Firstly some context to save everyone some time; if you work for a BMW retailer, BMW the manufacturer or own a specialist used car business, and cannot see the problems associated with the screen image above? Well I’m not sure you can be helped in your professional development for retailing specialist high value products in the automotive sector.
For those like me who look at this in disbelief, let’s discuss; but firstly a personal declaration. I have a soft spot for BMW, my Father worked for them in the 70’s and 80’s, so I was lucky enough as a young boy to grow up surrounded by BMW’s like 2002’s, 3.0 Si saloons, 3.0 CSL’s and the original M Cars.
I cut my teeth in the automotive sector working for BMW franchised dealers, before going on to construct and deliver their used car business development programme; so I remember well just how closely protected and well managed the product was in the past. Then, just as I revisit many happy memories looking at the M Power display at the Festival of Speed, celebrating 50 years of BMW M Power, I see the image above and wonder just how far retailing excellence and competence at BMW appears to have fallen.
Now I also add an important caveat; it is not for me to tell BMW how to run their business, so I won’t, but in order to explore the ramifications of what they are allowing to happen, I want to explore the image above from 2 perspectives; from the used car market perspective and then from the perspective of customers.
And before we start by picking apart the image above in forensic detail, some context regarding my experience in terms of commenting. Having left my corporate association with BMW in 1998, I went on to run and own some of the largest independent buyers of BMW’s in Europe; something I did for 11 years, before moving on to other projects. During this time I learnt (to my cost) just how the decisions manufacturers and franchised dealer partners make, can affect the perception surrounding, and the values then achievable, of a product.
So let’s start by looking at the effect that this screen image has on how the product is viewed from within the used car sector and the trade as a whole. Basically this is a sh1t show and “Manna from Heaven” for BMW’s competition; why? Well as an indication that a manufacturer has no idea of what they doing, well there are none better; and as an example of how to take a premium product and completely screw your own market? Well once again this is unparalleled.
So where do we start? Firstly this image was taken from the Carwow website within the last 2 weeks. So question number one for BMW; what the f#ck is premium product like a top of the range M5 doing being advertised on Carwow? Now I am happy to receive any replies and counter arguments from senior personnel from BMW in regard to this post, but if you really can’t appreciate the wider ramifications of how damaging to your M Power brand and your network, having cars listed on a third party website like Carwow is, well again you probably have bigger problems to face.
So let’s discuss how the automotive sector perceives the fact that your premium M Power product is listed here? Quite simply the perceptions will be; you can’t sell it yourself because you and your network don’t have the expertise – this is extremely worrying, there is too much volume of the product for the market, there is no desire in the market for the car, there will limited demand for a 1 -2 year old example so there is no certainty of pricing.
Now all of these perceptions are damaging to the product in their own way but it is the last point that is critical because it not only affects sentiment, but pricing. As an experienced acquisitions professional this picture puts the fear of god into me, in terms of purchasing an M5 in either the trade market or as a personal individual purchase.
My thought process would be this;
1. The M5 Competition Ultimate Pack is being listed for sale with a discount of £22,360; a reduction of 17.6%!
2. But this price is only the starting price; you can’t advertise a distress message in your pricing and expect that this will be the price you will receive; not from the profile of customer purchasing one of these cars.
3. My next question would be what the price really is? It will probably be in the £90K’s somewhere.
4. So if a new car is actually £95,000 - £100,000? What is a 6 – 12 month old car worth?
5. Well if a new car is available between £95,000 and £100,000, and the manufacturer is distress marketing the car to this degree, we know there is probably not a shortage of product.
6. With this in mind, there needs to be a commensurate gap price between a new car and a 6-12 month old car; otherwise customers will just buy the new car. Now this is down to professional opinion but with no positive message to keep residuals high, professionals hedge against the risk of buying, if at all? And it is the “if at all” that does the damage to confidence and therefore residuals.
7. If I was asked to underwrite or purchase one for stock my thought process would be as follows; this may be a good car but the manufacturer and their franchise dealer network are undermining the product; do I really want to take the risk?
