AM asked a number of senior automotive retailers in the AM100, ranging from £209 million to £1.2 billion in turnover, about the industry’s challenges and market performance as well as their own expectations and plans for this year.
What’s your area of focus in 2017?
Nas Khan: It always has been the sale of new and used vehicles, but there are other things this year, in particular GDPR , and we are spending time ensuring our systems and processes are in place now, rather than waiting until 2018. We are scrutinising our data and going back to our customers to ensure we have been authorised to resolicit them. It’s a huge task.
Mark Lavery: We are opening a new Jaguar and Land Rover site. It is the most complicated build we have undertaken in Cambria, taking 16 months with an £8 million capital investment. We are moving from Hatfield and Welwyn, which occupies 1.4 acres, to the new site, which is 4.3 acres. This will increase our capacity exponentially, trebling used cars and doubling new.
Ken Savage: Our focus for 2017 is new and used car sales, like most people. We can see the new car market is changing this year. The used car market has been buoyant throughout 2017 and we see that as complementing the shortfall in new cars. For used car operations the key is how well you source your stock. We have beefed that up by taking on an additional buyer for our central buying team, and we may take on another later this year.
John Tordoff: For us, it’s used cars and aftersales, as we see that as the biggest area of opportunity for the rest of this year. We have more demand in aftersales than we can meet. We don’t want to be saying to people that there’s a three-week wait to have their car serviced. We have taken a different approach with used cars – we have become investment-minded, more analytical and focused. We have seen good results with an increase in volume and margins.
What are the main challenges your business faces in 2017 and beyond?
NK: As well as GDPR, until we know and understand the impact of Brexit, there’s uncertainty. We have already seen the exchange rate affected and manufacturers are affected differently with new car prices increasing. When Brexit is finally resolved, that will be when reality strikes.
ML: There was a lot of uncertainty going into the general election, but there’s still Brexit to deal with, which brings further uncertainty. There will be some nervousness and we are already seeing a change in behaviour. If it ends up being a hard Brexit – but I don’t think it will – and we resort to World Trade Organisation trading, 80% of cars are imported. If there’s a 10% tariff, we will sell fewer cars. Our biggest partners are JLR and Aston Martin; while they are manufactured here some of the parts are imported so they would be hit by the tariff and there would be some increase in prices. But I just don’t see that happening . There is uncertainty and that does sow the seed of doubt in the mind of the consumer.
KS: Anything like an election is a distraction for the car-buying public. We are stuck with Brexit for the next few years and it will be choppy as we go through the negotiations. For the consumer, it’s a distraction which will impact sales. The other aspect is that the franchised dealer’s fortunes are tied up with those of their manufacturer partners. There’s lots of new product all the time, but success depends on the car-buying public.
JT: It seems like we are facing a different challenge every day! We are focusing on our increasing cost base, which is a concern because if we do see a downturn then our costs are a lot higher than in 2008/09. There are a lot of different factors affecting that, such as new and bigger premises, and in April we had 80 more payslips than in April 2016. Some of the cost is down to a skills shortage in the industry. There has been a wage inflation – the minimum wage has had an impact and we have yet to see the full impact of the apprenticeship levy. As far as Brexit is concerned, what will be will be – we will just have to deal with it as and when it happens. The other big thing is the changing behaviour of customers and evolving the business to keep up.
What’s your view on the outlook of the new car and used car markets?
NK: We have had an excellent first quarter and the industry has performed way beyond expectations. Whether that’s dealers and manufacturers self-registering or pulling deals forward, or other factors, is another thing. April was a huge dip and May proved challenging. I feel this is the reality now and going forward for the rest of 2017 it will be a challenging market for new car sales. Our own customer database will be key – we need to be upfront and keep them informed. The market will not expand as it has been doing, but I don’t think it will drop drastically. Used has been strong for a number of years, but as I say to my team, you can’t eat like an elephant and poop like a bird!
ML: I believe we’ve hit the top of the market, but there’s no indication there’s going to be a collapse. A lot of new registrations were pulled through to March and that significantly impacted April. We are seeing a softening of the market. I don’t think we will reach 2.7 million new car registrations this year, I think it will be nearer 2.25-2.4 million. We still have low interest rates and high employment and people will still want to upgrade their transport, although not in the amount which has been predicted. We are looking at a rebalancing of the market. There will be a slight softening in the used car market.
