A depressed new car market has brought used car operations to the fore for most franchised dealers. But with some two miillion fewer new car registrations over the past five years, that has created its own set of challenges for this market segment.
The short-term economic outlook is far from rosy, and higher wholesale volumes of used cars are not expected for several years. How-ever, demand is there, as consumers look closely at their overall living costs. It means franchised dealers must be poised to optimise their used car operations, through robust stock-ing, identification of supply sources and competitive pricing.
One of the key building blocks for the used car operation is sourcing stock. Dealers who are totally serious about the used car market will have specialist buyers within their dealerships who will be looking to establish longer-term relationships with sources of used cars, from leasing companies, fleet operators, daily rental operators or Motability. Such relationships will be vital to generating sufficient access to stock
Invest in sourcing
Marshall Motor Group has recently created five in-house positions whose job is to source incremental used car stock. Chief executive Daksh Gupta said it is a “significant investment”. However, it will create value for the business.
Increasingly, stock sources will include auctions, manufacturers or leasing companies.
Professor Peter Cooke, head of Buckingham University’s centre for automotive management, said used cars could be in short supply for another six to eight years, so any start of a real economic recovery could pose problems if consumers look to get mobile again, with implications for dealers’ sourcing and pricing of stock.
Cooke said dealers should also consider what consumer groups they are going after. Money is going to be tight for consumers for the next three to four years, so dealers’ stocking policies should adapt accordingly.
Demand for large cars is declining as buyers want to control their running costs more carefully. However, CAP chief editor Christopher Crow pointed out that the most fuel efficient larger cars can still be attractive to consumers due to their lower price point in the used market, and SUVs continue to be popular.
“Educating the used car buyers is going to be absolutely critical. They will have to consider how to balance out high prices versus higher mileage vehicles,” Cooke said.
Understand what customers want
Trader Media Group, owner of the Deltapoint i-Control system, has surveyed more than 6,000 motor retailers and found 54% of their vehicles had low curr-ent regional demand. Tim Peake, its group strategy director, said: “Understanding which are the most sought-after cars will help dealers to stock the right product.
“The dealers that price well and buy the right cars for their area will get a better return on investment from their advertising too.”
Such an understanding is essential in order to optimise stock turn, to improve the return on capital employed and to increase revenue through sales of additional items.
At multi-franchise group Swansway Garages in the north-west of England, director Peter Smyth is trialing a system from ASE designed to help analyse its used car efficiencies. “I’m trialing this at three sites and hope it will give us more scientific knowledge,” he said.
The group has a strict 60-day policy for used cars. If a vehicle is ageing the focus is to position it as one of the cheapest on the man-ufacturer’s used car locator. “People will travel for a bargain,” said Smyth.
Ian Dow, aftersales director of Knights BMW in north Staffordshire, said it has a real emphasis on keeping the stock moving. “We can’t afford to have more than one book-drop on a vehicle, one month’s write-off. If you have two months, the car becomes uncompetitive and there’s not going to be anywhere near as much profit.”
Dow said the group has a 60-day policy but with a 45-day warning, at which point it is priced to sell. Only one in five reaches more than 45 days.
Click on page two to read the second part of this stocking insight feature.
As editor, Tim is responsible for the media content, planning and production of AM's multiple channels (AM print and digital magazines, website, social media and contributing to our events planning). He interviews and writes about as many franchised dealer groups and UK divisions of motor manufacturers as possible, to explore the issues facing UK motor retail and understand what solutions dealers and suppliers are using to overcome these.
Jonathan Hunt - 12/12/2012 23:20
When are we as an industry going to learn, its us that set the prices in the market, we seem content to continue reducing our margins to compete with each other, inspite of difficult supply and all the investment we have, heres a novel idea why dont we ALL increase our prices and margins as one from january 2nd 2013. I know it will never happen but more fool us.