By Debbie Kirlew
The pressure is already on dealers to at least maintain healthy profit margins in 2015 following a record-breaking 33 months of continuous growth for new car sales.
Industry predictions indicate a stable new car market, but a shorter new car life cycle is likely to affect used car prices and a rise in interest rates could dampen consumer confidence. To deliver on profitability targets, dealers will need to look closely at their cost management structures.
Charles Pease, head of corporate real estate at property and planning consultancy Rapleys, identified a number of property-associated costs that can deliver significant savings.
“We’ve found on many occasions that payments being made do not actually meet the terms of the lease contract, and that, in the confusion between having multiple landlords and contracts, money is being wasted and fees accrued,” said Pease.
“Getting all the accounts together and reviewing all the costs can result in thousands of pounds of savings being made”.
He also warned that landlords and investors may look to improve their assets with refurbishments, often at the dealer’s expense via service charges.
“It is worth getting an expert to review what is being proposed, analyse the costs, and determine what is due contractually under the lease terms. The service charge can then be challenged and negotiated, again delivering savings probably in the tens of thousands of pounds.”
However, Bill Bexson, managing director of Automotive Property Consultancy (APC), a specialist property services agency for franchised motor retailers, believes it will be difficult to renegotiate rents in the current buoyant property market.
“In 2015, the issue for dealers isn’t how their property management can potentially save them money, but if they need to undertake any refurbishment work, how that cost and the work required is to be managed,” he said. “When we were in recession, it was obviously much better for the landlords to keep their premises occupied, even if it meant agreeing a rent reduction.
“Now the pendulum has swung completely the other way. With property commanding premium prices, rents have risen accordingly. However, this means the potential to save costs relating to property is extremely limited, particularly in London and the South East, which accounted for 50% by value of all car dealership property investment sales in 2014.”
Prime rents in London are about £25 a square foot and just £5 less across the South East, according to Bexson. Most property indicators suggest a 20% increase in total returns in 2014 compared with 2013, the highest since the boom year of 1987/1988, and a further rise of about 13% is expected in 2015.