AM Franchised Dealer Report by Fleet News

franchised dealer report THE 2013 UK

Structure, performance

i Report

AUTOMOTIVE MANAGEMENT

and future challenges

Incorporating Sewells Franchise Networks Report

THE AM UK FRANCHISED DEALER MARKET REPORT

Welcome to The 2013 UK Franchised Dealer Market Report Welcome to the first annual report on the motor retail sector from Automotive Management’s intelligence platform AMi, designed to detail the changes in structure, sales and performance of dealer groups and manufacturers in the UK. The report aims to inform senior decision-makers on the most strategic and operationally important areas of business, tracking changes in the size and make-up of the market and, for the first time, looking at – and making propositions on – some of the key factors affecting the financial and sales performance of franchised dealers and manufacturers. It also identifies the principal pressures on the franchised sector and highlights examples of success. Our sources include: n Statutory financial accounts on 250 franchised dealer groups from the past 10 years, including 2011 accounts n 12 years of manufacturer registration and market share data from the Society of Motor Manufacturers and Traders, both totals and separated into fleet, business and retail totals n Four years’ results from the National Franchised Dealers Association’s Dealer Attitude Survey n Insight into the new and used car purchase intentions of consumers in 2013 n In-depth insight into the confidence of franchised dealers in the 2013 market. The 2013 UK Franchised Dealer Market Report has been produced with AMi data supported by its automotive research department Sewells Research and Insight. AMi (www.am-online.com/ami) is the franchised dealer sector intelligence platform providing online access to market data and insight including the size, structure and performance on every AM250 dealer group, ranked by turnover. This AM annual report is the first of a quarterly update on market size, brand representation and dealer performance and confidence, updating many of the data sets included here. The update is called AMi Market Watch. If you would like to receive a copy, email me at jeremy.bennett@bauermedia.co.uk.

Jeremy Bennett Editor, AM

CONTENTS 4 I Executive summary MARKET DYNAMICS

7 I A year of rising sales but increasing pressures on dealers 16 I Pressure points on the franchised dealer 21 I Processes, costs and customer service 25 I The performance of the listed dealer groups 29 I The franchising model 32 I Dealer confidence is under pressure 35 I Primary pressure points – a dealer’s view DEPARTMENTAL FOCUS

37 I Used vehicles – an art or a science? 40 I Used cars – an important profit opportunity 42 I Servicing and repairs: franchised dealer retention 46 I The importance of property 48 I New car finance: focus delivers £800,000 value 50 I New car financing CONFIDENCE – CONSUMER

53 I Consumer confidence in the new car market in 2013 56 I Consumer confidence in used cars and the aftermarket THE FUTURE

58 I The used car market in 2012 and 2013 61 I BER: unblocking competition 64 I What does the future of automotive retail look like? 68 I Manufacturer outlook 3

THE AM UK FRANCHISED DEALER MARKET REPORT

EXECUTIVE SUMMARY By Jeremy Bennett The first AM Franchised Dealer Market Report sets out to highlight the challenges facing the UK franchised car and van dealer sector, looking at the financial and managerial pressures and at the departmental level, in the context of the combined wider economy and in particular with a view of the all-important relationships with vehicle manufacturers. A combination of pressures is causing the franchised dealer sector to shrink: 500 dealer trading outlets could exit the market in the next three years. The 2013 UK Franchised Dealer Market Report tracks the numerical changes in the size of the franchised sector in the past 10 years, looking at the dealer groups and owner-operators.

Today franchised dealers are working in unprecedented circumstances: the fragile state of new car sales in continental Europe (the weakest new car market for 20 years) and the relative buoyant performance in the UK in 2012 (registrations up 5% on 2011) has led manufacturers to rely on this country to fulfil volume and fiscal targets, putting pressure on dealers through pre-registration or forced registration activity. The 2013 UK Franchised Dealer Market Report looks at the factors influencing the UK market and the impact on sales in the past decade, including, for the first time, average registrations per sales outlet data, and looks at pre-registration impact.

