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Dealer research: Plate change fails to lift confidence levels

The sense of foreboding evident in the first AM quarterly market survey has taken a firmer grip on dealers’ confidence levels.

The March market is critical in helping to provide the margins that will reflect the financial health for the remainder of the year, but far from being emboldened by the plate change, the opposite was true.

There is a continuing lack of confidence in the new car market.

For the first time we asked dealers to give an explanation for their survey answers.

Repeatedly, they highlight poor consumer confidence, low showroom foot-fall – and in some cases when showroom staff win a sale their efforts are thwarted by long OEM lead times.

So, in response to their optimism in the market now compared to the beginning of the year, 45% of respondents said they were less optimistic (40% in January).

Business prospects looked more rosy for 29% of dealers compared to 27% in January.

Dealer comments on the market:
> It’s very hard and we are fighting and working harder than we ever had to get an acceptable performance.
> Weaker campaign offers at the start of the quarter left us uncompetitive.
> We had a tough January with new cars and were still slightly behind last year until the end of March. Used car sales are slightly up.
> Showroom footfall is at an all-
time low.
> Used car sales are holding up at the expense of new cars.
> Consumer confidence is low and it’s difficult to get customers to part with their money.

Fuelling this is the new car market down year-on-year consistently in 2011. It is not expected to stabilise and recover until the second half of 2011.

This is backed up by industry commentary. Accountants Baker Tilly said this month the slow climb out of recession has led to a stagnation of consumer confidence.

“Consumers simply don’t believe that things are getting better.

"They will only believe things are going to get better when we have some solid reliable evidence that it has actually already happened,” it said.

For dealers the climate, of course, leads to added emphasis on used cars which appears to be delivering results.

Dealers said in our survey new car retail sales were down (55%) or static (20%). 15% enjoyed an increase.

Of our survey respondents, 28% saw an increase in used car sales in Q1 2011 (20% in Q4 2010); 32% experienced a fall (47% Q4 2010).

Used car transaction prices have also risen say 28% of dealers (18% Q4 2010), pointing to a positive shortage of stock.

Stock turn has also reduced from an average 53 days in Q1 to 46, just one day off the industry benchmark of 45.

This could turn to a negative factor if shortage issues worsen.

There could be a double whammy of lower used car availability and shortage of new car stock resulting from recessionary reduced production and part supply problems resulting from the Japanese tsunami.

Improving confidence in the fleet sector was evident with 13% enjoying a business boost compared to less than 10% at the end of last year, reflecting the year-on-year fleet share of the market in March from 41.3% to 45.4%.

LCV sales, ironically a barometer of economic health, were even more positive: just 9% saw growth in Q4 2010, while now the figure is 20%.

Dealer comments on prospects:
> We are stable and hoping that changes in our business will keep it that way. But with less cars being sold to actual end users rather than self-registrations there may be the need for a reduction in the number of sites we operate to keep paying for the high re-build costs.
> We have limited supply currently from Suzuki and the Japanese situation may only make matters worse
> We have Skoda supply problems - 64 forward orders running into October.
> New cars are almost always sold at a loss due to manufacturer pressure to hit 140% of target. Transaction prices are often £1,000 (or more) lower than cost. The first few of the pre-reg cars (now used of course) are sold with a £200/300 profit to compete with your neighbour. The balance are, over time, reduced leaving little to no profit (destroying used GP). The same units displace the traditional used unit, once the jewel in our crown profit-wise.
The emphasis on used cars is evident in the outlook for the next quarter, with an increase in the dealers expecting used car sales to increase, from 27% to 29%, with a corresponding fall in the positive expectations for new cars sales, from 19% to 15%.
Dealer comments on the next three months:
> Used will have to substitute for new
> Q1 has been relatively static, but with a small new car increase in some franchises, I can’t see Q2 changing.
> I hope that an increase in used sales covers the deficit in new.

Expectations of business profitability in Q3 remain static: with a roughly 50:50 split between dealers believing it will increase or stay the same and those that believe it will decrease.

Dealers reporting profits is up on the last quarter. 85% replied positively compared to 79% in Q4 2010. 60% made up to £100,000 in profit in Q1, 13% £50k-£100k; 22% £100k-£250k; 6% £250k-£500k; 3% £500k-£1 million and 9% more than £1m.

The only real shift was the number of dealers making up to £1m, falling from 6% to 3%.

But longer-term profitability is showing signs of concern as 45% of respondents said they were less
profitable in the past 12 months compared to the previous, probably pointing to the boost to financial health provided by scrappage.

Relationships with manufacturers are broadly the same quarter-on-quarter, with a slight increase in those saying it has worsened (from 19%
to 20%).

Comments from dealers range from “the relationship is sound”; “manufacturers are more pragmatic and utilitarian in their approach to dealers than in the past” and “we work hard and maximise and capitalise on our manufacturer relationships – you have to work with them and not against them in most cases” to “manufacturers do not fully understand the retail market and change their bonus systems to suit them not us” and “I don’t remember at any time in the past, our relationship being worse than it is now.

"The dealer body and manufacturer have com-pletely different objectives/values”.

Free report available:

This is the second analysis of the quarterly AM High Performance Indicators survey, run in conjunction with HPI, to regularly ascertain the views and confidence of retailers across their businesses, including profitability, new and used car sales, aftersales, transaction prices, employee satisfaction and manufacturer relationships.

The survey is conducted through an online survey sent to our audience via email. It is also promoted through our website am-online.com. We also asked for respondents’ comments to help explain the answers.

Analysis in each instance is provided in AM. The next survey will be posted in July with findings published in that issue.

Thank you to the 107 dealers who took part – your opinion is invaluable.

A more in-depth report on the latest survey , including considerable dealer comment, is available as a pdf here.

 

 

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