UK businesses are bracing themselves against the battering of a recession which, according to the Office for Budget Responsibility, could last until 2024. As a result, tackling the cost base has once again been brought into sharp focus for automotive retailers.

Senior dealer group leaders regularly tell AM that keeping a close eye on costs is fundamental to operating a profitable business – whatever the market conditions.

This is especially so in a sector which typically operates on small margins. However, as the economy is further squeezed, dealer groups will be seeking more ways to alleviate pressure.

As Nathan Tomlinson, managing director of Devonshire Motors, says: “Anyone who didn’t forensically examine their operating expenses in 2022, to be able to plan and manage ahead in and through 2023, is going to have some work to do to future-proof their business.

“The further ahead you look, the more apparent it becomes that we must make many more adjustments to adapt to fundamental change – in consumer behaviour and automotive retailing – beyond just 2023.”

Eden Motor Group CEO Graeme Potts (pictured below) also confirms that re-examining costs is a renewed priority for this year including, among other measures, the centralisation of support functions on a multi-brand basis and the renegotiation of supplier contracts “but particularly because demand is slowing quite rapidly”.

In November, the country’s spending watchdog warned unemployment will rise by more than half-a-million by the second half of 2024 and the economy will shrink by 2%, forecasting a drop of 7% in household income.

HEADCOUNT AND AUTOMATION

News of a slight easing of inflation down to 10.5% in the year to December from 10.7% in November (Office of National Statistics, January 18) is welcome. This was helped by the cost of fuel falling slightly to an average £1.55 per litre for petrol and £1.79 for diesel in December.

However, food prices have kept inflation at a 40-year high. A third of dealers surveyed in Startline’s Used Car Tracker believe used car values will fall by 10% this year as a direct result of the cost-of-living crisis.

It is almost inevitable that dealers will look to reduce headcount or, at the very least, not replace outgoing staff or appoint new employees.

Potts is predicting that “continuing reduced levels of activity will, in time, need to be addressed”. Tomlinson (pictured right), though, is aiming to offset some staff costs with increased automation.

He says: “Looking further ahead, we’re working through the introduction of quite a bit of automation to provide customers with digital options, but specifically to reduce skill wastage where we can automate tasks which currently require people.

“We’re going to have to be smart about how we use our physical resource. The cost of labour is increasing beyond levels which can be supported by the current business model. But, besides that, we’re seeing a clear trend towards an ultimately smaller number of people with the necessary combination of skills and available time.

“A large chunk of automotive retailing, in terms of cost base, is fixed in a way which can’t be much more than tinkered with. However, many of our processes and systems lack the automated finesse of other sectors, and we’re much more reliant on people to join everything together.

“Taking some pain now on the integration of automation and streamlined systems probably won’t make a huge impact in 2023, but it will provide a platform for the future which will assist with managing skills shortages and cost base.”

One of the biggest leaps in dealership costs has been rising energy prices and dealer groups are already implementing measures to counteract these which, in turn, results in a lower carbon footprint.

With zero capital investment – since its contract with Journey Energy Solutions is set up in a similar way to a lease – Devonshire Motors has just completed a full, managed services, energy-saving, lighting installation which is projected to deliver a 43% net electricity saving in 2023.

The business has also applied for a solar panel installation which will reduce its grid dependency to just 20% once installed later this year.

Eden is also looking at reducing energy costs and minimising waste with a “continuing emphasis on process duplication and the pursuit of paperless transactions” and “a renewed emphasis on energy consumption and energy efficient lighting”, Potts says.

PATH TO EXCELLENCE

But it’s not all doom and gloom. New vehicle supply looks set to increase. The Society of Motor Manufacturers and Traders (SMMT) is predicting new car registrations of 1.8 million compared with the 1.61 million achieved in 2022. Tomlinson is also upbeat.

He says: “We’ve invested heavily for 2023, to nurture the team we have and to attract new individuals looking for a bright future. We’ve got the DM Excellence Academy supporting people and culture, we’re launching our ‘Road to £50k’  initiative in January, to retain and attract highly skilled technicians. Also, we’re putting new systems in place to reduce the amount of time we spend doing mundane and repetitive tasks; we’re continuing to invest in the site and our facilities.

“While 2023 is going to bring a bit of uncertainty, we very much see this year as an unmissable opportunity to future-proof our business model and to set ourselves a clear path to operational excellence.”

And Potts is planning to continue the group’s focus on customer retention achieved, in part, by delivering high levels of customer satisfaction, to help protect activity levels.

Proactivity demonstrated by some dealers includes talking to car owners who funded vehicles on PCPs and are now in positive equity thanks to buoyant used car values making it attractive for them to update their vehicle sooner. For example, veterinary surgeon Jasmine Kirlew bought her new Toyota Corolla in October 2020 from Jemca Edgware Road and, on discovering the equity in her vehicle, decided to switch to a higher specified Toyota C-HR, due for delivery in April.

Her best friend and partner found themselves in similar circumstances and also decided to upgrade to a new vehicle two years into their three-year PCP agreement.

Kirlew says: “None of us would have considered buying a new vehicle before the end of our PCP agreements. But we were contacted by our respective dealerships and the figures added up. I was staggered when they told me my car was worth a lot more than the original guaranteed future value which meant I could afford a higher value vehicle sooner.”