Dealer margins are under extreme pressure: total profit before tax for the AM100 companies has fallen 25% year-on-year and average margin are at only 1% for the largest groups. The 2013 UK Franchised Dealer Market Report provides detailed analysis of the financial performance of the AM100 by turnover, profit, return on sale and return on capital employed.

And in every month of 2012 a franchised group has been going into administration or out of business (Approach UK, Stevens, Holiways, Seward (Wessex), Adrian Smith) or been acquired (W Grose, Isaac Agnew, Corkills Chester, Essex Audi) by a small number of larger, cash rich businesses, many with an eye on the approaching revised block exemption regulation that will see many of the powers of self-determination enjoyed by franchised groups removed and passed on to manufacturers. The 2013 UK Franchised Dealer Market Report provides an update on the latest indications of the new BER from Brussels, the impact on the dealer/manufacturer relationship and the primary causes of concern for retailers.

Meanwhile manufacturers, emboldened by their increase in influence and the requirement to bring stock into the UK market, continue to seek market share increases and to expand network representation by filling more than 400 open points. The 2013 UK Franchised Dealer Market Report looks at the total number of open points and provides access to a current list of network expansion opportunities.

As a result of the domestic market pressures and those from manufacturers, the most dynamic dealer groups need to focus, like never before, on the fundamentals of the business in order to operate at maximum efficiency. The 2013 UK Franchised Dealer Market Report looks in detail at departmental considerations – new and used cars and aftersales – and the supporting elements such as F&I sales, digital marketing, service plans and the absolute fundamentals of dealership staffing, working practises and processes and customer service.

Fundamental to success in 2013 will be confidence, both among dealers and customers in new and used cars and aftersales. The considerable majority of dealers believe real growth in new car sales will only come in 2015. The 2013 UK Franchised Dealer Market Report presents exclusive research into firstly, franchised dealer confidence and the areas of focus and, secondly, consumer appetite for new and used car purchasing – and aftersales preferences – in the year ahead.

THE AM UK FRANCHISED DEALER MARKET REPORT

PROCESSES, COSTS AND CUSTOMER SERVICE By Piers Trenear-Thomas, TT Automotive Big is not beautiful has been a consistent theme of this commentator for a couple of decades. The UK element of the research referred to in the second paragraph on page 16 by Steve Young, of the ICDP, was provided by TT Automotive. It was a summary of material resulting from years of tracking the financial performance of the AM100 groups and from interviews and observations both as an insider, working for dealer groups and as an independent consultant. This research continues with the financial data now available within AMi (www.am-online.com/ami). What the financial data shows, is that the most consistently profitable companies were not the larger ones. Looking at trends over 10 years rather than snapshots, the evidence was even clearer. With very few exceptions, profitability declined with scale. The 10-year trend allowed the tracking of growth and decline, divestments and the associated reasons (admittedly often postrationalisation). While some of the movement may have been the result of cyclical change (growth, rationalisation, refocus on core business, back to growth) much of the change can be attributed to the earnings dilution effect of diseconomies of scale. Or to put it simply, the need to find a better place to earn a return for shareholders. From this broad conclusion followed the question ‘why?’ Why did economies of scale not follow as they appeared to do in other industries? Why were smaller companies so much more profitable? Was there a point at which the advantage kicked in and a point at which it failed? In other words the ICDP’s ‘sweet spot’. Were there particular circumstances that applied – location (north/south divide), franchise (prestige/volume/Japanese), ownership (owner/driver/corporate), management structure (flat/ pyramid/specialised/multi-disciplined) etc? Further analysis produced no firm conclusion on most of these areas. ‘Local heroes’ prospered regardless of location and/or franchise. And there were local heroes that did not prosper. What was clear was that the real difference was in the ‘how’. It was all about values, people and processes. ‘Small is beautiful’ is a concept developed by E F Schumacher (colleague of John Maynard Keynes and economic adviser to the National Coal Board). One relevant quote of his is: “Any intelligent fool can make things bigger, more complex, more violent. It takes a touch of genius – and a lot of courage – to move in the opposite direction.” He concluded that large organisations were inherently

