The automotive industry is divided on whether Tesco can make a success of its decision to sell ex-fleet stock direct to consumers.
Tesco says it will be able to source 3,000 cars from ex-fleet and short-cycle rental stock each week, offering a range of models between six months and three years old.
With access to 16 million Tesco Clubcard holders, there is potential for significant growth over sales achieved to date by Carsite (less than 10,000 since its launch in 2006).
Aftersales will be taken care of by a network of 1,000 independent garages operating through an arrangement with National Service Network (NSN) which says it can offer servicing up to 30% cheaper than franchised dealers.
Customers do not have to buy a car through Tesco Cars in order to use the servicing deal through NSN at www.tescoautocentres.com
Currently any retail customer can book their servicing through the Tesco Autocentres website.
NSN centres will not be branded with Tesco livery.
They will offer customers a courtesy driver to pick up their vehicle at their home or place of work.
A Tesco Autocentres customer service advisor keeps the customer informed via phone throughout the servicing process and once all authorised work has been completed the car is delivered back to the customer.
The industry has been quick to react to the news.
Daksh Gupta, Marshall Motor Group chief executive, does not believe Tesco poses a serious threat to franchised dealers.
He told AM: “I have a lot of respect for Tesco as one of the best, if not the best, retailer out there, but we have to remember that there are six million used cars sold every year in the UK. Clearly Tesco will take some market share, but there is enough room for both to operate.”
Gupta said Tesco Cars’ balance of manufacturer or one-month warranty, a single collection site in Birmingham, no test drives and no part-exchanges could be a concern for some customers, but there would always be some buyers where those issues would not be a problem.
He said: “Tesco is offering a totally different proposition to what a franchised dealer can offer and there will be some customers who will be happy with it.
“We should also remember that we have seen other new entrants into the market such as Virgin who are an equally powerful and respected brand, but where is VirginCars today? Look at what has happened to Autoquake recently too.”
John O’Hanlon, chief executive of Ridgeway Group, told AM: “As an immensely strong brand, we must be cognisant of the threat that Tesco represents.
“As an organisation, Tesco is highly respected, has great resources available and rarely fails in any endeavour it pursues.
"It clearly believes there is a gap appearing in our market.”
O’Hanlon said the Tesco Cars business model appeared to be straightforward in terms of sourcing the vehicle and then selling it for a small margin while making sure it offers valuable add-ons in terms of finance and insurance.
He said: “The complications will come from ensuring enough quality stock arrives at the right time at the right price. And also from how Tesco deals with customers when cars go wrong.”
O’Hanlon believes franchised dealers can be confident of meeting any challenge presented by Tesco Cars head-on by having “the best understanding of local markets, great facilities, great staff and of course a fantastic customer experience”.
He said: “We constantly review how we go to market. An internet presence clearly isn’t enough.
“It must be interactive and must respond to how today and tomorrow’s customers want to transact.
"Customers are getting more comfortable with making larger commitments with trusted brands on the web.”
Chris Wells, Mercedes-Benz of Salisbury sales manager and AM’s Used Car Retailer of the Year, said: “People research every aspect of their used car purchase online, from how they’re going to fund it and whether the car is competitively priced.
“The reason that process will never be completely online, is because people want their part-exchange valued or they want to talk about a deal.
It will never be fully automated as a process because there are just too many variables.
“Part of the reason why we’ve been successful in used cars is because customers have the same people to talk to, there’s accountability.
If you buy a loaf of bread and there’s something wrong with it, try going to find the person that sold it to you in Tesco.
“It’s not like buying a tin of beans or a loaf of bread; it’s a longer standing purchase.”