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Insight: Rate of failure quickens as debt spirals

The recent rise in interest rates could not have come at a worst time for the car retail sector.

Business failures are accelerating at their quickest rate for six years, while consumer uncertainty over personal debt, coupled with speculation over further interest rate increases, has persuaded many people to delay their next car purchase.

Cashflow worries, investment demands and rising operational costs are forcing beleaguered car retailers to reassess their practices and business structure.

Marketing, quality of staff, lead generation, sales conversions and aftersales efficiency are ever more important as dealers compete for custom. And the growth in internet activity means many owner-driver dealerships with a once secure regional customer base are being squeezed by the marketing and discounting power of the large groups.

Increase in business failures

A breakdown of corporate failures, supplied by Experian, shows that 161 dealers went out of business in the first half of 2006. That marks a 30.9% rise over the same period in 2005, the highest increase in six years. A glance at other retail sectors reveals a similar trend: failures are up by 29% in the non-food retailing sector and by 47.2% in food retailing.

Rob Whalley, managing director of Experian’s Automotive division, says: “2006 will be a tough year for dealers as consumers are swamped with offers. The challenge to stand out and be noticed has become greater and dealers need to invest in more intelligent ways of reaching, acquiring and keeping customers.”

Dealers must understand their potential customers better – where they are and how to reach them – yet they must also recognize the opportunities close to home.

“If the average car buyer is likely to change a vehicle every three years and, on average, a dealer will have 10,000 customers on the database at any one time, there are around 278 potential customers each month that could be targeted. By not targeting their own customer base, dealers are missing out on more than sales opportunities; they are potentially putting the future of their business at risk,” Whalley adds...(Continues in August 23 issue of AM)

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