KS: Exchange rates are the biggest influence in determining new car prices and what we have seen over the past few years is an increase in the cost of new cars. If new cars seem less affordable, people will migrate to used cars. The new car market is definitely softening.
We had a good March, partly due to the new VED rates, but it did not live up to the expectations of many manufacturers, whose targets were very aspirational. April was very challenging and some of them did not understand the full effect of pull-throughs from April into March, which were still being felt in May, but the market will stabilise.
JT: We have all seen a massive pull-through of registrations in Q1, with customers beating the VED changes, which has impacted April and May. The new car market is changing and some of our manufacturer partners are awake to those changes and have moved their targets, but others are more ambivalent with a ‘get on with it’ attitude. I think the market will be down, a decrease of between 3-5% maximum. For used cars, our challenge is buying enough to meet demand. We have restructured our teams and recruited additional buyers as well as utilising all channels to find stock. We are struggling to stock the right level of cars – it’s a nice problem to have.
What’s your view on manufacturer targets?
NK: All manufacturers have set targets that are too high and somewhat unrealistic, and then it becomes extremely difficult at the end of the month and the quarter to achieve those targets. To achieve those targets, you don’t have a choice but to sell cars at a loss or self-register. April and May have been
a reality check and manufacturers are beginning to realign targets with the market. Our goals are the same as the manufacturers and that is to sell cars – but targets have to be realistic and if you are creating a market it becomes a problem. Our group minimises self-registration as much as possible. I would much rather sell a car at a loss to reach an objective than self-register to achieve a target.
ML: We have not seen the same kind of level of pre-registration activity we have seen over the past five years. We have 17 brand partners and some have adjusted their Q2 targets and taken a pragmatic approach, and those are the ones who will do better in a softer market. If you set a target that’s too high, dealers will think there’s no point going for it so they will switch their focus to used cars to pay the bills. Our level of self-registration is reasonably small. I see some steam coming out of the market as rebalancing occurs, and it will have a knock-on effect on the used car market because those late-plate cars won’t be around. Pricing and transparency will be critical – we need to be clear what we are offering. Pre-registration in the industry had got out of kilter, but that market has peaked and pre-registration will become less relevant.
KS: Every manufacturer says every dealer believes targets are too high, but they have been ambitious, although some have adopted a different approach. Mazda, for example, committed to a smaller market and targeted 2017 accordingly. Some manufacturers have the issue that the cars are coming through and they have to get them on the road, so it’s not just a question of just the targets themselves. We can always sell a car, but the question is how much we can sell it for. We can live with that as long as the manufacturer gives us support. We have done some self-registrations – we did more this March than in the previous March, but not at a level which would cause us any issues.
JT: Some manufacturers are realistic with the target, but the majority are not. Our policy is to avoid self-registration at all costs because it just makes your used car stock toxic. Two or three years ago, it was a problem as we wanted the maximum amount of bonus available, but we found we had to self-register just to hit target, let alone achieve 120%. Last September we took the decision to just say ‘no, we are not doing it’, we took some pain along the way, but we have chosen to aggressively retail using as many different channels as possible and it seems to be working. We try anything and everything to generate enquiries and get the deals done to get to target. Sometimes it’s distressing, but we manage and it’s not as distressing as self-registering.
How would you describe your personal management and leadership style?
NK: Because of the size of our group, I can be much more hands-on. We have a conference call every Monday morning with the key management team. I still believe in face-to-face meetings and undertake those once every three months. We have a monthly magazine called ‘The Jen’ which updates staff on the group’s position and development. We undertake an employee engagement programme and feedback has been very positive.
ML: I meet the management from each dealership every month without fail. We work out of one of our dealerships and that keeps us more in touch with our associates and our guests . You can have the best facility in the world, in the best location selling the best brand, but if you don’t have a good, solid foundation of associates you won’t succeed. How we look after a guest will be the difference between those who are successful and those who are not.
