding and our two major queries to this manufacturer would be these;
- Did no one really check this and carry out the necessary market research before this campaign, (which should have been avoided at all costs), was constructed and delivered.
- Why are you allowing an independent internet based new car broker access to your new car stock, (which can only come via your franchise partners), at prices that undercut your own “Distressed Marketing Message” campaign?
Discounting on this level and broadcast on national radio is never perceived as message of success by target audiences, regardless of what the “Focus Group” or the “Marketing Team” have said? There is also the very tricky issue of customers who purchased cars in the period just before this “Discounting Bonanza” all of whom will be feeling very disgruntled, many of whom will probably never trust you with their money again.
The Operational Reality:
Where do we start on this? Well it’s with a simple harsh truth, the kind we have to accept when we have to look in the “Ugly Mirror” and be honest with ourselves because the harsh reality is that; If You Are Negotiating And Discounting It’s Because You Can’t Sell!
So effectively what we appear to have here is an automotive manufacturer, running a sales critical business that has given up on “Selling;” if this was not the case, they would not be running this campaign and running a “Discounting Business!” All manufacturers get the franchise dealer networks they deserve and many gave up on “Selling” years ago, preferring to try and leverage technology to drive sales; something that has always left us baffled.
Sadly the vast majority of manufacturers have given up on training and developing sales professionals; at best new sales people get the 2 day course at the manufacturers training academy, run by someone who has never been a successful sales professional themselves. This appears to be the answer across the industry, which is ridiculous; as explored in the article above, because the very first important fact to grasp about the development of successful sales professionals is this;
You Can’t Become A Good Sales Professional In 2 Days! A New Suit, A “Certificate of Attendance” And A Demo You Could Be Leasing Yourself, (If You Were Any Good), Does NOT Make You A Sales Professional!
Sadly manufacturers think they know better and thus the industry is experiencing the trading challenges that it is, all of which will be down to giving up on “Selling!”
The very thought that you can do this is fanciful; “Selling” is a skill and those businesses who invested in genuinely successful sales professionals will not be running campaigns like this, which everyone knows are then “Knee Jerk” reactions to failure! In fact we would go one step further and advise everyone based at manufacturers to see the running of campaigns such as this as huge failure, in at least one sales critical area of the business; and that it is worth remembering that it take absolutely no skill or expertise to give cars away!
These issues were covered in our recent article; You Start Negotiating When You’ve F@#ked Up The Sales Process! but for this manufacturer the problems associated with successful "Selling" may well be far worse! So as free gift I have included some impactful statements to consider, all taken from some of the sales, used car business development and sales training programmes we have constructed and delivered to manufacturers and their franchise dealer networks:
- Selling, Negotiating And Discounting Are All Different Jobs, Involving Different Skills-Sets, So What Is Your Business Doing?
- “Prospecting” Is The Dirtiest Word In Sales But It Is Designed To Give You Choice!
- If You Do What Everyone Else Does, It Can Only Be About Price!
- If You Are Negotiating It’s Because You Can’t Sell!
- Once You Start Negotiating You Begin Apologising With Profit!
- You Can Only Discount Profit, Not Costs!
- The Most Common Excuse For Poor Performance Is Price! When Really It Is An Inability To Demonstrate Value!
- There’s A Difference Between Wanting Things To Get Better And Committing To Make Things Better!
- If You Don’t Know Why You Are Good At Something,,,, You Aren’t Good At It!
- You Fail Because Of Your Belief Culture!
As I have happily accepted and stated before, I publish this knowing full well that 95% of senior personnel based at manufacturers and franchise dealer networks will fluctuate between never wanting to hear from me again, through wanting the truth to just go away so they can bury their heads in the sand, to being outraged that this article doesn’t represent them, their business and who they are; and that’s fine, my associates and I know full well that 95% of people working in the automotive sector, whether that be senior professionals within franchised dealer networks or holding senior positions at manufacturers, will never want to work with us.
However this article is aimed at our audience, “The 5%;” those who know and that realise where the current strategies are heading, and what this will mean for the profitability of their business. So any of you making up “The 5%” who are curious to explore and discuss the points explored in this article, because you are looking to see how you can make more money from selling both new and used cars, you need only contact Andrew Banning at ajb@autoformance.com or Malcolm Thomas at mgt@autoformance.com in the first instance, in order to arrange a no obligation exploratory discussion.
Alternatively please feel free to call me on 07796 260261.
For more information about our services please visit our website at www.autoformance.com
I look forward to hearing from you.
Andrew Banning.
Used Car Business Development Director.
