One of the most interesting issues will be the handling of disaffected customers who return a car with a higher-than-agreed mileage or in a condition that does not meet the standard required. There has been little research done on the percentage number of walkaways in a mass market situation.
Most dealers are obviously trying to avoid this situation by attempting to get customers to trade up within the time period of the existing contract. Not only does this help to overcome the problem of customer disaffection, but also spreads out the time when the lease cars are being returned.
Another problem beginning to emerge is found in the low-end PCP returns of the luxury sector manufacturers. There is some evidence that advantageous lease arrangements have attracted customers from the mass market who are quite happy to pay the low payments, but end up trashing the car and then walking away from any further repurchase.
To what extent this will be a problem is yet to be fully analysed, but if it becomes more prevalent it may affect dealer profitability in the long run.
The PCP challenges in the year ahead
The challenge of used car prices falling with a glut of stock coming back to the dealership could impact negatively on cash flow and put pressure on dealerships that are not prepared for this financially.
For franchises that went into PCPs early in their life cycle, there will undoubtedly be a need for them to carefully plan their used car stock holding in the last quarter of 2015. Unless the balance between the new car PCP offering and the used car scheme is synchronised between the manufacturers and the dealers there could be major problems.
There is an old mantra that failing to plan is planning to fail. It is my belief looking at the evidence that planning in 2015 is going to be critical. Planning for PCP returns, handling potentially disaffected customers and trying to accommodate falling used car prices are going to be some of the major challenges in the new year. A strong retail market is great for business, but needs the same level of good management that was required when the sector took a hit during the financial crisis.
May yours be a well planned and prosperous new year.