This is an excerpt from ICDP director Dr Andrew Tongue's speech at the AM Used Car Market Conference 2011 on the growing involvement manufacturers will have on dealers' used car activity.
For his full transcript please see the November issue of AMe.
"Perhaps a blindingly obvious thought is that manufacturer involvement in used cars has grown. We know it’s grown. It looks set to persist and as we’ll say later to strengthen. But actually the approved schemes that we’ve seen, they’re better than they used to be.
They’re still not always aligned, either with market needs or with dealer needs, and a few thoughts on that for you.
Of course we’re well used to seeing manufacturer used car programmes in the UK. They’ve been around for a long time here, but actually now right across Europe manufacturers see used cars very much as part of their franchise, and of an area that they should become more involved in and you can see the growing levels of sophistication, the growing levels of branding and effort and growing integration with the new car offer, as well, being put into some of these schemes.
As I say, in some markets this is a fairly recent phenomenon. You can almost draw a kind of waterline across Europe. Above it, to the north the used car programmes are more developed.
Below it, to the south they tend to be less developed, for all kinds of historical, cultural and also accounting reasons within dealerships.
But actually when you look across Europe at the used car programmes that manufacturers operate, they are all still running to the original intent that saw them get established and the UK was a pioneering market in that respect over the past couple of decades.
So the reasons are still valid and the reasons are still being used to continue the development of these schemes, a way of reducing discounts that you need to give on new cars because you can switch a customer into a good used car instead.
Providing an outlet, of course, for managed cars, supporting residual value curve, promoting conquest sales, getting people into the brand, encouraging and extending after sales’ loyalty, giving dealers an additional profit stream.
Overall when you look across Europe we suggest that customer recognition of these schemes is now good, although actually when you look in more detail, customers know about the warranty and they know about the mileage check.
After that their awareness dips off fairly rapidly and we suggest that’s also an issue in the UK, that maybe we’re not quite selling all the broader benefits of an approved used scheme, as well as we might.
But for some schemes, and again this is a comment which, again, applied to the UK perhaps up until fairly recently, some of the schemes which focused very strongly on offering young used cars effectively as good as new, has been a little bit too narrow.
They got into very high facility standards, very high preparation standards and very high extended warranty standards for the car to qualify for that package.
The effect of that is to raise dealer costs, to reduce dealer competitiveness and of course to squeeze margins as well. The net result was dealership displays often filled to bursting with very, very similar nearly new product, quite often extending into the parking spaces as well.
And in some instances dealers came to rely on programme-supplied cars and lose focus, in a way, on the older car customers and particularly on their service needs, as we said, which is critical.
The net result of this has been to push some of the more proactive dealers, particularly the dealer groups, into developing their own branded used car operations, often away from the main dealership site and Lifestyle Europe’s Car Zone is just one example of that.
Again, a picture that’s very familiar to us here in the UK and many schemes have responded to those kind of criticisms.
We haven’t reached that situation in all the European markets, just yet. Some of them are still ploughing a furrow that isn’t necessarily aligned with what dealers are looking for.
And as a result, and again, historically this was very much the case, customers looking for a, what you might call a real used car of the sort we were just talking about a minute ago, weren’t always that well served by dealers. Now Peter Cook showed you just a second ago how that situation has improved dramatically for UK dealers, but it’s still the case that a customer looking for a 4,5 and maybe older used car aren’t always well served by the franchised dealer as opposed to the used car superstores for instance.
Now many programmes have responded. The UK programme’s responded maybe a little while ago. The European programmes are starting to catch up. They’ve become a lot more flexible towards older cars and many of them have introduced older car sections, mini schemes, if you like, within them.
The problem that a number of brands have found amongst continental dealers is that they’ve been reluctant to get involved in the older used car programmes. And these are some of the comments that we picked up - Older used cars are not our core business; we’re worried that our image is at risk if the cars don’t come up to scratch; we’re worried about the reconditioning and warranty costs. How do we manage those?
And older car customers, well they can often be more demanding than new car customers. Do we really want the hassle?
Now of course you’d never hear comments like that from a UK dealer, would you? We’ve all moved way beyond that kind of situation, but this is quite common across a number of the European markets.
But you have to ask, actually, dealers who have a true in-built older used car mentality, how much help do they actually need from manufacturers in the future."