KS: Our managing director, Darren , is much more hands-on with our management team. He is the one going around the dealerships on regular basis. We have undertaken an employment engagement survey for the past six or seven years, which has shown improvements in terms of the bottom line and how people feel about Perry’s. I will go to dealerships and say ‘let’s have a chat’. Sometimes they tell me more and some issues I can deal with directly, such as if the broadband isn’t fast enough or they are having trouble getting suitable workwear. The GMs have a lot on their plates so these may slip down the priority list, but they are important to staff and it’s these kind of things I can sort out.
JT: I try to spend as much time as possible in the dealership, that’s the most important and most enjoyable part of the job. It’s too easy to end up in one meeting after another at head office, but that’s when you lose touch. You can read reports and get completely the wrong picture – you need to get out there and touch it, feel it, smell it and talk to people. We run an employee engagement programme and have been in the Top 100 Companies To Work For list for the past two years, and have a very high engagement level of around 86%.
What are your plans for dealership acquisitions or disposals this year?
NK: I have been through three management buy-outs, the last one being in 2012, and I decided then it was time to consolidate – but any strategy in the car industry has to be flexible. For example, an open point may become available in the next town or city to one of your dealerships. We are about to acquire another dealership – it is very early days so I can’t say much more, but it will be concluded this year.
ML: With uncertainty comes potential opportunity. We were part of the process to take on the Birmingham territory for Aston Martin, which we were fortunate enough to win. We were working from a temporary unit with no database; you would expect to make a loss in the first year, but we will make a profit. We have our hands full at the moment, particularly with our new JLR site in Barnet, but if an opportunity presents itself you have to consider it.
KS: We have no plans to either acquire or dispose of businesses. Less than two years ago, we bought the GK Group and undertook a significant disposal when we sold our JLR business, so we are letting everything settle down. We changed our management team recently when our managing director retired, we promoted Darren and appointed a marketing director. We are also upgrading our DMS and building a new big Ford Store dealership at Chesterfield, due to be completed early next year. We also opened a new site in Preston around 12 months ago with Vauxhall, Kia and Mazda on a four-acre site.
JT: We are opening a Porsche dealership in June in Teesside, which is the only additional dealership we’ll be opening this year, and taking on 30 new staff. We have had the territory since the 1960s with one Porsche dealership in Newcastle and another in Leeds, and we wanted something halfway, to better serve the region. We are consolidating our previous expansion and trying to make our current business as good as we can, rather than continually expanding.
Have recent negative reports in the national press on diesel and PCPs impacted consumer perception?
NK: I think most people take these headlines with a pinch of salt. We are seeing a few people reconsidering buying diesel, but these tend to be people replacing their cars and they are murmurings rather than in large numbers. They cite the potential levy for driving a diesel in some towns and cities. I think PCP is still the best way to acquire a car and there has been no detrimental effect.
ML: Diesel has been unfairly reported by people who don’t understand the complexity and technology, particularly of the Euro VI
engine, which is extremely efficient and environmentally friendly. It is affecting residual values for our guests. The diesel engine will be with us for the foreseeable future and I am talking some 20 years, although we could see more hybrid versions. The technology has been demonised and that’s not fair, it’s ill-informed and regrettable. In finance, the FCA produces a report 105 pages long and there are four lines on PCPs. We then see editors of some of the most powerful newspapers in the country reporting that PCP has been sold unfairly. PCPs are an extremely good instrument for the consumer as they protect residual values.
KS: There’s no direct evidence that these reports are affecting us. People are shifting from diesel, but it still makes an awful lot of sense for MPG, particularly for larger cars. There is a definite shift from diesel to petrol, but it is not a huge issue and we are not worried about our diesel stock. There has been a lot of ill-informed press reports around PCP but they are a great product. There are other general issues facing the industry, such as the apprenticeship levy, which is an ill-thought-through concept and rushed into place. There are also additional costs to think about in terms of the rising minimum wage and additional pension contributions, and the large amount of legislation which we have had to take on board. I worry whether government is really business-friendly.
JT: In Q1, we’ve seen a 3% swing in new cars from diesel to petrol, but we have not seen any impact on PCP. A lot of it is politicians playing at politics and the press trying to create a headline out of nothing. While we have seen the swing from diesel we have not seen a subsequent decrease in sales of used diesels. We have a strict compliance procedure in place and we make sure we are treating customers fairly. We stick to the rules and perhaps that’s why we haven’t seen any negativity. debbie kirlew