unsuccessful because they became dehumanised, cumbersome and over-complex. In order to succeed they needed to operate as if they were a collection of small enterprises. Pursuit of output and/or GDP for the sake of it was counterproductive, even dehumanising. He proposed that a business should be meaningful first and efficient second. This has close similarities with some of the basic principles of ‘lean’. For example the fundamental importance of the sequence – purpose; process; people. If a business outcome is not as desired or as expected, do not instantly assume that you can fix it by changing the people, or by calling in the trainers. First ask – is the purpose of the task (operation/department/ function) clear to those responsible? This starts at organisational level with the context of the whole business and the belief that a day’s work is in a worthwhile cause. It continues down to individual detail about what the task is supposed to achieve, whether that be to deliver value to an end user customer, or to deliver an outcome so that someone else can. If the purpose is clear, then ask – is the process by which this purpose is to be delivered clear? Again this is required at a quite specific level. In order to answer yes the process must be definable in terms of timing (when do we need to do this) content (what do we need to do) duration (how long should it take) and outcome (what is supposed to happen). Only then is it reasonable to turn to the people angle and proceed to find out, since everything else is in place, whether the lack of result is because the individuals concerned simply can’t deliver, or for some reason, won’t. This approach has delivered huge benefits in staff morale, effectiveness and ultimately profit for a wide range of businesses in a wide range of industries, not just for Toyota. Too often in large organisations the default position is to hire in a new lot, or send everyone away on training courses, closely followed by the new operations manual (usually in several volumes) which everyone is supposed to read, understand and implement. Schumacher was definitely on the right track. A principle of management, described in the Toyota Management System – TMS (coupled with the Toyota Production System – TPS) is articulated: n Go to the workplace n Show respect n Ask why.

THE AM UK FRANCHISED DEALER MARKET REPORT

Go and see what is really happening, not what you are told is happening; understand that the people who know most about the job are those who do it; find out what stops them from improving and help them to solve those problems. Too often in large organisations the style of management is to issue edicts from boardrooms. How can they not? They have a multitude of things to do, events to respond to and the massive engine of commerce that is their multi-million pound business to keep going. There is no time to spend at the workplace, observing, analysing, asking why?. If only there were enough good people around who could just get on with it. There must be some recognition of these principles, because, as the ICDP points out from its current research, there has recently been heavy investment in process definition, training and monitoring. However, also as the ICDP points out, individual performance varies widely even within the same groups. One reason advanced is that car retailing is different. Half seriously, one dealer said: “There are far too many people involved.” Meaning that customers are too varied and unpredictable for any predefined process to work well. There may be an element of truth in this, but the real issue lies in the foregoing paragraphs. A process will work if it is properly defined, in collaboration with those who use it, with customer value at the forefront, properly understood in terms of its purpose, properly instructed, with outcomes properly measured and checked. This framework allows individuals to apply processes intelligently, in order to achieve the purpose, responsive to differing circumstances (e.g customers). This combination of precision in design and flexibility in application, requires people who have developed a problem solving mindset and an understanding of customer value, but most importantly are provided with the authority to act. Successful local hero businesses generally have those sorts of people, and, through close knit management teams, a consistent long-term vision and value set. The trick, as a business grows, is to retain this equation and most have not. The results of a great many such businesses have not survived their absorption into much larger groups. There are exceptions. As frequently mentioned in AM100 commentaries, Arnold Clark combines scale with consistent profitability. Sytner also figures frequently in the AM100 top 20 for return on sales. It has been observed that some of Sytner’s success stems from running each franchise relationship as a separate business. Recently Inchcape has improved its profitability, following a period of substantial reorganisation of franchises and geography. If there is a link, that too would support the local hero success theory. Lookers is another of the large groups that has shown substantial improvements. Examination of the detail however shows that most of the gain comes from diversification – a significant contribution in terms of profit percentage from its parts wholesaling operation. Clearly a smart move to add such a profit stream, but

