TrustFord And How NOT To Buy Used Cars For Profit!,,,,,,,
Well as a lesson in how NOT to go about acquiring used car stock for retail profit, (in fact any commodity for that matter), TrustFord’s current radio advertising campaign is just about as good an example as it is possible to find. The fact that this campaign comes after the recent comments from the CEO, Stuart Foulds, makes this campaign and used car stock acquisition strategy even more perplexing.
For those who didn’t see Stuart Foulds’s comments in Motor Trader, Stuart predicted that the new online used car disruptors were going to face challenges acquiring used car stock, (he may well be right on this issue but not for the reasons he thinks), pointing out, and I quote, that “The majority of dealer groups have closed the door to them retaining their stock and taking advantage of a rising market.”
As much as the lack of trading reality contained within the comment is alarming, it pales into insignificance, when compared to the used car stock acquisition campaign that has followed. However it is important to add the caveat that I wasn’t at the strategy meeting that came up with the current used car stock acquisition campaign, so don’t know if it is backed up with the more complex and effective used car stock acquisition initiatives required in order to be successful. I doubt it though because if this business acumen and acquisitions expertise was in the room at the time, the current campaign would not have seen the light of day!
So just what is their used car stock acquisition work of genius radio campaign? Well it is an advert running almost on a continual basis on radio stations “Guaranteeing” to beat any purchase offer made by We Buy Any Car for a Ford, by at least £100:00! Now there is a caveat at the end that states that T&C’s apply, (whatever they may?), but let’s get one thing straight; regardless of the commodity you are purchasing to retail, you make your money during the acquisitions process, not the selling process.
Combine this hopelessly flawed used car stock acquisitions strategy with Stuart’s comments of “A Rising Market” and I am looking on in disbelief at what appears to be going on here! Firstly, and this is very important, there is NO credible evidence of a “Rising Market” for retail used car prices; which are ultimately determined by what customers are willing to pay, not franchised dealers, the vast majority of which don’t have the first idea about how to construct and deliver successful used car stock acquisition campaigns, so end up paying over the odds in order to fill spaces on used car forecourts.
Good levels of retail profitability are NEVER delivered via a process of paying more than anyone else is for the same commodities; so in effect the franchise dealers acquiring this stock are probably going to be faced with this dilemma. They can prepare these cars and add their budgeted/normal margin for retail and end up having the most expensive cars available for sale; the problem with this strategy is that customers are not in the habit of waking up and thinking right, I’m going to go out and buy the most expensive example of this Ford as I possibly can today.
Alternatively, (after preparing the cars), they can look to price the cars sensibly and in conjunction with the national market. The problem here is that they will then realise that there is very little, if any, margin left in the car. Now because no one likes to work for nothing the pragmatic view is not usually taken by the associated franchised dealer, who then falls into the trap of thinking their cars must be worth more than anyone else’s, so prices them at the uncompetitive level.
All this ensures is that the stock concerned rolls past the moment of being in stock for 45 days, (the last moment at which a used car can be retailed profitably – a subject that has been covered in a previous article), and ends up being retailed or traded at some point in the near future at a loss.
So what are TrustFord trying to achieve with this campaign? Well I don’t know but as a proven acquisitions professional I can advise on the likely consequences of this campaign. Firstly, it is important to recognise that campaigns like this are lazy, one dimensional and lacking in any acquisitions acumen and expertise. So in effect you are advertising to your genuine and most serious trading competitors that you don’t have the first idea about how to disrupt their chains of supply.
Secondly, campaigns like this, when analysed in isolation and not aligned to the used car professionals and operational procedures required in order to somehow retail/trade out of the associated stock holding at break even, will in all likelihood lead to trade losses in the near future. Even if there is the appetite to take the forthcoming trade losses on the chin, the trading environment within which they will be disposing of this stock will look very different.
And let’s just look at that for a moment; let’s assume they are, (like the majority of the automotive sector), holding on to overage used car stock for too long, but are brave enough to adhere to a 90 Day Policy, (not many do), all the stock they are paying over inflated prices for now will be 90 days old in late September/early October.
And I can’t think of a more difficult period of time to be looking to dispose of overage and overvalued used car stock; the realities of the financial damage caused by the pandemic will be hitting home for both businesses and consumers, and the furlough scheme will be over! Now I’m prepared to wager that this will be a very good time to be buying commodities, (including used cars), at below market value; so unfortunately this is likely to a financially chastening period for TrustFord and the stock their current acquisitions campaign is driving on to dealer forecourts.
On the face of it no one at TrustFord appears to have recognised just how dangerous a trading period this is to be launching campaigns like this; not there is ever a good time for campaigns like this. They seem to have been lured in with the rest of the uneducated and under-skilled acquisitions flock and got involved in a battle with all the other “Sheep,” to run around paying over the market value for used car stock; the valuations for which are only being driven up by their fellow franchise partners, not via proven customer demand to pay these inflated prices!
I would have advised them that if you don’t know what to do/or what you are doing – then do nothing! And to remember that if you are doing the same as everyone else? Then Stop!
Sadly all this appears to be is the typical Manufacturer/Franchise Dealer “Knee Jerk” reaction to all things used car retailing, and doomed to fail. For years Manufacturers have refused to invest in the professionals required to secure their used car retailing success and have handed the used car business over to their competitors for free, so in reality they really only have themselves to blame.
The irony is that the independent and online used car disruptors have extremely vulnerable business models, all based on supply that they can’t guarantee; in fact they are only successful because of the apparent ineptitude and lack of counter strategies of the manufacturers and their franchise partners. In truth the likes of Cazoo, Cinch and We Buy Any Car should never have been allowed to grow so powerful, but they all saw the opportunity and piled into the used car market because it was there and manufactures and their franchise dealer networks weren’t exploiting it?
Even now it would be possible, (albeit it will take time and an awful lot of investment and hard work), to turn the trading tables on the independent disruptors. But success in this regard will not be achieved by copying the Modus Operandi of the disruptors; why are TrustFord for example trying to go head to head with We Buy Any Car on the wrong terms?
The key to success for TrustFord, (and all manufacturers/franchise dealer groups for that matter), is in choosing your battles and not being drawn into a commercial fight that you can’t win! Rather than doing this, leverage your genuine trading advantages and the advantages that the disruptors do not enjoy; but of course if TrustFord knew what they were and how to do this, then they would be doing it already, not running flawed campaigns like the one they are currently running.
In terms of the battle for used car market place share, I have a feeling that time is running out for manufacturers and their franchise dealer networks. What will be fascinating is whether or not manufacturers and their franchise partners are prepared to do what is required to combat the existential trading threat posed by the independent and online disruptors?
This will certainly be a challenging period to navigate for all businesses depending on proven and successful acquisition and/or investment professionals and procedures, myself included. Currently my associates and I are successfully acquiring stock and progressive investment opportunities in the alternative investment, property and various commodities markets.
Anyone wishing to discuss the points raised in this article or any opportunities to explore synergies and the potential for collaboration, (acquisitions or otherwise), within the automotive markets, can feel free to contact me directly.
