We asked a panel of executives – one dealer, carmaker, trade association, repairer and analyst – to give their views on 2006.
The dealer: Mark Squires, chief executive, Benfield Motor Group
The carmaker: Bill Parfitt, managing director, Vauxhall Motors
The analyst: Tim Richmond, director of stockbroker Arden Partners
The trade body: Sue Robinson, the RMIF’s franchised dealers director
The repairer: Tom Dunn, managing director, Nationwide Autocentre
How do you feel about the market’s prospects in the coming 12 months compared with your view a year ago?
Squires: I expect the market to be tough in 2006, and to get worse before it gets better. Older dealer colleagues have told me this has been the worst year since the 1970s.
Parfitt: Overall, the market is coming in very much as we forecast a year ago. However, the weakness in the retail sector has been offset by growth in fleet, which is making it tougher financially for us and our retailers.
Richmond: With corporate sales starting to weaken, and no signs of any improvement in consumer confidence, next year will be as challenging as 2005 for the car market generally.
Robinson: For the retail sector, I believe next year’s market will be tougher than in 2005 and, as such, tougher than 2004.
Dunn: We believe there is a good change coming in the market, with the overall economy becoming more buoyant during 2006.
And what is your view when you consider your own company’s prospects compared with a year ago?
Squires: I am optimistic about our own prospects because I think we are more focused than many groups in the way we operate in difficult times, understand the need to manage costs and have the right business model.
Dunn: A year ago, we had just acquired some AA Autocentres and I was optimistic about the future. I am very bullish about our prospects for next year. Our core market for service and repairs is cars aged four to nine years and, after record sales since 2001, these are starting to drop into our sector.
What will be the biggest issue or threat in the market in 2006?
Squires: The biggest issue will be interest rates and consumer confidence, which continues to be fragile. We get good responses to specific initiatives, but buyers are fickle and we see demand fall off when a promotion ends.
The biggest threat facing the market is dealer profitability, which across most franchises is perilously low.
Parfitt: One of the biggest opportunities for the industry is the British International Motor Show next July. This is our chance to put London right back at the forefront of European motor shows. If we do it right, we can be the place in Europe to launch great cars.
Richmond: The biggest threat to the UK market will be a further decline in new car volumes.
Robinson: Volumes may be propped up by manufacturer incentives and we are also likely to see a further increase in dealer/carmaker pre-registration programmes.
Dunn: The main threat has to be the so-called Office of Fair Trading ‘super complaint’ and it’s up to all of us in the industry to deal with it in the first quarter. We want changes to improve standards to be voluntary, but would be ready to sign up to enforcing what was needed if necessary.
The Society of Motor Manufacturers and Traders forecasts a 2.5% dip in registrations next year – do you agree, and what is the likely impact on profitability?
Squires: Any reduction in registrations is most likely to be in the fleet sector, because manufacturers tend to build recent market experience into their forward planning. Dealers’ profits may not be affected that much.
Parfitt: We forecast the market will be flat to down a little but it’s the mix between retail and fleet that adds more pressure to the system.
Richmond: The Society of Motor Manufacturers and Traders predicted a decline of around 5% at the start of 2005, and has been proven correct – the market will be perhaps slightly worse than it originally expected. The prediction of a 2.5% fall in registrations next year sounds about right.
Robinson: We agree with the SMMT’s forecast and profitability will definitely be down.
Dunn: The decline in new car sales this year, and again in 2006, does not affect us immediately but we are already planning ahead for the time when fewer cars are entering our sector.
Do you expect your own company’s profits to be up or down in 2006?
Squires: I am optimistic about next year: we cannot change the overall market, but we can and do adapt our own performance. But I have never had to look quite as long and hard at how to find revenue growth.
Parfitt: We don’t comment on profitability.
Dunn: We hope to benefit from the investment we have made to work on cars with higher technical specifications. We may have over invested, but I would rather over invest than be in the position of some of our rivals who cannot compete with us.
What level of acquisition do you expect over the coming 12 months, and what will be the driving forces?
Squires: I expect more consolidation, because if the Pendragon/Reg Vardy deal is finalised, other large groups are likely to respond. They won’t want to fall behind in seeking economies of scale.
Parfitt: We understand the driving forces behind consolidation and are happy to work with anyone who wants to help us bring our cars to the market. We are confident our retail network will continue to strengthen, based solely around the principle of enhancing the quality of the customer offering.
Richmond: There have been very few significant deals since the revised Block Exemption regulations came into force two years ago. With the interest generated in Reg Vardy, we would expect acquisition activity to increase.
Robinson: Something like Pendragon’s bid for Reg Vardy is on a large scale for this industry, and so extremely rare – and generally unlikely to be repeated.
Dunn: We expect further consolidation and recognise that larger groups are likely to be more likely to compete with us. Some franchised groups are already becoming alive to the aftermarket but we are the leader in our car-age sector and intend to remain so.
How will the retail motor industry change next year? And what will drive those changes – manufacturers’ decisions, the Block Exemption Location Clause, the state of the UK economy… or something else?
Squires: I hope next year’s main change will be manufacturers reviewing their franchise standards so that dealers can take some cost out. We find we’re spending increasing management time in managing standards.
Parfitt: The number one driver behind changes to the retail market is the customer: legislation may change the framework, but never a customer’s particular needs and desires.
Richmond: Expect more of the same next year. From our perspective, it appears that fundamental changes in legislation have benefited car retailers, which was clearly the intention when the European Commission changed the rules. The larger, quoted plc groups have, on the whole, produced robust trading results in 2005 despite the weak retail market, and we see no reason why this should change. We also expect plcs to continue to grow through acquisition to offset any profit deterioration in their core business.
Robinson: Groups that have shown an interest in Reg Vardy, but who are unable to buy it, will probably look to smaller groups or individual sites which come onto the market.
Dunn: In our sector, I hope the change will be a way of getting rid of the bad boys. I think they, and not us, are more likely to suffer from greater competition that raises standards in the aftermarket.