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Automotive Management Live: the challenges ahead for UK dealers

AML 2019

Two challenges that could put both lives and car retail businesses at risk in 2020 topped the agenda at Automotive Management Live’s IMI People Theatre and Motor Finance Theatre seminars.

The Institute of the Motor Industry (IMI) and Thatcham Research warned delegates that technicians and the public could be put at risk without the rapid introduction of appropriate training as the market braces itself for significant expansion in
alternative fuel vehicle (AFV) adoption and autonomous vehicle technology in 2020.

Meanwhile, legislation designed to realise the Financial Conduct Authority’s (FCA) plan for fairer, more transparent motor finance for car buyers will significantly affect how many traders sell vehicles in the near-term.

Quentin Le Hetet, the general manager of automotive data and research at GiPA Group UK, set the scene for a seminar and discussion ‘Skills Standards for New and Emerging Technologies’ with projections that 2019’s AFV market share of 10% in the UK could swell to 65% by 2025).

GiPA’s projections would mean that seven million AFVs would be sold annually in the EU’s five biggest markets (Germany, UK, France, Italy, Spain) in five years’ time.

Tom Denton, a technical trainer and consultant at the IMI, said: “There are currently 21,000 EV-qualified technicians across the UK from a sample of 180,000 technicians that we actually know about. So, broadly speaking, 5% of the technicians out there have started to upskill themselves in the right direction.”

The IMI pulls no punches when it attempts to express the very significant dangers posed by EVs to technicians who aren’t properly prepared.

Denton said: “When the Prius arrived on the market its system operated with around 200 volts. Many electrified vehicles are now operating at 400 or 600 volts and there’s a lot of working going on now to develop cars with 1,000 volts. To be honest it doesn’t matter. Once you get above 200 volts, if you touch the wrong thing the chances are you won’t survive.”

IMI chief executive, Steve Nash, who was hosting the People Theatre seminars, warned that a workshop incident involving an untrained technician could have serious consequences for a business.

He said: “If an accident occurs and your technicians aren’t properly trained, when the HSE comes in to investigate not only will you be liable, but your liability insurance won’t apply.”

Dean Lander, the head of repair sector services at Thatcham Research, said the dangers posed by modern vehicles extended beyond electrocution.

Although Lander was sceptical about the prospect of fully autonomous (Level 5) vehicles reaching UK roads any time soon, he said the modern advanced driver assistance systems (ADAS), which underpin autonomous elements of many modern vehicles, can pose a serious threat to public safety if not properly maintained.

Lander said: “Today, you can’t look at a vehicle and say ‘I know how to repair that because I repaired something similar yesterday’.

“In terms of the requirements of repairing ADAS equipment, we have seen everything from a board held in front of the car to
calibrate the systems to two engineers driving around waiting for the car to respond to a certain set of road conditions to ensure it’s working correctly.

“To repair these systems, you really need to ensure that you have access to the right manufacturer data and the right training to work on the car.”

Lander suggested that manufacturers do not have the infrastructure in place to properly maintain the ADAS systems of four million modern vehicles themselves.

He said: “What it is going to take is for the industry to work collaboratively to ensure all these systems continue to work properly in order to protect the public.”

Thatcham Research is now working to develop a code of practice for ADAS repair that could be introduced as soon as Q1 2020.

The IMI, meanwhile, has been developing its TechSafe scheme in an attempt to drive up EV technician training standards.

Created in collaboration with the Health and Safety Executive (HSE) and the Office for Low Emission Vehicles (OLEV), new EV TechSafe standards centre on EV qualifications, IMI accreditation, professional behaviours and a commitment to continuing professional development (CPD) over an agreed number of years.

Despite GiPA’s “aggressive” AFV registrations projections, Le Hetet used the data to demonstrate that the impact on the aftersales sector would not be devastating in the medium term.

Strides clearly need to be taken by businesses who want to be well placed to service cars equipped with new drivetrains, but he said: “Even in a very aggressive scenario we only get to 16% of the car parc being AFV by 2025.”

Le Hetet believes that franchised retailers – with their manufacturer-trained workforce – will be well placed to take advantage of those new AFV cars, nonetheless.

He said: “The average age of a hybrid vehicle in 2018 was 3.3 years. By comparison, an ICE was 9.5. As a dealership, you are much more likely to see a hybrid come back than an ICE.

