Lee Hamlett, vice-chairman - residual value and remarketing BVRLA
The supply of the traditional ex-lease car – the three-year-old 30,000 mile bread and butter stock for many dealers – will become more constrained and if trends continue could almost dry up entirely.
For some time companies have been extending their lease contracts. It has become common for large corporates and public sector organisations to run vehicles for four years and 80,000 miles. This trend has gathered pace during the recession. Inchcape Fleet Solutions has seen a 10% increase in contract lengths. On the cars where it carries the RV risk, its average contract length is now 44 months and 21,000 miles a year.
If this is replicated across all lease companies, and it is probable that it is, then dealers have to prepare not only for a reduction in new cars coming back into the market as used cars, but also that those cars that do come back will be older and with a higher mileage.
“The trend is for older, higher mileage cars,” said Lee Hamlett, vice- chairman – residual value and remarketing BVRLA and head of RVs at Inchcape. “But extended warranties should allay many fears.”
He said the lease car line-up is changing. Ford and Vauxhall dominated sales to fleets at Inchcape Fleet Solutions. That is changing. Volkswagen is now number one having overtaken Ford and Vauxhall.
“BMW and Audi are also performing very strongly, And the trend is on the incline. Fifty per cent of our order book is now German cars,” he said.
And what fleets have now will be the used cars of the future.
Peter Cooke, KPMG professor of automotive management, University of Buckingham
The used car market is worth some £34.2 billion annually - £6.2bn more than the new carmarket. The market is rising in value and, as Professor Peter Cooke, author of the BCA 2010 Used Car Report, explained, there were more profit opportunities in used car sales.
“But professional buying is critical,” he said.
Franchised dealers who have a successful used car operation are best placed to capitalise on the used car market. According to the BCA report, 50% of car buyers said they would buy their next used car from a franchise dealer. In addition, they could make the highest profit margins if they sold their franchise’s own make of used cars.
However, there will be supply issues as the fall in the number of new cars sold in 2009, 2010 and probably 2011 begins to impact on supply.
This confirms the need for more work by dealers to engage with their customers. Only a third of consumers who bought a used car from a dealer had been contacted after taking delivery.
“Forty-four per cent had absolutely no contact from the dealer they bought the car from, only 32% had a call reminding them that their car was due a service or to ask if they were happy with the car,” he said.
“Dealers need to do more in this area,” said Cooke
Factors influencing a used car buyer's choice of dealer
D'Vidis Jacobs, BCA remarketing director
Optimising stock for the retail dealer
Dealers were urged to spread their remarketing activities across multiple channels, online and at physical auctions, in order to reach the widest range of buyers.
D’Vidis Jacobs, BCA remarketing director, told delegates: “The days are gone when a dealer could just use one sales channel. By using multiple sales channels dealers can widen the market they reach.”
Jacobs said dealers needed to invest in detail as consumers were demanding more information about the product than ever before.
He said: “There’s got to be consistent descriptions for the product. Are you disclosing the
information your customers want
“Take a lot of photographs which show the car in detail. Make sure everything is listed and highlight the value-driving options.
“There should also be a detailed condition report which indicates any damage. If you show any marks on the car clearly, this will build trust with the customer. Higher confidence will result in higher conversion rates.”
Jacobs said dealers needed to get a fast process in place to proactively get vehicles into the marketplace as quickly as possible, the same day a car was acquired if possible.
While Jacobs admitted some dealers may already be taking the steps he described in his
presentation, he urged dealers to ask themselves whether they were doing them better than their opposition.
But it’s not just down to the dealer – what are remarketing companies doing to help?
Jacobs said: “Dealers don’t want to go to multiple sites to search for stock. Whether it’s a physical auction or online there’s got to be consistent details and a consistent approach as to how those details are presented.
“So remarketing companies are changing that process to reflect that.
“Stock has also got to be available outside the times that are busy for the dealer. Dealers also want consistent description format for stock across all remarketing companies.”
Jacobs said that purchasing was moving more towards online and that trend would increase in the future.
He said: “We’re going to create these platforms. People want to complete the transaction online through the website and through smartphones and that will happen.
“There’s still a large pod of people that attend the physical auctions, but dealers need to make sure they’re looking at multiple sales channels.”
Adrian Rushmore, managing editor, Glass's Guide Used car market landscape
Dealers are facing a used car market with 400,000 fewer one to three- year-old cars next year, according to Adrian Rushmore, managing editor at Glass’s Guide.
Rushmore said the decline in nearly new from 6.5 million units to 6.1m was a
“reasonable decline” which would help support used car prices through 2011.
