The Major Flaw In UK Used Car Markets?
As we all move into 2023 and begin to tackle head-on the opportunities and challenges that exist in used car markets, one major flaw is coming to light (as we head into challenging trading conditions – but market conditions with tremendous opportunity); one that will mean that few are going to be successful, in terms of being able to take advantage’
A lack of the professionals required!
The last 3 years have been a fascinating time in all used car markets, involving trading conditions never seen before, and coming at a time when I have never seen such a lack of understanding as to why used car markets have performed as they have. That said there is little point raking over the past; after all history is for reference not residence.
So in this article (the first of 2023) I wanted to look at an example of how the complete lack of investment in the professionals required, can come back to haunt your entire trading model and leave you with some big mountain’s to climb.
Now in truth I could’ve chosen a number of business calamities/failures in used car markets; Cazoo (I have written more than enough on this subject), the used car retailing debacle surrounding the Porsche Taycan (two articles and numerous comments during the last 2 months); so no, let’s look at one of the hot topics of our times; one of the manufacturers retailing in the specialist high performance EV market; namely Tesla.
Now I have chosen Tesla (I could have chosen many – Polestar for example who appear to be following blindly into the same trap - only a couple of years behind Tesla) for no other reason than they are the perfect example of trading and manufacturing excellence in some areas, but also in why refusing to accept that a market operates in a certain way, can lead to completely undermining your entire retailing eco-system; as indeed it is now doing with Tesla in the UK.
So if Tesla is going to be the case study, let’s talk about the current perception surrounding the company; something that looked (to the untrained observer) very rosy before the recent announcements regarding the reductions in new car pricing. After all new car registrations are up at record levels but behind the headlines there’s a problem; “Rome is Burning!”
Although new car registrations reached record levels on a global scale they were behind the stated objectives (spooking investors and driving down the share price) and only achieved via a December of heavy discounting; welcome to the dark side on new car retailing Elon.
Unfortunately though, as much as this is troubling in itself, there is a far greater problem looming where too few within Tesla appear to be looking; the associated used car market. Now as much as I don’t want to spend too long in this article dissecting the associated used car market, there are some important things to consider, because they are directly associated with the previous lack of investment in the right professionals.
So how is the health of the Tesla used car proposition in the specialist high performance used car market looking? Well it’s not looking very good. Tesla themselves (in the UK) do not actively support their product so speculative investment sentiment has evaporated; leading to a trading environment where investment liquidity is running out. Prices are now collapsing and uneducated sections of the motoring press are now controlling the trading narrative.
This means that the setting of residual values (key to supporting new car costs of ownership) is now in the hands of “The Market” and those speculating for investment opportunity, as well as uneducated sections of the automotive press; those run by people lacking the experience to be commenting. This never ends well for the manufacturer as Tesla are about to find out.
With residual values collapsing, customers, Tesla and their strategic funding partners will begin to endure heavy losses which will bleed straight through to the new car retailing model; with costs of ownership rising, eventually affecting pricing competitiveness in the coming new car market and therefore reducing new car sales volumes. All of which can be very difficult to unwind, even with the right people on board.
Now there are many reasons for this “Perfect Storm” forming over Tesla as well as many other manufacturers; their tech heavy retailing model will never be fit for purpose and the actual size of their market is yet to be defined. Tesla may hope that their market is the entire market, but I don’t know many (whose experience and expertise I would listen to), including myself, who think that EV’s will ever constitute the entire market.
There is no doubt that there is a market for EV’s but the size of the market will be dependent on the day to day requirements of customers, and then their perception of value! And if we are still unaware of the size of the new car market, the size of the used car market is even less well known. One thing though is irrefutable in UK markets; there is far too much stock and the vital “Supply and Demand” ratio is now driving down prices and undermining the new and used car trading narrative.
Anyway, enough of the trading realities in Tesla’s associated markets (they are an article in themselves), and as much as they are important to grasp, be in no doubt all of these negative trading drivers and challenges facing Tesla all have one thing in common; a lack of investment in the professionals required, especially genuinely successful used car professionals.
Now to be fair to Tesla many other manufacturers have made the same mistakes over the last decade (compounded during the pandemic – when some wildly inaccurate predictions were being made regarding the future behaviour of consumers), the biggest being expecting technology to do too much of the heavy lifting during the sales process. Expecting it to drive sales into the waiting arms of polo shirt wearing “Product Geniuses” rather than successful sales professionals.
Now as much as Tesla manufacture cars I think it is important to view their thinking as different; more akin to a tech company.
Now thinking like a tech company is one thing, but running what is affectively an Apple Store retail model will never work (long term) in new car markets, let alone in used car markets. For those not grasping this point, the proof is provided via the trading environment generated by this retailing model for today, including all the trading challenges outlined (albeit in brevity) above.
