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Tesco directs service customers away from franchise dealers

Tesco Cars is directing its used car customers to 900 independent garages for servicing through an arrangement with National Service Network (NSN) which says it can offer prices 30% cheaper than franchised dealers.

Customers do not have to buy a car through Tesco Cars in order to use the servicing deal through NSN at www.tescoautocentres.com. Currently any retail customer can book their servicing through the Tesco Autocentres website.

NSN centres will not be branded with Tesco livery. They will offer customers a courtesy driver to pick up their vehicle at their home or place of work. A Tesco Autocentres customer service advisor keeps the customer informed via phone throughout the servicing process and once all authorised work has been completed the car is delivered back to the customer.

It’s unclear how much of a marketing push Tesco will put behind its servicing tie up as the offer is currently buried within the Tesco Cars website.

The news follows on from the announcement earlier this week that Tesco has entered the used car market. The automotive industry is divided on whether Tesco can make a success of its decision to sell ex-fleet stock direct to consumers.

Tesco says it will be able to source 3,000 cars from ex-fleet and short-cycle rental stock each week, offering a range of models between six months and three years old.

With access to 16 million Tesco Clubcard holders, there is potential for significant growth over sales achieved to date by Carsite (less than 10,000 since its launch in 2006).

Dealer reaction

Daksh Gupta, Marshall Motor Group chief executive, does not believe Tesco poses a serious threat to franchised dealers.

He told AM: “I have a lot of respect for Tesco as one of the best, if not the best, retailer out there, but we have to remember that there are six million used cars sold every year in the UK. Clearly Tesco will take some market share, but there is enough room for both to operate.”

Gupta said Tesco Cars’ balance of manufacturer or one-month warranty, a single collection site in Birmingham, no test drives and no part-exchanges could be a concern for some customers, but there would always be some buyers where those issues would not be a problem.

He said: “Tesco is offering a totally different proposition to what a franchised dealer can offer and there will be some customers who will be happy with it.

“We should also remember that we have seen other new entrants into the market such as Virgin who are an equally powerful and respected brand, but where is VirginCars today? Look at what has happened to Autoquake recently too.”

John O’Hanlon, chief executive of Ridgeway Group, told AM: “As an immensely strong brand, we must be cognisant of the threat that Tesco represents.

“As an organisation, Tesco is highly respected, has great resources available and rarely fails in any endeavour it pursues. It clearly believes there is a gap appearing in our market.”
O’Hanlon said the Tesco Cars business model appeared to be straightforward in terms of sourcing the vehicle and then selling it for a small margin while making sure it offers valuable add-ons in terms of finance and insurance.

He said: “The complications will come from ensuring enough quality stock arrives at the right time at the right price. And also from how Tesco deals with customers when cars go wrong.”

O’Hanlon believes franchised dealers can be confident of meeting any challenge presented by Tesco Cars head-on by having “the best understanding of local markets, great facilities, great staff and of course a fantastic customer experience”.

He said: “We constantly review how we go to market. An internet presence clearly isn’t enough.

“It must be interactive and must respond to how today and tomorrow’s customers want to transact. Customers are getting more comfortable with making larger commitments with trusted brands on the web.”

Chris Wells, Mercedes-Benz of Salisbury sales manager and AM’s Used Car Retailer of the Year, said: “People research every aspect of their used car purchase online, from how they’re going to fund it and whether the car is competitively priced.

“The reason that process will never be completely online, is because people want their part-exchange valued or they want to talk about a deal. It will never be fully automated as a process because there are just too many variables.

“Part of the reason why we’ve been successful in used cars is because customers have the same people to talk to, there’s accountability. If you buy a loaf of bread and there’s something wrong with it, try going to find the person that sold it to you in Tesco.
“It’s not like buying a tin of beans or a loaf of bread; it’s a longer standing purchase.”

  • To see even more dealer opinion on Tesco lending its brand to used car sales and servicing click on the next page.

Will Tesco make a success out of used cars?

51.22% YES

48.78% NO

Opinion is clearly divided as to whether Tesco can make a success of selling used cars. Here are choice comments from the poll:

“It’s brave to say Tesco is unlikely to succeed. But there are too many variables in selling used cars. Dealers are outstanding at delivering their products to a consistent standard. Tesco’s model will want consistent standards and the only way it is likely to be able to deliver them is to offer very low standards. We know that doesn’t sell cars.”

“Tesco will only be successful if it employs industry specialists and has a wide selection of cars with a comprehensive warranty. Selling cars remotely and with an emphasis on F&I will be viewed with scepticism.”

“Tesco’s main objective is to sell finance and insurance and, with its large database, it will certainly have an impact. However, the motor industry is about people providing a quality service which generates confidence. We have already seen the failure of another internet car retailer recently and I am sure it won’t be the last.”

“Yes, if it hires and trains proper sales and management staff and continues to work on customer relations as satisfactorily as its supermarket ops do. No, if it assumes its expertise in other fields will carry the day.”

“Tesco has no experience in selling anything used. The brand will generate traffic, but it will be just where the rest of the trade is when it comes to ‘How much will you give me for my PX?’”

“Massive buying power and no interest in profiting from sales, just the finance: how can it fail? Wouldn’t it be nice if Tesco offered dealers its finance solutions and we sell the used vehicle in partnership?”

“Tesco is too switched on not to do well. Where it does not have the experience it will buy in the personnel to make sure it adds to its revenue streams. The fact that it is not entering the new car market already indicates that it knows where the money is to be made in our business.”

“Tesco would make a success of it in volume terms. However, it will not give Tesco the financial return it’s used to.”

“The industry is being dragged into a field of sales that requires little dealer/customer interaction. This may satisfy a particular segment of the market that has little trust in a physical dealership. However, this is a niche market and Tesco, being a well-known brand, can serve this segment rather well.”

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