car retailing on its own still lags well behind the performance of a good local hero. All this would suggest that diseconomy of scale is still the norm and the larger groups have yet to grasp what is necessary to make a step change in the combination of people and process. There is plenty of brain power and energy available in these large organisations. So, if the direction of travel is correct, but progress painfully slow, there must be other forces at work. The most fundamental principle of lean – number one in the TPS/ TMS list – is constancy of purpose. A commitment to act towards that purpose even with disadvantageous outcomes in the short term. Car retailing would appear to be a very difficult environment in which to apply this principle. Time frames are essentially tactical – how to achieve this month’s target, or quarter or half-year. Even apparently long-term goals such as improving customer retention and customer value (aka customer satisfaction) are targeted with short-term action plans aimed at keeping ahead in the monthly league table. This, naturally enough, promotes target achieving activity with little time for real analysis of cause and effect and sustained change. This also promotes a ‘give the customer whatever they want’ culture. This is costly, but more importantly ill-advised and unnecessary. As the ICDP points out, customers’ value expectations differ and what may be fine for one person, is not for another. Delivering everything you can think of at the moment may substantially over-deliver for some, while still not fulfilling the needs of others, leading to a constant battle to think of even more ways to do what the customer wants. In the words of Henry Ford: “If I had wanted to give customers what they thought they wanted, I would just have designed a faster horse”. Instead, we should first focus on getting it right, and getting it right on time. That’s what most customers want, and expect to receive, every time, as standard. Then we can focus on adding the bits that personalise the experience and take the stress out of it. And this latter piece requires, in effect, a plan for every customer. Easy to achieve if you know all your customers. Very difficult to achieve at reasonable cost, at scale, unless you have the right people, informed by a consistent purpose, supported by welldefined processes and of course the right IT, but used as servant, not master. This introduces the area of cost. It is a very moot point that customers value, for example, the ever-increasing grandeur of showrooms and extensive variety of stock. Particularly when a large part of the buying process for increasing numbers of people, takes place in front of the computer or iPad. It is far more important for customer retention that the people they then speak to are knowledgeable and help them solve their problems (choice, price, financial products etc). And that when they choose to interact, they are promptly and appropriately handled. It may be no coincidence that the average asset value per site today is considerably higher than it was a few years ago, that most of the rise happened in the last five years, that profitability has

PROCESSES, COSTS AND CUSTOMER SERVICE Fixed assets per site (£000)

Fixed assets per site £000 2500 2000 Overall (£000)

1500

Q1 Q2

1000

Q3 Q4

500 0 2000

2005

2009

2010

2011

(Year)

Source: AMi declined and customer retention is a challenge. The people equation is also interesting. Ten years ago the 100 largest retailers employed just over 178,000 people. Today that number is just short of 189,000, an increase of more than 10,000 people. Turnover per AM100 employee though has risen from £270,000 to £401,000. That would imply that, even adjusting for inflation, fewer employees are handling a higher value of transactions. That might seem to be good news – we have become more efficient at customer management, perhaps aided by IT based leverage – ie systems that allow us to do more with less. However, it is people who create value. If there are fewer people per transaction pound then there is less value per transaction pound. Less value equals fewer customers, equals less profit. And this is exactly what the bottom line – AM100 total net profit – reveals. Many dealers comment that the compliance regime, including standards, standards audits, the requirement to run systems or projects or initiatives that do not necessarily solve their particular problems, represents a huge cost. So we may have become more ‘efficient’, but more of us are engaged in activities that do not create customer value and we have become less ‘effective’. Some groups see centralisation as a way of dealing with this, in particular centralised customer management. This can be a way of focusing on customers and recognising and solving problems, but too often call centres are production lines ‘pushing’ contact on an unreceptive public. Management by objective rules and the individuals concerned are focused on the volume of calls made, rather than on improving outcomes. Even if the target is to make