Apologies to all the frank and to the point nature of the heading in this article but I wanted to grab everyone’s attention after a recent post on LinkedIn by James Baggott, regarding the supposed leaking of Cazoo’s 5 year projections for their investors.
Now before commenting I must make it known that I have no commercial relationship with Cazoo and am not an investor in their business; I comment as a used car business development professional and a director of Europe’s only supplier of total and complete used car business development and personnel training programmes; so with some credibility. I must also point out that this article is not being written to offer investment advice; those wishing to invest in Cazoo must make their own judgement on the likely returns, as many have if, (as reported), they have already secured £80 Million of funding.
No I write this as a fascinated observer and used car market place professional, and because I suspect that we might all be being taken for fools; but also that we may be missing something, because the projections stated are, (at face value), ambitious to say the least! Now in compiling this business case analysis I also asked myself the question; has Alex Chesterman and his band of investors really struck on something that we have all missed? And let’s not forget that having founded Zoopla, Alex Chesterman is no stranger to success, so I took this a little more seriously than I do all the new car internet based market disruptors; all of whom could be put out of business within 6 months, if manufacturers and their franchise partners ran their new car business differently; but that is another article!
So let’s start by reminding ourselves of the 5 year projections reportedly made:
Cazoo’s (alleged) Objectives:
- 217,000 used cars retailed by year 5.
- Targeting £1,500 Profit Per Unit.
- Looking to secure 5% of the used car market.
Now let’s be in no doubt, these figures are “Ballsey” to say the least! If these are the genuine “stated” objectives and those that have been made to investors, then we all need to treat them with an open mind in the first instance, because Alex Chesterman has proven himself a very capable market disruptor, but I also add the caveat that this does not give his model a divine right to be achievable.
So where did I start in my process of assessment and in ripping apart the objectives? Well I treated it like any other business I would be working with and started by ripping things apart before putting back together again.
So below in this article you will find some of the highlights and my initial thoughts regarding the trading objectives of Cazoo!
The Used Car Market Opportunity:
The purpose of this article is not to delve too deeply into the opportunity that is available, (this would be a White Paper in itself), however, (and in brevity), it is worth remembering that the used car market is over 3 times the size of the new car market in the UK, in terms of the level annualised sales volumes, so the opportunity for successful businesses is vast. Even more so as new car manufacturers appear to have deserted any defined and structured ambitions to take advantage of both the used car market place opportunity and the many commercial advantages they have which, if managed correctly on an operational basis, would effectively create “Barriers Of Entry” to competitors.
The fact that the manufacturers offer no programmes of used car business development and personnel training programmes for their franchise partners is baffling, but as new car markets continue to evolve and fracture, I feel sure that many will return to focusing on growing used car market place share; they may be years behind the curve and lacking the experience and expertise to do so at inception, but should the correct investments be made, be in no doubt that their used car market place success will render the business models of specialist independent used car retailers close to obsolete.
The Cazoo Team:
Whenever starting work with a client I look at the team in place as this is vital; no business can run before it can walk and I must have this in mind when constructing their bespoke used car business development programme. In the short term and until investments are made in additional more experienced/capable personnel, or the existing team members have been developed, the team in place should dictate your realistic growth objectives.
The team in place at a business is no different to any other team because the experience contained within the team, along with the personnel and business model development capabilities of those responsible, is vital. We forget this at our peril; there are hundreds of football clubs in the UK, they all have a manager, 11 players in the same positions and a football pitch to play upon, but only one can win the Premier League.
So just as it is ridiculous to say that Torquay Utd will win the premier league in 5 years, (sorry Torquay fans), it could also make the stated objectives of Cazoo just as fanciful if they don’t have the right team in place. Now, not working with Cazoo means resorting to their company LinkedIn page, but knowing how important this is and how important the Cazoo Team would/should have been to those investing in the company, I feel confident that the staff listed here is accurate.
On the face of it the Cazoo team is typical of many tech based disruptors, especially those targeting the new and/or used car markets; they appear to be staffed by “Tech, Data and Marketing associated professionals” which is great and vital when you are running a digital sales leading business. What worries me with tech based market disruptors is that there is, (in the main), almost an arrogance in the employment process, where they think they know better and what I didn’t find as I ran through the 151 employees listed on their company LinkedIn page, was anyone who has had a successful career in building used car businesses, either at manufacturer or, more importantly perhaps, at a senior level within companies owning successful used car businesses!
Call me “Old Fashioned” but I would worry about this; as you will see in my initial conclusions below, this lack of market intel and genuine used car market expertise will be the “Achilles Heel” for tech based new and used car market disruptors, provided of course, that manufacturers and their franchised partners stop running scared, ignoring the threat and seeing them as “The Bogey Men!”
