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Insight: used cars

Lookers’ recent acquisition of the Bristol Trade Centre, one of the UK’s leading car supermarkets, illustrates that the used car market is a key growth area and source of profits, particularly among the larger retail groups.

The company says it will continue to aim for growth in the used car sector following the £8.5m acquisition, which will add around £35m to its annual turnover.

“We announced some time ago our intention to strengthen our used car operations and the acquisition of the Bristol Trade Centre is the first step in that process,” says Ken Surgenor, Lookers chief executive.

Dedicated sites focus

He adds: “We believe Lookers should develop broad revenue streams from all the sectors of the automotive industry, alongside the continuing development of our franchised car retailing business.”

Used cars account for 15% of Lookers’ total gross profit and it sells one used car for every new car, a ratio that the group is looking to increase with dedicated sites at the heart of this strategy.

“On the mainland we have been selling used cars mainly through our franchised network and haven’t had specific used car sites. I don’t think we have been that successful in used cars before, but now we intend to focus on dedicated used car sites to grow this part of the business,” says Surgenor.

He believes that customers who are not sure which make of car they want, but know what their budget is, are going to be drawn to a dedicated used car site rather than a franchised dealer.

“Dedicated used car sites are a key part of our strategy. The used car market is bigger than the new car market and it is an area we intend to grow,” says Surgenor.

“At the moment we are putting a lot of used cars through auctions and they are bought by other used car dealers. If we can retail these cars ourselves, it is a big opportunity.”

This growth will give the group a larger presence in the used car sector and is in line with the company’s strategy of broadening its revenue streams in the industry. But Lookers is just one of many dealers placing greater emphasis on used cars.

Maximising potential

“Used cars are a major part of our operation and we sell between two and three used cars for every new car,” says Robert Forrester, finance director for Reg Vardy.

“Our strategy is to maximise the used car potential of our franchised dealerships as much as possible. It is definitely still a growth market and the potential in used cars is significant, especially if you can look at different ways of selling cars such as the internet.” Vardy sells about 400 cars a month via the internet, 75% of which are used vehicles.

While the traditional route for dealer groups has been to sell used cars through the franchised network, dedicated used car programmes with their own standalone sites are becoming more common throughout the UK.

Reg Vardy has three used car sites, branded Motor Zone, in Edinburgh, Redditch and Darlington. It is on the verge of opening a fourth outlet at the MetroCentre supersite in Gateshead, alongside Land Rover, Jaguar and Aston Martin dealerships, and has a specialist used car centre in Hamilton, Scotland (main picture).

“In the future it is likely we will be developing larger non-franchised centres, such as the one at the MetroCentre, but the franchised dealers will always be the focus. We sell 70,000 used cars every year through our dealer network and the business accounts for around a third of the company’s profits,” says Forrester.

“Used cars will always underpin the profitability of Reg Vardy and we have a constant focus and passion for the used market. We live and breath used cars, which is what I think makes us stand out from the competition.”

Keeping a balance

Scotland’s largest dealer group, Arnold Clark, has a strong reputation in used cars, but says keeping a healthy balance between used and new sales is crucial.

“Although used cars have always been a very important profit centre for us, of late new car prices and low interest rates have swung the needle back towards new car volumes increasing at the expense of used because of affordability,” says sales director, Scott Willis.

“Our plans are to continue to develop and grow a little at a time as opportunities present themselves.”

Solus used car sites haves been explored by Arnold Clark, but sales through franchised dealers remains a core focus.

“Although there are advantages to used car sites, the infrastructure and confidence inspired by a manufacturers brand are important, especially when operating outside your own home territory.

You also lose vital aftersales and warranty support with used car sites,” says Willis.

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