bookings, there is often little emphasis on the quality of bookings or on surfacing problems by engaging customers in proper discussion about what they would value. If the behaviour rewarded is the securing of as many bookings as possible in as short a time as can be achieved, what does that say about the organisation’s purpose and the importance of providing customers with value? What does it mean for ‘a plan for every customer’? And how do you motivate people in this pressure cooker environment to stop and think ‘what’s the problem – who do I need to involve in a solution?’. Technological developments makes place irrelevant and allows the focus to be on what is needed where it is needed. E F Schumacher noted that large organisations swing from one model to the other (decentralisation to centralisation and back again) and said “maybe what we really need is not either/or but the one and the other at the same time. This very familiar problem pervades the whole of real life”. Tom Peters and Robert Waterman are famous for their book “In Search of Excellence”. Despite being co-authors about the only thing they subsequently agreed on was “…one, basic belief: to loosen the reins, to allow a thousand flowers to bloom and a hundred schools to contend, is the best way to sustain vigour in perilous gyrating times”. Perhaps both the larger car retailing businesses and the car manufacturers’ national sales companies could do well to consider this. The successful local heroes seem already to have absorbed, put into practice and benefit from these lessons.

THE AM UK FRANCHISED DEALER MARKET REPORT

NEW CAR FINANCING By Nick Phillips, director, newcarpromotions.co.uk Surveying the automotive industry over the past 12 months highlights that new car pricing has been kept very much under control with only a modest increase of 2.18% between October 2011 and October 2012. Further trends include: n 18 manufacturers have increased prices over the past 12 months n Six brands have reduced prices by an average of 1.5% n Jaguar has cut its average price by 2.5% ignoring inflationary pressures n Land Rover has seen the largest average increase across its product range of 12.2% n The three so called ‘budget’ brands of Hyundai, Chevrolet and Kia followed by Land Rover with the largest price increases. However, this can be attributed in part to the product developments within these brands and their desire to improve brand perception within the market n The top five volume brands* have all seen less than 2% price increases over the past 12 months highlighting close pricing management within the volume sector. Nissan and Hyundai are the only top 10 volume manufacturers seeing more than a 2% price increase n Similarly, the traditional premium manufacturers of Audi, BMW and Mercedes-Benz have followed each other closely with less than 2% price increases as they push to take share from more mainstream brands.

Cash offers/customer savings The past 12 months have seen a 45% increase in the number of manufacturers promoting cash discounts on new vehicles with the amount of discount also improving. In October 2011, 11 manufacturers promoted savings on new cars averaging £1,640. Moving on 12 months and 16 manufacturers are now advertising savings of £1,935 on average. One method used to attract potential customers’ attention has been to promote 0% VAT across selected models. During the past 12 months a number of manufacturers have utilised this tactic with Skoda and Seat being the biggest exponents. However, this message appears to be getting less traction in the market with manufacturers now moving more towards monthly payment-led marketing. Finance offers - Personal Contract Purchase (PCP) One of the clearest trends in the market is the promotion of PCP finance. Twelve months ago 70% of manufacturers were actively marketing PCP monthly payments and today this figure has increased to 91%. Manufacturers are appealing to budget conscious buyers by highlighting how affordable it is to purchase a new car through PCP. The average advertised monthly payment has reduced by £26 to £286 per month. In addition, manufacturers are prepared to offer an average £1,249 deposit contribution and the average APR continues to reduce, down from 7% 12 months

*Taken from September 2012 SMMT market share figures.

Manufacturer marketing programme data October 2011 - December 2012 Av customer saving for all marketing programmes Brands offering customer saving initiatives Av PCP payment Av PCP deposit contribution Av PCP customer deposit Av PCP term (months) Brands promoting > 36 month PCP 0% PCP available (brands) Av PCP APR Av HP payments Av HP term (months) Av HP customer deposit Brands offering 0% HP Brands offering free servicing Brands offering fixed price servicing Brands offering extended warranty Brands offering 0% VAT Source: newcarpromotions.co.uk