The Cazoo Model:
Having digested their offering from the Cazoo website it appears that Cazoo really aren’t doing anything different, so in reality any success they achieve can only be about price; a dangerous operational flaw when the numbers “leaked” state that Cazoo are aiming to make £1,500 profit per unit, (more on this in my conclusions).
In fact it is worse than this; their model not only appears inferior it also has no barriers to entry. Although no details were provided they only offer a 3 month warranty, 9 months less than the warranties supplied via manufacturer approved used car programmes. Their stated USP seems to be the fact that the car will be delivered to your home or place of work, at a time to suit you, (well this is not a USP as everyone will do this), and that the customer can return the car after 7 days if they don’t like it.
My fear here is that this is naive and could be abused; there were no details regarding the terms and conditions surrounding this initiative and the “Devil Will Be In The Small Print” of course; but in this instance, what happens to the customers part exchange? Does it get returned as part of the money back guarantee? In reality I would need to know a lot more before commenting but at first glance there are no genuine used car market place USP’s here, in fact they could actually be leaving the business exposed to losses!
There is also no mention of the ability to see and test drive the car before making a decision and handing over your money? I’m not convinced that this purchase model will drive sales volumes where they are going to need to be during the first year, let alone in year 5; a point rather proven in the statement in James Baggott’s article, made by Cazoo representative Lawrence Hall, and I quote; ‘We launched just 12 weeks ago and have already delivered over 1,000 cars to customers all over the country so we are very happy with the way things are going so far.’
As much as this may be a worthy achievement, unless performance improves dramatically in the remaining part of the first trading year, this level of sales puts Cazoo on an annualised sales rate of between 4,000 and 5,000 cars; way below the stated figure of 12,375 in the first 12 months of trading.
Numbers Versus Operational Reality:
I decided just to look at the year 5 number here and the operational and financial reality of them are astounding. Now in commenting on these numbers I have had to assume that Cazoo will go on journey of self-learnt used car business development; by not securing access to genuinely successful used car professionals, I assume that they are also unlikely to feel the need to invest in their education and/or the genuinely successful used car professionals required, and I say this because it appears that the owners and shareholders don’t appear to have deemed a necessary step thus far, although this could change if any of the earlier performance objectives are missed.
So let’s assume that Cazoo morph into a used car business that operates at the level, in terms of the rate of stock turn being achieved, that franchised dealer based used car operations are operating at, as an average. I can state this as genuine fact as this is where, on average, the used car businesses contained within franchised dealerships are operating, at the time our business audits them, and the average rate of stock turn being achieved by used car operations contained within franchised dealer networks is 6 times per annum or 60 days per unit.
Now it is worth stating at this point that this rate of stock turn does not make a used car operation profitable in isolation, when it comes to the utilisation of the funds employed to the used car stock holding; as covered in our recent article, 95% Of Used Car Businesses In Franchised Dealers Are Losing Money!,,,
I will expand on this more in my conclusions but should, (and this is a big “Should”), the Cazoo business morph into a used car business, capable on a acquisitions, operational and sales basis, of turning used car stock over at this rate, they will need an average of 36,167 used cars in stock during year 5, (not allowing for any cyclical peaks and lows in the stocking level required which could see this at a far higher figure), just to achieve their volume target of 217,000 sales.
Perhaps more importantly, (and again I state that I am not in receipt of the operational and funding plans), this is likely to equate to over £700 Million worth of used car stock; on the basis that their projected RGP Per Unit of £1,500:00 equates to sensible 7.5% return. Now we must accept that they may be including finance commission in that income, (something that would reduce the overall amount invested in used car stock), but nevertheless the figures are staggering.
Conclusions:
Those who know me and have worked with me know that I am not shy of an opinion; I’m not always right, but the mere the fact that I am doing what I am doing is proof that I am right more often than I am wrong, when it comes to used car businesses and the used car market.
Something though worries me about the numbers supposedly “Leaked;” it could be a ruse, and I say this because they appear just so ridiculous, in terms of a set of objectives for a new start business targeting a highly specialised market, and without appearing to have the professionals on board who have proven experience and success within the UK used car market. However, the fact that they have acquired funding means we should take note, even if it may be more to do with an investment in Alex Chesterman than it is to do with the model.
So in conclusion I have decided to outline what I would have said to Alex Chesterman if he had decided to call me for some advice; now he didn’t but if he had shared the numbers and the model, (as it appears), in brevity my professional recommendations would have been as below.
