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EV and used car supply central to 2020 success, dealer survey finds

Philip Nothard, Cox Automotive’s customer insight and strategy director

Supplies of EVs and used cars, consumer demand and efficiency issues will all impact car dealers in 2020, with 54% anticipating increased pressure on profit margins according to a Cox Automotive sentiment survey.

Fewer than one in five (18%) car retailers expressed optimism that margins would improve in the coming 12 months when asked by the automotive remarketing, marketing and stock funding specialist.

However, three fifths believe business confidence is set to improve, suggesting that more positive conditions could be on the horizon. 

Philip Nothard, customer insight and strategy director at Cox Automotive, said: “Over the coming year, we expect to see further merger and acquisition activity, as well as investment in technology and data insights to allow dealers to take greater control of their process efficiencies and potential for profitability.

“However, despite bounce backs following the recent election and political decision-making, the road ahead remains uncertain. It is no surprise that most of the dealers in our survey are wary about what 2020 has in store.”  

Franchise challenges

Last month ASE reported that the average UK car retailer looked set for a second year of declining profits in 2019 after its November data analysis indicated an average loss of £11,000 for the penultimate month of the year.  

Nothard said that the push to significantly increase electric vehicle (EV) sales volumes in light of CAFE regulations; the outcome of the FCA consultation into DiC (difference in charges); and the network strategy from OEMs, leading to further consolidation and shrinkage in the market, would all impact retailers 2020 fortunes.

He said that pressure will increase on retailers to help their OEM partners effect a step-change in the pace of EV sales as they seek to minimise the impact of CAFE regulations.

He said: “Retailers and manufacturers will need to go up another level to meet the stringent incoming targets and reduce the potential for fines.”

Nothard added that new alternative fuel vehicle (AFV) drivetrains would demand continued investment in workshop technology and employee training throughout 2020 and beyond, adding: “Who foots the bill for these developments, which are likely to be accompanied by a push for showroom refresh and corporate identity/brand update activity, may well become a matter of contention in some networks.”

The Financial Conduct Authority's (FCA) Consultation into Discretionary Commission closed 15 Jan 2020, with results expected in the Spring.

However, Nothard believes that many dealerships have already made the necessary changes to their processes.

He said: “FCA intervention of this level has been on the horizon since 2016. For many, the impact will come in levelling out the playing field around finance, pushing dealers to shift their emphasis from pricing back to customer service when it comes to differentiating the purchase experience.”   

Independent sector challenges

In the independent sector, Nothard identified three linked areas which are likely to have an impact in 2020: competition for retail-ready used stock with the franchised sector; an inability to benefit from economies of scale; and increased third party and aftermarket costs.

A trend that has seen an increasing number of consumers selling their cars has restricted one source of affordable used car stock from the auction halls in recent times, he said, at a time when competition for stock is hotting up.

A drive by both manufacturers to channel an increased volume of used car stock into franchised networks struggling with a reduced demand for new vehicles has also impacted the independent sector.

Responding to Cox’s sentiment survey, David Bilsborough, the owner of Cheshire Cars, said: “Margin stability is dependent on the supply and demand of the used car market. The increasing age and mileage due to retention has a direct impact of reconditioning costs and therefore profitability. In a market of ‘price indicators’, retail competitiveness is ever increasing.”

2020 outlook

Giving his outlook on the used sector during 2020, Stephen Brighton, managing director at Hepworth Motor Group, old the survey: “Process will improve but margin pressures will pull it back to roughly the same as 2019.”

Despite the challenges faced by retailers across the automotive sector, Nothard said that Cox’s survey had indicated signs of positivity, however.

He said: “Many of the dealers in our survey feel that business confidence is on the rise, while there is plenty of investment in new models and technologies coming to market.

“Plus, the Government’s latest announcement about bringing forward the ban on (the sale of new) petrol and diesel models, and the anticipated inclusion of hybrid within this scope, will certainly have an impact.

“Indeed, the recent Consumer Confidence Index dropped to -9 in January from -11 in December and -14 in November.  The last time we were below double-digit was September 2018. With the rise in consumer confidence, we hope to see positive outcomes reflected in the automotive sector.”

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