Now unfortunately for Tesla they decided that they didn’t need to speak to (or have access to) the best Automotive minds and experience! No, just like Cazoo, it appears that they thought they knew better and were going to disrupt an established market their way; well I would just ask how they think that it is all working out for them? Now, I have my thoughts about where the current situation will lead for Tesla in the UK; these are not important, but what is important is that the current (very negative for the brand) trading narrative could’ve so easily have been avoided, if Tesla had done things differently. What was missing was the lack of expertise in trading in established automotive markets, markets that have a dynamic of their own and that can’t be changed via a trading model.
Because Tesla wasn’t an automotive business at inception, they wouldn’t appreciate and understand the symbiotic relationship that exists between successful new car retailing and successful used car retailing. That successful used car retailing is at the bedrock of your new car retailing success.
The time to start planning and building your used car acquisitions, marketing, retailing and business development programmes is before you start retailing new cars, not when the problems start mounting up; when you are distressed selling, missing your retailing objectives and the share price is collapsing. In truth, fixing the problems being faced by Tesla in the UK will take years to repair and will not be achieved by those currently there and in charge of shaping the strategy today. If they were capable of doing it, Tesla would not be where they are today.
In truth my surprise is that they are not alone in their one dimensional short term (new car only) thinking. The problems associated with the Porsche Taycan, explored in greater detail in the article below for my Used Car Business Development Blog, are down to the same problem; no investment in the professionals required.
In many ways I am more surprised by Porsche (after all they are the more established car manufacturer), because the current trading narrative surrounding the Taycan is a disaster, in terms of the product itself and in professional used car retailing terms. This should come as no surprise though; having looked on the LinkedIn page for Porsche Cars GB Ltd (the parent company) there is no professional listed with the responsibility for used car retailing strategy and/or who has run a successful used car business.
It is also interesting to see another new entrant to the market making the same mistakes; Polestar. Another company completely bereft (according to their company LinkedIn page) of successful used car professionals and it is already beginning to show. Like Tesla they actively state (when you enquire in person) that they don’t purchase the cars they have supplied back into their own used car retailing programme?!
When I queried this I was advised by the Customer Help Centre that if I want to sell my Polestar (because as many people are finding, an EV is not the right car for me on a day to day basis) to ring We Buy Any Car! Not for me to say, it is their business, but just refer above if you want to know where this will eventually lead.
Not investing in (therefore supporting their own customers) their own product, along with their used car retailing proposition in the associated used car market(s), is making exactly the same basic mistake as Tesla; meaning that very soon they will have the same problems to deal with. This is a shame because having worked very hard to get customers in the first place, they are cutting these customers adrift and increasing the cost of ownership. A terminal state of new car retailing affairs to any genuine automotive professional; of which there appears to be very few of at the company.
The next 1-3 years will be a fascinating time in Automotive markets in the UK and many are not prepared, in terms of having the team(s) required, and with many looking to also implement Agency Retailing Models during this period (again with no thought to how this impacts on their used car retailing model), I am fascinated to see how this all plays out.
I get a sense though that many are betting too much on digital retailing initiatives, in order to drive sales, just as Tesla and Polestar are. Although now very important (in terms of the customer journey and information gathering process) there are new and used car markets where customer expectations dictate that this will just not be fit for purpose, in terms of driving enquiries to successful sales.
The retailing problems being experienced by Tesla (even Cazoo and Cinch) should be a warning to everyone; a warning that when you are doing the same thing as everyone else, it can only be about price! Not the retailing model to be relying on when we are moving into challenging and highly complex trading conditions; market conditions that will dictate that there are difficult conversations to be had with customers during the enquiry and successful sales process.
Used car markets are highly specialised and complex in their behaviour; therefore involving investment and retailing strategies, and decisions that cannot then be driven by a “One Trick Pony” tech based retailing solution. Personally I doubt many have the professionals required to compete or the awareness even to understand the skills (therefore the professionals) required in order to succeed.
Those though that do have clarity on the skills that will be required, will face some sizeable challenges, in terms of attracting the professionals required to their business. With used car markets completely open to disruption by those possessing the skills required to be successful, levels of remuneration for the capable (those prepared to operate in success based strategic alliances), have increased to the point where most will baulk at the costs involved; refusing to see the bigger picture.
The next 5 years will be a fascinating trading period, a period where genuinely successful used car professionals will have their pick of opportunities. Anyone sensing synergy and the potential to collaborate (and wishing to explore how to become part this journey), can feel free to contact me directly to arrange an exploratory discussion; whether you are an owner of a business looking for the right expertise or a successful used car professional looking for the right opportunity in the coming market conditions.
Andrew.
