New and used car sales
Dealers are not even attempting to achieve sales targets which they believe the have no hope of reaching, following slow new and used car sales.
Many are finding the whole situation very discouraging but most are taking some action to fight back against the problem.
The availability of manufacturers' budgets to help with incentives that could alleviate the problem is limited, and most are also reluctant to commit to any long-term spending that could bring about structural improvements, says Network Automotive.
As a result of these factors, we believe that further reductions in new car prices during the next quarter and the rest of 2006 are unavoidable as part of the quest to encourage customers back into the showroom, and this will have an inevitable knock-on effect on nearly new and used car prices.
One developing trend is that much retail new car competition seems to be occurring more on a local basis, with customers looking to get the best deal on a type of car from a number of dealers, rather than wanting a particular model and trying to buy this for a good price. This is perhaps an indication of a "bargain hunting" mindset that can only make life tougher for dealers.
The most proactive dealers are switching much of their attention to aftersales in the expectation that higher margins can be achieved there than in car sales. Dealers who take a more reactive stance are in for a bumpy ride throughout the rest of the next quarter and the rest of the year, we expect.
On aftersales, the report continues:
Many forward-looking dealers are viewing aftersales, parts and rental as their best chance of achieving profitability in 2006 and we agree with this approach. Dealer activity in this area is proving to be quite varied but tends to be based on extracting the maximum return from existing resources.
So, for example, customer databases are being used for direct marketing purposes to ensure that a larger number are captured for service and maintenance, while dealers who operate rental desks are working to establish better links with local businesses. Also, efforts are being made to increase parts sales - if people are hanging on to their existing car for longer, dealers believe, then there will be more demand for service, maintenance and parts.
Bodyshops operated by dealers are also finding life tough, with most hoping simply to break even. This remains an extremely competitive area, with both independent and dealer repairers struggling equally.