Oct-Dec 11 £1,640 11 £312 £1,300 £4,565 37 8 1 7.0% £247 45 £6,549 10 7 3 5 2

Jan-Mar 12 £1,910 12 £314 £1,370 £4,318 38 9 2 6.5% £286 42 £7,340 11 8 8 7 3

Apr-Jun 12 £1,779 13 £300 £1,286 £4,531 37 8 3 6.15% £260 43 £6,551 11 6 7 7 4

Jul-Sep 12 £1,915 14 £294 £1,138 £4,538 37 8 4 6.0% £250 46 £7,040 13 6 4 6 4

Oct-Dec 12 £1,935 16 £286 £1,249 £4,597 38 10 4 6.1% £286 42 £7,801 14 6 8 7 3

% change 18% 45% -8% -4% 1% 3% 25% 300% -13% 16% -7% 19% 40% -14% 167% 40% 50%

Average price of vehicles in each brand’s range October 2011 to October 2012 * Brand Land Rover Hyundai

Oct 11 37831 18278

Jan 12 38854 18289

Apr 12 38232 18420

Jul 12 38908 18820

Oct 12 42450 19839

Chevrolet 18388 19401 19401 19500 19575 Kia 16951 16951 16500 16931 17787 Nissan 20429 20511 20646 20990 21430 Honda 22975 22975 22975 23498 24007 Mini 18827 18876 18921 18937 19491 Volvo 29658 30579 30681 30528 30528 Renault 17536 17536 18206 18054 18015 Alfa Romeo 19420 19420 19420 19420 19931 Mazda 18957 19052 19012 19154 19334 Peugeot 19210 19496 19541 19596 19575 Audi 32315 32021 32174 32647 32911 Mercedes-Benz 40202 40177 40442 39028 40864 Toyota 19097 19200 19623 19694 19395 Volkswagen 24347 24446 24532 24830 24588 Ford 21077 21123 20925 21197 21139 BMW 35458 35415 36378 37177 35533 Seat 19779 19779 19478 19613 19755 Citroen 18237 18242 18389 18349 18052 Skoda 18660 18660 18639 18631 18361 Vauxhall 22109 22329 21595 21641 21740 Fiat 14486 14538 13922 14220 14169 Jaguar 61461 62270 59993 59963 59976 Average 24403 24589 24502 24639 24935

Oct 11 v Oct 12 112.21% 108.54% 106.46% 104.93% 104.90% 104.49% 103.53% 102.93% 102.73% 102.63% 101.99% 101.90% 101.84% 101.65% 101.56% 100.99% 100.29% 100.21% 99.88% 98.99% 98.40% 98.33% 97.81% 97.58% 102.18%

Source: newcarpromotions.co.uk * New models added during the time period not included in order to ensure like-for-like comparisons

ago to 6.1% APR today. A further trend is the growth of 0% PCP which has grown 300% in the past 12 months. Vehicle manufacturers understand that cost conscious buyers look for an affordable monthly payment and don’t like paying interest charges. However, one word of caution is that contract lengths are creeping up in order to advertise everdecreasing payments. The average is now 38 months which is far in excess of manufacturers’ desire to change customers into a new car after 24 months. Finance offers - 0% APR representative The current automotive market offers some of the best consumer offers ever seen. As a result, people with the means to purchase may enter the market as they recognise that there has ‘never been a better time to buy a new car’. These people are cash rich, want to own their car and do not want to pay interest charges.

This type of buyer will be pleased to see that increasing numbers of manufacturers are advertising 0% HP offers. However, as manufacturers prefer to promote PCP to support their desire to change a customer into a new car sooner, HP monthly payments are increasing as are the deposits required. In the past 12 months the average monthly HP payment has increased by £39 to £286. This is exactly the same as the PCP monthly payment although the deposit required is £3,204 higher than on PCP and has increased by 19% in the past 12 months. The average term is now 42 months on 0% HP versus the 38 months on PCP. Ownership packages Whilst manufacturers are set on reducing the monthly payments they promote through PCP, they are flirting with ownership packages, looking for the messages that drive sales and to ensure customers are retained in the network for aftersales.

