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Pre-registration risks can outweigh benefits

In our series of insights into running an efficient dealership, Thurlby Motors managing director Chris Roberts looks at pre-registrations.

Pre-registrations are a thorny issue. Neither dealers nor manufacturers like to discuss them openly and in all cases the activity has to be managed well to meet current legislation.

Cars that are pre-registered have to be kept in the dealer’s ownership for three months before they can be sold to a consumer, which prompts the question, does pre-registering still happen the way it did before the legislation tightened a few years ago?

The answer is, it does, and here I want to look at both the up and downside of the activity that divides opinion in the industry.

Pre-registering of vehicles is generally driven by the manufacturer, often when pushing market share or chasing unit numbers in a particular quarter.

However, volume does vary greatly from manufacturer to manufacturer with some doing very little and others doing large numbers when the need arises. Often the dealers’ stimulus for taking part is the carrot of huge volume bonus payments, which for some businesses, in big quarters such as Q1 (March) and Q3 (September), can run into six figures.

Sounds great, doesn’t it, but often the risks outweigh the reward and I have seen many dealers get their fingers badly burned by being too active in pursuit of VB payments and ending up with a massive overage problem.

Of course, the decision to pre-register is normally commercial but, occasionally, if a dealer is under-performing a pre-registration exercise can move them up the market share tables and therefore off the radar with the manufacturer.

For the consumer, pre-registrations offer great value for money. Often the cars have been registered at a discount, sometimes through bulk or fleet pricing terms.

Where volume bonus has been earned dealers may also choose to use some of this money to further reduce the stand in value and improve the price point to the end user.
In addition, as the cars have to be kept for three months, the more prudent dealers will depreciate the car over this period, again improving the price point. Sounds great for
the consumer, but is it really good practice for the dealer?

Well, it can be. However, certain factors need to be considered before jumping in. Firstly, what will be the quantity and mix of units potentially being registered? Remember these vehicles effectively become part of the used stock and as such will increase the value and volume of used cars by a considerable amount.

Secondly, make sure that the mix will not adversely affect the stock turn. Too many of the same model is bad, but often the only option if a manufacturer wants to get out of old stock.

Finally, make sure you calculate the real cost of having the cars for a minimum of three months. Depreciation, stocking charges and interest all erode any front-end bonuses so make sure the exercise has a positive impact on profit.

Pre-registrations happen. It’s a fact. If you do them, always do your homework first.

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