By Philip Nothard
Many of us will recall the days when stocking decisions were based on gut feel. Of course there is still a place for good, old-fashioned trade instinct based on experience, but dealers are also becoming more scientific and analytical in their approach to defining stock profile.
Philip Nothard joined CAP in 2010 as its retail and consumer price editor, analysing pricing data and interpreting strategic market trends. In his role, he is able to apply two decades of experience gained in franchised motor retailers, which culminated in running dealerships for the likes of European Motor Holdings, Lythgoe Motor Group and Arnold Clark.
My own research has recently concentrated on questions such as what dealers should be stocking and why. For example, what should the petrol-to-diesel ratio be? How much investment is there in alternative-fuel vehicles? How many of your cars should be priced between £5,000 and £10,000? Should an independent in Scotland have more 4x4 vehicles than a dealer in Stoke?
Taking the example of a dealer who focuses carefully on intelligent stock profile, it stocks on average 60 vehicles with an investment of circa £600,000. The breakdown is 25% small and 25% medium, with the rest large cars – including 4x4s – and LCVs. Fuel-type breakdown is 75% petrol for small cars, 50% petrol for medium cars, 75% diesel for large cars and 4x4s and 100% diesel for LCVs.
It found, by constant testing, that this mix works best for its business. It’s a bespoke approach – the ratios are different to the stock available in the open market.
There is another issue increasingly likely to influence stocking decisions. Consumers are offered more information on wholelife costs than ever – dealers who can engage in that conversation will quickly overtake those who can’t.
It is interesting to take some of the components of those long-term ownership costs and see how they apply to a sample of cars advertised on driving.co.uk, as in the graphs below. Nearly half of the cars will cost £1,500-£2,500 to service and maintain over three years of ownership, while just 4% will cost the consumer more than £4,000.
There is a view in the industry that only fleet managers are focused on real-life running costs, but our data suggests this is changing fast, with consumers researching the potential financial impact of owning different cars. Now that the information is in the open, which dealer would not expect a significant extra cost in depreciation, servicing or fuel to sway a customer from one car in favour of another?
Looking again at our sample of available stock, depreciation costs vary enormously. Only 1% of vehicles advertised will cost less than £3,000 in depreciation over their next three years. Half the sample will see depreciation vary between £3,000 and £7,000 in the next 36,000 miles, meaning ownership costs will be equally varied. This is a very powerful argument on the forecourt and will inevitably influence what makes it onto the forecourt in the first place.
Understanding the shift in how consumers make decisions will be key to the stocking policies of intelligence-led dealers.
Jim Murray Jones at driving.co.uk said: “Total cost of motoring is increasingly a key part of the decision-making process and the internet continues to empower an already savvy buyer by providing them with independent information. As a result, the importance of volume is now equally matched with the need for the right mix of stock in order to meet the ever-changing and increasingly complex needs of the consumer.”
However, it won’t be as simple as simply stocking the cars that are cheapest to run. The stock most in demand will inevitably be thin on the ground, so the need for optimum stock analysis will only grow.
Dealers will need to be ready for the questions around total ownership costs. It may well be that a ‘gas guzzler’ has already taken its biggest depreciation hit and will be cheaper to own than a newer, more economical car. Being able to demonstrate this will be a powerful sales tool – especially when you can’t source your first choice of stock because everyone else is after exactly the same vehicles.