Leading dealer groups are rethinking their approach to the way they run branded used car supermarket sites alongside franchised dealerships.
The sites were launched as a response to independent supersites that were capitalizing on important changes in the way retail buyers viewed the purchase process.
A sharp decline in brand loyalty and the internet’s influence in assisting pre-purchase research and price comparisons quickly became major factors.
Also, a marked improvement in reliability weaned many retail buyers off a two or three-year new car/trade-in cycle.
Drivers like big car supermarkets’ wide choice, similar to what they experience when visiting food supermarkets.
All this still poses a challenge to franchised dealers in terms of retain-ing customers and making the best profit possible.
Franchised dealers’ ability to fend off competition from Motorpoint, Fords of Winsford and others with their own car supermarkets has become more limited.
A willingness among many buyers to travel miles to buy a used car has strengthened the position of big independently run used car supersites.
Good used car stock is getting harder to find and leading dealer groups are rethinking the balance between used cars at franchised sites and specialist outlets.
Trevor Finn, chief executive of Pendragon, the UK’s biggest dealer group, has launched an attempt to rival the big supermarkets with Quicks, the brand name for a fledgling chain.
“The name is quite well-known,” said Finn, and it also has the advantage of being short and easily remembered.
The Quicks dealer group was bought in 2003 by CD Bramall, which in turn was later acquired by Pendragon.
Evans Halshaw and Stratstone are Pendragon’s franchised retail brands and, because of its size, the group can often have as many as 20 empty showrooms following closures or terminated franchises.
For years Pendragon has sold used cars at defranchised dealerships. Now he sees scope for growth.
Pendragon’s used car sales were 12.1% up year-on-year in 2010, according to its annual results. In January volumes were 33% higher year-on-year.
A change in regulations means companies have to continue paying business rates when premises are empty and that can be expensive for large dealer groups.
“Costs will remain under management focus throughout 2011,” said Finn. “Quicks is a bit of improvisation for sites that are otherwise a dead asset.
“We also intend to increase sales of used cars in 2011, progress our processes and introduce a number of initiatives across the group,” said Finn.
The first four Quicks supermarkets are at Hull, Stockport, Stockton-on-Tees and Stoke-on-Trent. The initial target is for the four sites to sell 500 to 600 cars a month.
Three more are due to open this year and Finn expects his super-market brand to be profitable by the end of 2011.
“Used cars produce stable margins and we believe sales in the UK will recover to around 6.7 million next year,” said Finn.
Pendragon is also raising the profile of its offer to buy used cars.
Finn said: “We’ve always been willing to do this and now believe that more people will be attracted by the idea, especially if they have a bigger-ticket car.
"They might believe they could get more by selling privately but prefer the convenience.”
JCT600 is also feeling its way, with PriceRight, the group’s car supermarket brand. The first solus site was opened at Rawdon, near Bradford, at the end of 2010 to assess potential.
John Tordoff, JCT600 chief executive, said the PriceRight brand has also been integrated into used car operations at a handful of low market-share outlets.
“This assists in defining these dealerships as all-makes used car specialists,” said Tordoff.
“Our solus Price-Right supermarket is not of the scale of many independent supermarkets as we stock around 120 used cars.
“The smaller model suits us well as it can be operated at a sensible overhead level, and we can turn the entire stock within a month.
“Another benefit is that we are able to offer each customer the time and purchase experience they would expect to receive in one of our franchised dealerships.”
JCT600 will not open another solus PriceRight site until the concept has completed a year of trading but, said Tordoff, “initial signs are good”.
With UK new car sales annual totals stuck below 2m, retailing used stock is more important than ever for franchised groups but marketing poses more of a problem than for the independents.
A single brand name, backed up by the right customer service, is as vital to Motorpoint and its car supermarket rivals as is Waitrose to John Lewis in the retail food business.
This year a battle for sales of used cars is brewing among traditional dealers and the big specialist sites.
The backdrop to the need for a sharper performance by all franchised groups is the expected decline in registrations of new cars.
The SMMT forecasts a 5% year-on-year dip to 1.93m in 2011, and Professor Garel Rhys at Cardiff Business School expects a slump to 1.8m.
Vertu Motors chief executive Robert Forrester is more optimistic and believes a market of more than 1.93m registrations is possible unless oil prices rocket.
He predicts a strong demand for used cars, too, because he believes the UK economy is picking up.
There are three Motor Nation car supermarkets within Vertu Motors, in Birmingham, Doncaster (south Yorkshire) and Widnes, near Warrington, Cheshire.
They are expected to sell 4,000 units out of Vertu’s likely used sales volume of around 40,000 this year.
