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Guest blog: Talisker - return to the promised land

This blog was written by AM forum user Talisker. And was originally written on the AM forum here.

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The word about the place is profitability has returned to dealer networks. Trading is good, helped by the scrappage scheme for some and despite the broader gloom in the economy, the retail motor trade isn’t a bad place to be. A sure sign of this is the almost complete lack of grumbling coming from dealers. That’s not to say everything is fine and dandy but a profit, no matter how small is a good place to be at the moment.

 

The cause of this situation? For the first time since Noah was a boy, there is now a balance between supply and demand, dealers have cut overheads by reducing headcount and holding off on unnecessary investments and manufacturers have put in place sales programmes aimed at sustaining a network, not ones aimed at liquidating excess manufacturer stock. Self-reg may not have gone away but is now at manageable levels i.e. ones and twos, not tens and twenties or even fifties. There are also noises that the pressure on aftersales is easing, that labour rates are coming down and there is flexibility on job pricing. Some may call it ‘orderly trading’ others, ‘common sense’, whichever, the benefits are marked and positive.

We’re not out of the woods yet as some more businesses will still inevitably go under. The cause of this will be underlying weakness exposed by the current climate. Good businesses are now thriving.

The $6m dollar question is – how long will this last? Manufacturers moved extremely quickly to reduce production, far more quickly and far more severely than ever before. However, none have reduced capacity, so the potential to ramp up to over-production remains. The potential loss of some players i.e. Saab or Hummer or even Chrysler isn’t going to have much of an impact. Opel/Vauxhall has too much intrinsic value to disappear that easily, they are not another MG Rover.

So the threat of excess production remains and when the Chinese get their exporting hats on, the problem will become more acute. There is also little evidence that manufacturer/importers have fundamentally changed their view of the business model. You get a sense that they see it as a leaky ship that needed some holes patched up, but once the water is pumped out, it will be back to business as usual. As the broader economy picks up, dealers look more profitable than they have for years and the pressure to ramp up production increases, like all good addicts return to their poison of choice, we’ll be back to the self-reg madness of the last few years.

A lack of consumer credit may blunt this to a degree but you don’t get a sense that banks are backing off either, don’t know about you but I’m starting to get the ‘borrow bundles now’ letters, emails etc once again. Mind you, the Bank of England has pumped in over £100bn into the economy through quantitative easing, so that will have to appear somewhere.

Before Christmas people, including me, were saying the game had changed – forever. Now I’m not so sure. I get this uneasy feeling that nothing has changed and before long we will be back to the promised land of foie-gras car retailing – as one industry senior exec put it – ‘if you force enough of it down their throats, it will start coming out the other end’ They didn’t put the second part quite like that, but you get the general idea!

So enjoy the profits while they last and prepare yourself for the return of the promised land of manufacturer madness.

Just when you thought it was safe to go back into the showroom!

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