“By 2025, hybrid age will decrease more, to 2.9 years, while ICE grows to 11.2.”

However significant the rise in AFV adoption is in 2020, the FCA’s incoming legislation changes will have a greater impact on retailers in the near-term.

The FCA is now in a period of consultation over an outright ban on the use of Increasing Difference in Charges (DiC), Reducing DiC and Scaled commission models to end a situation in
which car dealers can offer higher interest rates rewarded with higher commission, and the clarification of CONC 3.7.4G and 4.5.3R “to better reflect our intention that customers receive more relevant information about the existence of commission”.

Robin Penfold, a financial services regulation partner at TLT LLP, said the FCA was effectively firing “a warning shot” to let retailers know they are expected to achieve the transparency it wants them to deliver.

He said: “What they have really done is suggest how active they intend to be from a supervisory and enforcement perspective and what we should expect.”

Neil Smith, the operations director at Imperial Cars, which writes about £9 million of finance each month, said a 10-week experiment with Imperial’s APR finance rate showed the reality of the effect reductions in finance earnings can have.

“Whatever we lose in finance revenue is just going to have to be made up elsewhere,” said Smith.

Imperial adopted a blanket 7.9% APR for a period of 10 weeks – a drop of 2ppts – and marketed its move widely in order to gauge the impact on sales, PPU and customer satisfaction.

For the move to work, Smith said, the group would have had to increase its financed unit sales by 50%.

“What we achieved was a 25% increase in penetration, but no increase in unit sales,” he said.

“Some competitors did respond, but I don’t think we were in a position to continue any longer. If we had, competitors may have re-aligned more and we may have seen product prices go up as a result.”

Smith acknowledged that the FCA is not proposing a blanket lowering of finance rates, but he said the exercise had delivered some insight into how competitive the market could get if there was a “levelling of finance rates”.

He said: “I don’t have any issues with the findings of the FCA. Where I do disagree is in the inference that the consumer will be financially better off.”

Ben Standish, from MotoNovo Finance, told delegates at the Motor Finance Theatre that he saw the FCA’s changes as an “opportunity to change the model”.

He said he wanted to see car finance rates fixed according to risk and product value.

Standish said: “Just one in five car buyers currently takes out dealer finance. If you can offer a rate more comparable to a direct lender you’ll be in a position to compete for that business.”

Standish said MotoNovo was currently working on a risk-based pricing model.

“That’s the way we need to push the market,” he said. “I think that a single rate could be fairly damaging to some businesses if that’s the way that people look to push this forward.”

 

Masterclasses

Online retailing

A failure to ensure data accuracy in online vehicle listings is threatening to bring further negative attention on the sector from the Financial Conduct Authority (FCA) and Advertising Standards Agency (ASA).

Ivendi’s 12-month investigation found there could be up to 360,000 used vehicles sold by dealers each year with inaccurate online descriptions, raising questions around the vehicle’s true value and finance, insurance and residual value rates.

James Tew, iVendi’s chief executive, gave an example where the fault was with the marketing portal, not with the dealer’s data.

An iVendi review of 170,000 vehicle listings  found 8% had potential data errors. “With approximately 4.5m used cars sold annually by dealers, an 8% error rate represents a lot of vehicles,” Tew said.  The ASA, he said, could see this as misleading advertising on vehicles and finance.

 

Social media

Marketing Delivery’s managing director, Jeremy Evans, advised dealers to make greater use of Facebook’s tools to ensure an effective, multi-channel journey for customers.

His four immediate suggestions for dealers were:

1. Download the Facebook tracking pixel to your website, allowing you to see how people interact with your website after viewing your social ad

2. Set up a stock catalogue to enable the generation of social ads and free Facebook Marketplace listings ensuring only available vehicles are promoted

3. Source mobile-friendly videos of key models, which manufacturers should be able to provide, for use in Facebook ads and on your website

4. Create ads for your website targeting in-market consumers who may or may not already have made an enquiry with you.

“Ensure you keep track of the people who are on your website and have submitted an enquiry, plus those you are following via the Facebook pixel and you’ll have an eye on your customers wherever they turn,” said Evans.

The data dealers can gather has never been more powerful, he said.

 

Leadership and focus

Having studied leaders throughout his career in automotive retail, JudgeService managing director Neil Addley shared insights into the different styles, including  autocratic, democratic and paternalistic, examining ways the likes of Sir Alex Ferguson and Sir Peter Vardy communicated and acted.