He told delegates: “Retail demand has bottomed out and will continue to bump along the bottom all of next year.
“And then perhaps in 2012 we’ll see the benefits of further reduced supply plus an improvement in consumer demand and then the market will start a slow progressive recovery.”
Rushmore said 4x4s were representing the best residuals in the three year old vehicle segment returning 55%, while the premium lower medium was a growth sector which looked set to continue over the next couple of years.
However, city, lower-medium and supermini residuals had deteriorated.
Rushmore said: “There’s such a big proportion of these cars in the market, they’re now lagging behind everything else in terms of residuals because of that.”
Rushmore said dealers had learnt from the recession and were now managing their used car stock very well.
He said: “The market is delicately poised. If you were to attend an auction today, it would be all hustle and bustle. Cars are selling at very attractive prices and generally vendors are quite happy with what they’re achieving.
“Traditionally November is the most difficult month for the trade and for used car prices.
“We anticipate that the market will take a dip in November and December.
“Then next year, even though prices have broadly held year-on-year, the position is still going to be relatively difficult. The green shoots won’t be emerging in the first few months of 2012. It will probably happen towards the end of that year.”
Tom Hartley Snr, owner of Tom Hartley Motors
Working in a difficult market
Dealers should find opportunity out of adversity, turning every threat into an opportunity.
The advice came from Tom Hartley, entrepreneur and owner of prestige used sports car specialist Tom Hartley Motors.
He said: “I’ve lived through many recessions and there are always negatives that can be turned into positives in that situation. It’s easy to buy in a good market, the real test is buying the right cars in a bad market.
“The market can change very quickly. In just two weeks the price of one of my Ferraris went from £250,000 to £225,000 so reacting to those changes quickly is essential. The used car market is moving faster than I’ve ever experienced before.”
Hartley has been buying and selling luxury performance cars for over 35 years after starting his business in the early 1970s.
He started his working life selling carpets which is where he got his confidence and skill dealing with customers. While most children would be taking the Dandy to read at bedtime, Hartley was reading up on the Glass’s Guide.
He said: “I still get a buzz when I get up in the morning before work. I will still get up at 6am to drive 300 miles to get the deal done.”
Hartley’s business operates from a showroom on his own property and customers can visit one at a time by appointment only.
He said: “The business is jointly owned with my two sons and I believe in gut feelings and instinct when it comes to running my business.
“I am computer illiterate and rely on old fashioned techniques to do business. I believe visiting the showroom is still a big part of the buying experience. People visit my showroom by appointment only and the showroom is where I live. “
He predicts that the next quarter will be difficult for used car dealers.
He said: “Dealers are going to have to get up earlier and work harder. There are more opportunities during the recession. The doom and gloom from the media about the automotive industry is exaggerated, but it is there. This shouldn’t stop dealers from getting into the market and buying.”
Dermot Halpin, Autoquake CEO
Online sales - changing techniques
The internet has not yet revolutionised the way cars are sold in the UK, according to Autoquake chief executive Dermot Halpin.
While he believes Autoquake is leading the way, he thinks the rest of the automotive sector has a long way to go before it becomes the mainstream for customers to be able to complete transactions online.
Halpin was previously at online travel company Expedia before joining Autoquake. He said the internet had become a vital part of people’s daily life.
He said: “The internet has revolutionised many businesses, but I would argue that it’s not the case for used car sales.”
He advised delegates that transparency was the key to winning internet commerce.
He said: “There’s nowhere to hide on the internet. The price and what you’re offering has to be completely transparent in order to build trust with the customer.
“Your site has to be fast. Google sets the benchmark for what the customer expects.
“If you see someone doing something well on the internet, copy it. Look at other industries that use the internet well and take away those ideas for your own business.”
Halpin said a dealer’s website is a window for its brand. He said: “When someone goes to your website their experience is an immediate reflection of what your business is like. If your site is slow, and there are not many pictures or stock, it’s hard to use, it implies the same about other areas of your business.”
Halpin urged dealers to keep their website design simple by not putting barriers in the way of interaction.
He said: “People don’t want to fill things in. Just give them quick and easy tools to search for what they’re looking for and get out of the way. I recommend Don’t Make Me Think by Steve Krug, which offers a commonsense approach to web usability.”
Halpin also said it was not necessary to develop a specific web format for smartphones.
“Many smartphones are now able to process internet pages without having them specifically designed for web,” he said. “The mobile market is unpredictable and we’ve found it to be quite an expensive way for customer acquisition.”
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