Dealers have been under pressure for years. To maximise turnover they have to invest in large, expensive premises in prime locations and to hold large stocks. If they have a manufacturer’s franchise they need to invest heavily to meet the manufacturers’ standards. When they sell a new car to a consumer they come under pressure to discount the new car price or ramp up the trade-in price and when they sell to a business or a leasing company they make very little indeed. Servicing and repairs used to offer a good opportunity for revenue but this has been trimmed back with the rise of independent garages and fast-fits, whilst most manufacturers have lengthened car servicing intervals. Used car sales can offer good profit opportunities but here again the dealer is constantly under price pressure.
So dealers reading this report will be encouraged to note that consumers still value them highly and that, for nearly a half of the consumers surveyed, going to the dealer for advice was their first step in the buying process. Whilst most buyers tend to do their research online, those that went to a dealer instead spent on half as much time choosing their car. It seems that the internet is great for feeding up information but perhaps not so great as a seasoned car salesman at answering questions.
As the report says, the internet isn’t going to mark the end of car dealers any time soon, and it is encouraging to note that most dealers are positive about the next 12 months.
Another interesting insight from the report is that Millennials – those aged 19-35 – are 50% more likely to acquire a car using finance than older buyers. This is clearly driven by the fact that so many people start their working lives these days with £45,000+ of student debt and simply don’t have the cash to buy a car. This will be music to dealers’ ears because finance commission offers dealers a good revenue stream.
Pre-registrations continue to be a feature of the market, as the report makes clear. Dealers don’t like having to pre-register cars: it uses up credit lines and makes them take on additional risks. The fact is that if pre-registrations were to grow it would make it ever more difficult for manufacturers to sell new cars. Why pay list price for a new car when you can buy one 90 days old that has driven negligible mileage for 20% less?
As the report makes clear, Brexit is casting a shadow over the industry and making dealers concerned about a new recession.
Whilst the likely outcome of the Brexit negotiations is neither known nor knowable, the report offers food for thought for dealers as we move into uncertain times:
- With so many buyers carrying out online research before entering a dealership, how can you alter your web presence to encourage those online researchers to take the next step and walk into your dealership?
- With economic uncertainty, buyers are likely to defer replacing their cars. How might you reorganise your sales and marketing operation to make sure that you don’t end up losing volume? Better IT? Better use of data? A more proactive approach to selling?
- The growth in new car sales in recent years is delivering large numbers of used cars into the market. Buyers will have lots of options so dealers will have to choose the right stock to hold, price it keenly and be proactive in trying to find buyers. (You sold a 3-year-old used car to Mr X 3 years ago? Now might be just to time to call him to see if he wants a replacement).
- Women now account for a significant proportion of buyers. How could you tailor your sales approach to be more sensitive to gender differences?
- Is now quite normal for buyers to walk into a dealership and find they know more about a car or a service than the salesperson. This reflects badly on your dealership and makes it less likely you’ll win the sale. Is your staff training up to scratch?
- Consumers said that, when buying a car, engine size is the most popular consideration (56% of respondents), followed by the manufacturer (52%) and its efficiency (46%). Clearly, consumers don’t realise that brake horsepower and time to 60mph are better determinants of a good driving experience than engine size. Is this something your salespeople might tell prospective customers?
As you make your way through this fascinating report you will find valuable insights into steps you might take to ensure that your business thrives in the future.
Professor Colin Tourick MSc FCA FCCA MICFM
University of Buckingham