It is a bold step to move from the model you ran when you launched Zoopla which is a brokerage model where you are not investing in commodities for retail profit. This is what I would call the “Amazon” model; one where you own nothing and therefore can run a completely different operational model compared to one of a retailer, where you are acquiring and investing in a depreciating asset class, whilst operating within a 60 day window of fiscal profitability.
The first challenge will be a lack of a message of specialism; in order to achieve the sales numbers stated you are going to have to appeal to all used car markets; this is the traditional used car supermarket model which has been proven to work successfully but has also shown how challenging it can be, with a raft of losses for the established major PLC’s operating in the UK trying, (and failing), to run this model in the UK; as covered in our recent article; Used Car Retailing?,,,,, How Hard Can It Be?
I would not go any further into this point without agreeing a fee structure in advance; but in essence this model, one of doing the same, (and in some cases less than established businesses in this sector), will make it all about price in the eyes of the consumer and this will leave the stated RGP Per Unit target of £1,500:00 challenging in the extreme.
I would also advise that successful used car retailing has two major skills at the foundations of any success; the first being used car stock acquisition. Every business buying and reselling commodities makes its money when it buys and this is a skill that seems to be missing from the personnel listed on the company’s LinkedIn page. Again
I would not get into this on a deeper strategic level without being invited professionally to advise, but I would offer for free the fact that purchasing used car stock at the levels required and at the prices required in order to achieve the RGP Per Unit stated will imperative to success.
I would also advise those involved that their primary focus should not be in “Selling,” (although this is important), the volumes of used cars required, but in “Acquiring” the right used car stock in the volumes required! It is important to remember at all times that although you think you are launching a retail business, you are actually running an acquisitions business in the first instance and without an acquisitions business capable of securing the used car stock required, and in the volumes required, your sales business is going to fail.
My final point on the this subject would be to point out that any relationship you may be trying to build and leverage with auction houses is not the answer; and leave it there until I have agreed a fee for further consultation and strategic advice. As a gift I would refer them to my recent article covering this issue; Successful Used Car Businesses Aren’t Buying Used Car Stock From Auctions!,,,
The other major skill appearing to be missing is the art of “Selling” which is vital in any successful used car or new car business, This is a huge operational area of importance and to have abandoned “Selling” and the professionals involved and capable in this process, whilst looking to leverage technology and marketing, (although both vital in their own right), alone to drive the volumes you require has left me opened mouthed!
Only time will tell, but it would appear that Cazoo have fallen into the trap that many manufacturers and their franchised partners have, in abandoning investing in genuine sales professionals and looking to technology and marketing alone to drive sales; now guess what, it has not worked and for many reasons, a major one being to think that the success technology has had in disrupting and evolving the sales process in FMCG markets can be replicated in the new and used car markets.
This is a highly specialised area of expertise and I would stop here before giving Alex Chesterman any more free used car market place intelligence; but I would point out the irony that the weaknesses decisions like this have caused in the trading model of manufacturers and their franchised dealer networks, are the weaknesses that have enabled disruptive tech based businesses to target the market, but only it would appear for them to repeat them!
Finally, I would point out to Alex Chesterman the perilous state of existence that all independent tech based businesses are trading in, when it comes to the new car and used car markets. At the moment you have an opportunity because of the intransigence of the manufacturers and their franchise partners, however for many the new car model is one of diminishing financial returns, and this in turn is effecting the financial resilience of franchised dealer networks, those required to support the new car model.
Any strategy for reversing the current declines, and I will be brief here, (unless of course Alex Chesterman wants to engage me in this level of consultancy), will only come from successful used car retailing. As much as this is a huge operational challenge, it can be done with the right investments, commitment and hard work; unfortunately for the independent used car businesses like Cazoo, in order to succeed the first thing any manufacturer must do is to secure their used car vehicle park.
In the strategy and proposal documents we are compiling and delivering for manufacturers, this is one of our first recommendations because if you control access to used car stock, then you control access to the used car market; and without access to used car stock, you have no used car business! I will not give too much away for free here, but with 85% of new cars being sold via PCP schemes and the trading advantages that the manufacturer and their franchise partners have as the first supplier, it would be possible to lock independent used car businesses out of their used car vehicle parks; leaving a huge dent in the ability of Cazoo and others to be able to acquire this stock.
Now there is much to do in order to make this a reality, but the manufacturer and their franchise dealer network have all the trading and operational advantages required to lock independent used car businesses out of the used car market and it would be this, more than anything else, that would be keeping me awake at night!
Andrew Banning
Used Car Business Development Director