8. If I do, it must be on my terms. If a new car is £95,000 - £100,000 then a 6-12 month old example will need to be advertised at £85,000; maximum. Allowing for a sensible risk based retail margin (£10,000) I will offer £75,000.
So there you have it folks; a demonstrable picture of £51,520 or 41% depreciation within 6-12 months, over list price, for a top of the range BMW M5! This product deserves better than this; and sadly word will spread within professional elements of the used car industry, including to customers, so the product becomes tainted. In reality prices never recover (in the short term) from here!
So how about the customer, what is the likely perception to be here? Well this depends on how well informed they are regarding the market. Some customers, those duped into paying list price or close to list, are looking down the barrel of some heavy depreciation; once experienced they tend not to trust the brand again.
For those doing their homework and looking to purchase a car in this sector of the market, the picture is even more damaging. In demonstrating this let’s be fair, in terms of comparisons, and assume that they just look at Carwow for a picture of the market, including all the competition.
The M5 does have some serious competition from Mercedes Benz and Audi; most notably the AMG E63 S and the RS6 Avant. Now as much as these were both listed on Carwow’s website (not something I would not recommend) the picture painted for the Mercedes and the Audi were very different.
I have the screen shots available for anyone wanting to see them but on the same day that I took the screenshot for the M5, prices for the 2 cars listed above were as follows;
Mercedes AMG E63 S: List Price £102,150. Carwow Discounted Price £102,051. Carwow Discount £99 or 0.01%.
Audi RS6 Avant: List Price £100,750. Carwow Discounted Price £98,796. Carwow Discount £1,954 or 1.9%.
Now at all times we must remember that a picture paints a thousand words and that to the customer, perception is reality. What we have here is 3 cars all priced within £4,000 of each other, but also 3 very different ownership and investment propositions.
The picture with the M5 is entirely negative; one of weakness and one of wondering just how much more they will be reduced in price. This is not a stable purchase environment and nobody wants to be made to look stupid by losing lots of money during the ownership period of their car.
Regardless of the merits of the M5, all BMW are demonstrating here is that they clearly don’t understand the market and how to retail low volume specialist high performance cars. The manufacturer out the three who does is Mercedes, who affectively are offering nothing, in terms of inducements.
They are telling the customer that they are supremely confident in their product, we don’t need to discount this car and because we don’t, we will look after and protect your investment better than BMW. These trading principals will keep residuals high, because the market and our customers can have confidence in our ability to manage our product within specialist high performance markets.
For BMW, and I doubt they are listening, the lesson here is that regardless of the actual trading and pricing situation, you are only as strong as your weakest link. For it is the weakest link that sets perceptions on pricing, for good or bad, and the perception above is all bad. The sad reality is that the M5 set the benchmark for high performance saloons back in the 80’s, it is probably the best car out of the three, but would I recommend anyone should buy one as an ownership proposition?
Only if they were prepared for the likely eye wateringly high levels of depreciation that will be associated with the car. My money would go into the AMG 63 S; not because I really want it over an M5, but because Mercedes are proving that they will protect my investment better than BMW.
For what it’s worth I would not have had the M5 (or any car for that matter) listed on Carwow in the first place and I would’ve trusted a well-trained network of sales professionals to discuss with customers why the M5 is worth more new, than the Mercedes and the Audi, something that shows strength in the product.
However, in order to do this you need a network of sale professionals capable of conversing and dealing with this profile of customer, rather than leaning on third party tech platforms, when it becomes all about price! If I were a senior professional at BMW this situation would worry me, especially when I look at how the competition use platforms like Carwow.
Many of BMW’s competitors aren’t even listed on the platform, many are but offer no discounts at all. It’s not for me to provide this information to BMW but if this is where the customer is looking, it paints a picture in the eyes of both the sector itself and potential customers.
Much to ponder as BMW are one of the manufacturers trialling and considering agency retailing models.
Andrew
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