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AM High Performance Indicators Survey: Tensions increase between dealers and manufacturers

The term ‘perfect storm’ has been heard on a number of occasions to describe the month of April as numerous bank holidays, a Royal Wedding and Easter combined to leave retailers just 18 working days to make the most of the beginning of a relatively quiet quarter for the trade after what should be a busy plate-change month.

  • A comprehensive version of the survey results, with more dealer comments and detailed feedback - is available here.

But despite the optimism of the motor manufacturers that registrations in June were in-line with expectations, much of the positivity is coming from the fleet sector, not retail, and there are long-term factors still in play – government cuts, poor consumer confidence, high street closures and Japanese supply issues.

The storm may be over, but the atmosphere is charged with considerable cause for alarm and with little sign of a return of calm.

Exacerbating this is the emergence of increasing tensions between dealers and manufacturers, with dealers citing unreasonable targets and cost expectations in a market that will not shoulder either in their view.

Dealers participating in our survey have said they do not expect the market to get any worse than it was in the second quarter of this year and one said redundancies in their business were “imminent”.

Dealer comments on the market

* Showroom traffic has fallen, conversion rates about the same. Good order bank for LCVs
* New car availability very poor so used has been a focus
* The retail market is shrinking and customers are not enquiring. All leads are a result of our hard work
* We’re feeling very unstable
* New is very tough and we cannot compete against groups’ buying power. Used is our focus and our fleet sales coming from Motability
* Customers are very careful in the purchasing decision, often switching from new to late used
* New cars are selling, but margins are under pressure. Used car volumes have fallen slightly, but margins are very much under pressure.

The National Franchised Dealers’ Association has spoken of the need for manufacturers to provide marketing support and incentives, “particularly where the consumer may save money” on a more efficient and reliable car.

However, there is little evidence of the united approach in our survey results.

The minority of dealers say they and their dealer councils are working well with manufacturers or that manufacturers are sympathetic to their needs.

But there has been a considerable rise in dealers’ dissatisfaction with manufacturer relationships since April: 31% overall (22% among dealers in the AM100) say it has worsened in the last quarter compared to 20% (8%: AM100) in the first quarter of 2011.

“The manufacturer is making it harder to earn money and instead of helping dealer profits it is giving it away to sell cars at any cost to maintain market share,” is one typical comment from dealers burdened with poor showroom footfall, but unrealistic targets and increasing costs.

Dealer comments on relationships

* They are likely to worsen, but we must continue to work in partnership with them to limit the damage from the weaknesses in the market
* Not sure where the relationship has left to go. Very disjointed at present, too many players trying for their own section rather than pulling together
* They’re good solid partners
* Manufacturers are only interested in new car and parts sales. We need to make money, hence the disconnect.

The weakness of the relationship allied to market fragility has dented dealer confidence severely: business confidence is at its lowest point since we began the survey in January.

So, 45% (33%: AM100) were less optimistic about their business prospects in March, 62% (70%: AM100) today.

It is easy to see why. In the last quarter the following have all worsened, say the majority (see graph on facing page): new car and used car transaction prices, fleet sales and, tellingly, used car sales.

The latter had been a cause for optimism in our Q1 survey with 28% (29%: AM100) seeing an increase in used sales and 28% (33%: AM100) a rise in used car transaction prices.

But after a reasonably strong Q1, values have tumbled to levels not seen since 2009 causing considerable write downs in stock, fuelled by an excess of used cars.

It should be no surprise that prospects look bleak, with one dealer going so far as to say there is “no light at the end of the tunnel”.

Dealer comments on prospects

* Manufacturer ‘bonus on volume’ model is coming under strain. Targets have to be set cleverly to maintain dealer motivation. Production lines need to slow down
* Poor profits, poor new car performance, poor economic climate: no sign of upturn or confidence
* We made changes many months ago to enable us to ride out this depression. We are profitable YTD.

Our research shows that 62% (AM100: 74%) of dealers expect new car sales to fall and 49% (AM100: 61%) expect a fall in used cars in Q3 compared to the same period last year, with such a view fuelling concern about financial returns.

Profitability is expected by 67% (AM100: 87%) to fall before October. Just 11% (AM100: 9%) say it will increase, 22% (AM100: 4%) hope to stay the same.

In Q1, expectations were split equally between those who believed it would increase or stay the same and those that believed it would fall.

Over a 12-month period 48% (AM100: 41%) say profitability has worsened in the last 12 months compared to the previous. 11% say they are running at a loss (AM100: 4%).

Dealer comments on next quarter

* We cannot expect anything different. Consumers’ disposable income for non-necessities is not available
* I don’t think things can get any worse than those experienced in Q2. The guide devaluations hurt with our write-downs but this will stimulate forecourt enquiries.

We asked respondents to list the biggest challenges in the next quarter. Clear trends were hard to discern so varied were the answers, but key among them were preserving cash, profit margins, showroom traffic and falling used car prices.

Very few mentioned aftersales volumes.

Dealer views

Le Roy Muntingh, group managing director, Mercedes-Benz Salisbury

“Overall this year is going pretty well – we are within a fraction of where we were at the same point last year. In terms of vehicle sales, it has definitely been a lot harder.

"Our sales people are speaking to 50% more people to get the same amount of business through the door as last year, and that is particularly true of new cars.”

Simon Bottomley, chairman and group managing director, Thurlow Nunn

“We have taken steps to simplify the business process. It’s vital that we make sure business units are running as efficiently as possible.

"For example, we are consciously making fewer mistakes because rectifying them costs us money.”

Guy Ainsley, operations director, Caffyns

“Aftersales has been a lot more resilient. We have been able to keep our workshops busy and parts sales are also holding up well.

"This part of the trade does not seem to have been affected by the volatility that has hit the new and used markets.”

Steve Bessex, managing director, Drive Motor Retail

“We’ve been working hard to get our aftersales departments more customer and sales focused.

"We have invested considerably more on training and developed our own aftersales process which now mirrors how we operate our sales department.

"We are no longer employing traditional service managers, but have looked to different skill sets.” As such we have employed an ex sales director from a property business, a lady who ran her own florist and people from the banking industry.”

Free report available

This is the third analysis of the quarterly AM High Performance Indicators survey, run in conjunction with HPI, to regularly ascertain the views and confidence of retailers across a number of areas of 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 via email. It is also promoted on our website at am-online.com

We ask for respondents’ comments to help explain the answers.

A more comprehensive report, including considerable dealer comment, is available as a pdf. Email jeremy.bennett@bauermedia.co.uk for a copy.

Analysis in each instance is provided in AM. The next survey will be posted in October with findings published in that month’s issue.

Thank you to the 90 dealers who took part – your opinion is invaluable.

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