Leaders can change their style depending on the points in their career, but they should not let circumstances change the way they lead, he said. Key attributes include control, passion, understanding individuals and reacting positively to criticism.

 

Used Car

Increased electric vehicle volumes will eventually cause a fall in used car prices, said Anthony Machin, Glass’s head of content.

Diesel car values continue to drop faster than petrol, he said, and more people now talk about the alternatives to diesel in their everyday life. More clean air zones will ensure electric vans will also be a prominent force in the market, he said, although demand is still strong for older vans.

Price-wise he said £6,000 was the most common used car price point for average buyers.

Glass’s data revealed that it takes an average of 50 days to sell a used car at the moment.

Overall, dealers need to keep pace with the market. “There’s a lot of money to be made in the auto market, but pricing will be key,” he said.

 

Digital messaging

Consumers want to have conversations in digital messaging channels, not fill in ‘contact us’ forms. “Websites don’t work”, said Thom Coupar-Evans, vice-president of sales for messaging technology provider LivePerson.

“In reality, you should be empowering them to contact you where they want to be – such as Facebook, with 2.2 billion users and WhatsApp, the most popular messaging platform in the world.”

Moving to messaging means happier staff and customers – and business benefits. “Conversion rates increase by four times, with a 50% decrease in cost per interaction compared to chat,” said Coupar-Evans.

 

The modern buying journey

Dealers that fail to address a customer’s needs effectively and efficiently face a lost sale.

Alistair Horsburgh, CitNOW’s chief executive, said: “Understanding the way the customer interacts with your website is becoming more and more challenging.”

Personalised responses to enquiries, and immediacy, are as important as information, he added. “The customer wants the right information and they want it now. “

To attract that enquiry, dealers have a small window of opportunity, so show everything.

“You can’t put too much online,” said Horsburgh.

 

Using data to work smarter

Compiling data from different sources to produce useable reports often has a costly human element. And access to that data is not always simple.

Neil Murphy, automotive data scientist at Real World Analytics, said: “There are many options to manage your data, but the ideal is a system that does it in real time. A system that can suck data from all your data sources and present it to you in the format you want and when you want is key.”

But to be effective, data needs to be presented to the people responsible for meeting the KPIs. “For example, an external KPI might show that your margin on new cars is not as good as other dealers’. It may show that your leasing option upsell is the problem, but unless you can identify which outlet and which salesperson, in real time, is not performing, it is difficult to turn this insight into money,” he said.

 

Customer retention

Effective retention requires a constant dialogue between customer and dealership, as buyers can be easily tempted elsewhere at any point in their finance contract.

Lyn Howdon, global head of academy and learning at Chrysalis Loyalty, said dealers need to focus on customer behaviour and buying habits.

One finance company found that 5% of agreements ended within 12 months and only 20% of those customers remained loyal to that finance brand. Between 13 months to half-term, 25% of those agreements ended. From half-term to the last seven months, a further 20% ended those agreements.

“The majority of dealers today have a very professional robust renewal or retention process with their customers. However, if that is all you have, 50% of those customers have already gone elsewhere. The process has to start far sooner than six months before the contract is due to end,” Howdon said.

 

The future of automotive retailing

The way people buy things has not changed, but the way they interact with retailers has changed significantly. Dealers must adapt and change in order to keep ahead of new disruptors in the digital market.

Marcus Dacombe, international product marketing director at CDK Global, said the next phase will be specifically tailored services for the individual, created through analysing very specific consumer data.

“Think about some of the digital disrupters that are coming in to the market with highly tailored services, like Netflix and Spotify. We should be looking at those industries and finding out what we can take from them,” Dacombe added.

 

Websites

A failure to understand the customer journeys that generate leads and profit means digital marketing investment is being wasted.

It’s common for dealers not to understand how channels work together, and in many cases they work against each other, leading to them attributing and paying for one lead twice as the agencies employed claim credit for it, according to Martin Dew, AutoWeb Design digital solutions director.

“Every dealership’s marketing manager should have a definition throughout the marketing strategy of the attribution model the business uses,” he said.

REPORTING BY TOM SHARPE, MATT DE PREZ, KENNETH BROWN AND JEREMY BENNETT

 

Pictures: Automotive Management Live 2019

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