THE AM UK FRANCHISED DEALER MARKET REPORT

DEALER CONFIDENCE IS UNDER PRESSURE By John Maslen In-depth analysis of the key drivers of dealer profitability has identified five factors that play the most important role in success. The five interconnected areas have been highlighted as particularly important during the recession, as management teams have to consider new ways to drive revenue and protect margins in the face of dwindling consumer demand. These essential elements, revealed by the first quarterly AMi Dealer Confidence Survey, are: people, product, relationships, exposure and adaptability. Our November survey highlighted a tendency for dealers to focus solely on product as the key factor in their success, based around regular renewal of designs and line-up. However, the renewal cycle has been interrupted by the financial crisis and fluctuating consumer demand. Therefore, dealers that claim to have seen robust trading most often refer to some of the other key elements, such as the ability of their staff to maximise available opportunities and also create strong relationships in their local community that ensure they are the first choice for customers considering a vehicle renewal. Relationships with manufacturer suppliers are also critical to ensure there is adequate two-way communication, focused on a partnership approach to generating more sales. Exposure, either through traditional marketing or new media methods, is also seen as a critical factor in delivering consistent success, while being able to adapt to changing market conditions is also vitally important. One dealer said: “We have good brands, but we also have consistent and high quality marketing along with a high-quality and well evolved sales team.”

Focusing on these five core strengths will play an important role in how dealers fare in coming years. In the next six months, 45% of dealers predict growth in new car sales, with 45% expecting sales to remain static and 9% saying they expect decline. However, by the end of next year, 65% expect car sales to be growing in their business and over the next two years, nearly 99% say growth is likely. The level of confidence about growth in 2015 is driven by two factors – an expected economic recovery that is predicted to take hold at about this time and the level of pent-up demand that will have built up in the market over the next two years, as even the most cautious owners admit they now have to purchase a car. In the short-term, while some dealers feel they are making progress, there is less optimism across the market, with many concerned that new car sales growth nationally is being driven by pre-registrations that will only harm the market in the long-term. One dealer who took part in the survey said: “The new vehicle market remains increasingly challenged by manufacturer preregistration or forced registration activity. “This activity can only continue for short periods without significant damage to the late used market on which franchised dealers rely. Unless new car gross profit per unit increases significantly, overall gross profit can only suffer.” Another said: “The growth in the new car market this year has been as a result of pre-registration exercises - the manufacturers have shifted the problem of dealing with over capacity onto the dealer network.” Despite the difficulties they are facing, dealers are generally positive about their relationship with their chosen manufacturer, with the number who are satisfied outnumbering those who are dissatisfied by nearly five to one.

Dealer growth expectations

Year-on-year performance in key departments

Source: AMi

Biggest influences on trading performance

Source: AMi Tough trading conditions Dealers’ attempts to generate revenue from sources other than new car sales are being hampered by tough trading conditions and intense competition from independents. New car sales remain the key area where dealers expect to generate growth in future, along with F&I commission obtained on the back of deals. They are slightly less confident about their used car sales performance, while the majority expect aftersales revenue to be static or decline in the next year. One dealer said: “Margins in aftersales have been extremely challenged this year and we are clearly doing more volume for a lower return.” Another added: “Aftersales is at full capacity but the profit is not enough to warrant expansion. Business profitability is up because of the growth in new car sales and F&I.” One respondent said: “We have sold more new cars, but not

enough to generate target-related bonuses. Used car volumes and profitability are static. F&I has improved due to better processes in the dealership and more flexibility from finance houses. “However, in aftersales we are selling the same number of hours, but at a lower cost to compete with the fast-fit market. Our overall operating costs are slightly higher too.” Dealers also point to better retail new car offers harming used cars, because they bring their price points closer together. They also say there is a declining overall car parc because of years of falling new car sales and this is damaging aftersales servicing revenue. It is this challenging market that has led some dealers to question the whole structure of the current franchised model. “Profit has suffered due to not hitting targets, as our entire network only performs on profit derived from manufacturers support payments. All this is wrong in this changing motoring world,” said one dealer. “A dealership should be able to generate its own worth via trading, not on bonus money dictated by targets or support money

i Report

AUTOMOTIVE MANAGEMENT

Incorporating Sewells Franchise Networks Report