ROCE overview: Daniel Taylor and Paul Burrows, Grant Thornton Automotive Services
Analysis of the AM list of the top 100 franchised dealers shows they are steadily increasing their presence in the motor retail industry.
A continuing trend is the overall decline in the number of franchised dealerships with the proportion of those dealerships being held by the AM100 increasing.
Small or marginal sites may become more vulnerable to closure or acquisition.
“The AM100 has become a more powerful body in the motor retail sector,” said Paul Burrows, Grant Thornton Automotive Services principal.
He says the future is likely to see the dealer groups that sit between 30 and 50 in the AM100 expanding by acquiring many of these smaller dealers.
Motor retailers building a scale brand or geographic strategy are well placed to improve their performance.
Those with a very broad spread of territories and franchises may struggle to keep control of efficiencies.
Nevertheless, the largest dealer groups are in favour with many manufacturers because of their ability and willingness to invest.
Good people and management are among the strengths of the regional heroes and brand specialists which help them drive better returns than the larger groups.
These dealers are strongest on returns on capital employed (ROCE). Top performers are achieving levels comparable to major companies, such as Tesco.
However, GTAS partner Daniel Taylor said analysis of the returns on fixed assets shows improvements at the bigger groups, so their investment is justified.
Regulation, keeping it legal: Stephanie Murdoch, Alliance Consultancy
Significant regulatory changes are ahead for the sale of finance and insurance, because the current regime doesn’t work, said Stephanie Murdoch, managing director of Alliance Consultancy.
Regulation will be driven by the European Union, with powers transferred to member state’s regulatory bodies.
With the Financial Services Authority being disbanded next year, Murdoch suggested that a single UK regulator would be best for businesses and consumers and believes it is likely that the Office of Fair Trading will pass consumer finance over to the Consumer Protection and Markets Authority.
She said: “Embrace regulation, it’s here to stay. If you get it right it can work for you, improve your business’s sales and improve your profit.”
Dealers have until February 1, 2011, to implement the Consumer Credit Directive (CCD). It will bring several showroom-level changes and require evidence to be kept of compliance.
Adverts for finance deals will have to show a representative example reflecting at least 51% of the business expected to be driven by that advert.
Retailers will have to ensure that customers can afford their finance requirements, and make clear to them the consequences of failing to make repayments.
Customers will be able to take away finance documents to compare with other offers.
Once signed up they can back out within 14 days, and they can repay early or change the monthly repayments.
She suggested dealers considered having dedicated business managers to take customers through the finance process.
She also suggested that dealers should check their consumer credit licence and ensure controls are in place for advertising.
She warned that ‘claims farmers’ who milked PPI mis-sales will be poised to tackle businesses on CCD.
- AM Compliance Programme: ensuring you are legally compliant to sell insurance products – www.am-online.com/amcp
Relationship banking: Tim Smith, Black Horse
Dealers need to nurture their relationship with not only their bank, but also their finance company.
Developing this tripartite relationship into one based on trust is key, said Tim Smith, sales director for Black Horse in the north of the UK.
While some may believe the bank/dealer/finance house relationship is difficult, the common denominator running through all successful dealerships is that they manage that tripartite relationship successfully.
But that is not to say that there are issues. In a recent Black Horse survey, dealers complained of ‘knee-jerk’ reactions from banks, that banks do not know the car retail business well enough and that there is a lack of flexibility.
In response, the banks say dealers need strong, balanced management teams who share their vision with them and that they need a ‘no surprises’ mentality.
Despite these differences, the bank and the dealer have the same goal, said Smith.
“More clarity is needed if these relationships are to be successful. As one dealer said: ‘Your bank can only make decisions based on what it does know’.’”
Smith also pointed out that banks are now working to much stricter corporate governance rules as a result of the credit crisis.
Obtaining finance is now a lengthy process.
“So forward planning is essential,” he said. “And building a strong, trusting relationship with your bank is key.”
The need for this strong relationship is even more pressing now, warned Smith, as dealers enter one of the most challenging sales environments in many years.
“We all want the same thing,” he said.
“We must work together and build sustainable relationships.”
How tax changes can benefit dealers: Jacqui Gudgion, Grant Thornton senior tax manager
Dealers could save hundreds of thousands of pounds by making the UK’s tax system work in their favour.
In April the highest rate of income tax was raised to 50% for those with an annual income above £150,000.
Jacqui Gudgion, Grant Thornton senior tax manager, told delegates: “One of the best ways to plan to avoid income tax is to make sure you’re not actually receiving income, but you’re receiving capital.
“While there is a lot more detail involved in this process, there is a planning technique which allows you to create a security within the business to make sure it has a low value on day one, which can be transferred to the individual employee, who then pays a nominal income tax charge on that asset.
“When it pays out on achievement of certain benchmarked criteria within the business, that payment is treated as a capital gain.
Capital gains tax is only 28% as compared to the 50% income tax rate.”
Gudgion spoke about entrepreneur’s relief. In the emergency budget the threshold for relief was increased to £5 million.
She said: “Entrepreneur’s relief is a capital gains tax relief which enables someone making a profit at a
business to pay tax at an effective rate of 10%.
“The qualifying criteria, very roughly, is holding at least 5% of ordinary voting shares, being an officer or employee of the company and fulfilling those positions 12 months prior to the sale of a business.
“There are significant savings to be made if those criteria are met and there’s going to be a realisation of more than £5m on the sale of the business.
"That relief is worth £900,000 so it’s definitely worth planning ahead for that.”
Customer service from the High Street: Anita McErlean, Carphone Warehouse
The success of a business is in having a clear strategic vision and the right staff to deliver that vision. In addition it needs management controls that check whether its objectives are being met.
For Carphone Warehouse, that means keeping staff engaged and customers happy.
Shopfloor staff earn no commission on sales.
Their incentives are linked to financial objectives and Carphone’s five values – people, operational efficiency, customers, finance and vision.
Staff engagement is up to 86%, the company’s highest ever.
Net Promoter Scores (NPS) help the company keep track of customer satisfaction and identify its lower performing employees.
The company’s position, said head of customer services Anita McErlean, is to drive sales through service.
A service model, TRUST, sets the five-step vision of making the customer feel appreciated, knowledgeable, listened to, informed and excited and impressed enough to share their experience with friends and family.
Carphone Warehouse has also compartmentalised customers, from technophile pioneers to value-seeking thrifties and no-nonsense traditionals.
The customer’s typical needs can be identified as a result.
Projects underway include a cross channel complaints project, to let customers take more control of their complaint, make them feel valued and to keep the experience consistent.
Motivating staff to maintain efficiencies: Simon Bowkett, Symco Training
How do you motivate sales staff when they are faced with a declining market? Simon Bowkett, managing director, Symco Training, knows the answer.
“Sales people live on confidence,” he said.
But if their confidence takes knock after knock, they enter one of three phases: they become desperate, they have a ‘woe is me’ attitude or they ‘creatively avoid’ sales encounters.
Whichever attitude they adopt, they are all counterproductive and will result in a poor sales performance.
The answer, says Bowkett, is to change the focus away from selling cars and over to the sales process.
“When they get desperate, stop them focusing on selling cars,” he said “The harder they try, the worse they get.”
This does not mean move them out of sales, but rather get them to concentrate on each stage of the step-by-step process of selling.
“Look at the activity, not the result.”
Therefore, reward and motivate them for capturing prospects’ details, for getting potential buyers into test drives. “Look at their pay structures,” said Bowkett.
“But also look at what else motivates them, perhaps that’s league tables.”
Essentially look at the entire sales process in order and reward them for hitting targets at each stage – targets that should be established at the start of each month.