Vertu does not to intend to extend its Motor Nation network, acquired in 2006 when Forrester, backed by City investors, bought Bristol Street Motors to form the retail bedrock of his new group. With Bristol Street came five car supermarkets branded Motor Nation.
Vertu soon shut the Coventry site and last month another, at Darlington in County Durham, was closed and the site rebranded with a Nissan franchise.
“The used car market is under some pressure because of the number of cars going into rental,” said Forrester.
“Manufacturers take them back and distribute them as used cars through their franchised dealers. This has led to a significant reduction in stock.”
Forrester’s belief in systems and programmes runs throughout Vertu.
So the policy for stocking and selling used cars is exactly the same for the group’s franchised dealerships and supermarkets.
He is optimistic about prospects for sales of used cars in 2011 and also about a likely rise in their value.
There is one proviso: “a massive increase in fuel pump prices could put that into reverse”.
Forrester expects any sales increase to be driven by a realisation among many that purchasing a used car younger than the one they own will save them a lot of money when refuelling. “We make them aware of that,” he said.
For Vertu the Motor Nation concept works as long as the outlets serve a purpose for the group and make money.
“They are extra outlets and therefore useful,” said Forrester. “I don’t see Motor Nation as a brand to build because franchised dealerships have advantages, such as gaining aftersales revenue.”
Forrester sees a marked difference between franchised groups’ branded supermarkets and non-franchised independents such as Fords of Winsford in Cheshire.
That company was founded in 1959 and claims to be the UK’s biggest solus used car supersite with a stock of around 1,400 units.
Lookers views used car sales as a huge opportunity, said chief executive Peter Jones, and is making a key change in its strategy.
“Through improved sourcing, and a broader stock mix on our forecourts, we expect to take advantage of the stable market conditions in the sector and improve volumes,” said Jones.
Last year Lookers appointed Alan Holgate as group used car operation development director following a review that revealed a need for improvements in stocking techniques.
Andy Bruce, Lookers motor division managing director, said: “The used car market is a battleground and stock is getting more difficult to acquire. Selling them used to be the problem.
“We realised that one of our Land Rover sites, for example, was sending part-exchange Golfs to auction, while our Volkswagen operation might be buying them.”
Now, Lookers is co-ordinating stock disposal and acquisition so that sellable cars are retained within the group.
Lookers has a car supermarket brand called Trade Centres (its first site was named after the acquired Bristol Trade Centre) and another at Burton-on-Trent in Staffordshire.
Another three in Northern Ireland, run by Lookers’ Charles Hurst division, trade as Usedirect.
“Five supermarkets is about right and we have no plans for more,” said Bruce. “They are a useful way to recycle some stock in the most profitable way.”
The five sites are handy: they con-tributed around 7,500 of Lookers’ 42,000 used car sales in 2010.
Daniel Burgess, automotive director at HPI, said many dealer clients were looking for ways to improve all parts of their businesses as times became more challenging.
“Dealers should take time to examine their sales process to find ways to speed things up such as free seven-day insurance that allows them to tax and deliver their cars more quickly,” said Burgess.
Jonathan Dunkley, group operations director at The Car Shop supermarket, agrees: “We have to pull out all the stops to maximise sales opportunities and bring added value to our customers’ experience.”
Almost half of The Car Shop’s customers opt for Aviva’s Driveaway so they can take delivery without delay.
Professor urges dealers to treat used as new
The biggest issue in the sector that dealers still have to address is to treat used cars and their associated market segments in the same way as new cars, says Professor Peter Cooke at the Centre for Automotive Management at The University of Buckingham.
“There are clear market segments for new and used cars and dealers can target them with appropriate product,” he said.
“Never before has professionalism been more important. Dealers need to keep their displays fresh, move units around, allow space and be ruthless with overage stock.
“Finance can be a killer for any deal – dealers must make sure it’s available for would-be buyers.
“Dealers should also treat used car customers as important and follow them up after they have bought, asking if they have friends or family who might want to buy.”
In the 2010 edition of the annual used car report that he edits for BCA, Cooke underlined the importance of sales to dealers. In 2009 franchised retailers accounted for 2.2 million (57.3%) of dealers’ used car volumes, with non-franchised businesses selling the remaining 1.5m units.
A growing shortage of stock, and weaker sales in franchised dealers’ traditional sector of stock up to five years old, caused many to change their stocking policy.
This meant turning to the six- to eight-year age group, where there was a more plentiful supply of stock and a healthy demand for good quality used cars.
Cooke said that in 2009 dealers’ used car market value rose £1.2 billion to £25.2bn, reflecting a modest fall in used car volumes and stronger selling prices.
In contrast, the private-to-private sector’s market value dropped from £6.95bn in 2008 to £5.57bn in 2009 as privates sales fell by 475,000 units.