Stock levels may have risen too fast in last 6 months
After a record year for new car registrations in 2013, many have poured cold water on 2014’s prospects. The statisticians have been fretting about the rise of stock investment by UK dealers which rose 13% last year, tying up an additional £60,000 in an average dealership according to profitability specialist ASE.
The size of used car stocks increased by nearly 10% in 2013. ASE is watching carefully how this additional stock of cars translates into profit over the next six months. There is a real risk that the over-supply of used cars that has been building up in recent months will start to suppress prices which are currently commanding average gross profit margins of a healthy 12%.
Overall the average dealer made net profit as percentage of total sales of 1.4% last year, up from 1.02% in 2012. But the longer term picture, as outlined by ICDP in its 2013 edition of the European Car Distribution Handbook, is that both aftersales volume and value across Europe as a whole are declining, according to ICDP’s latest predictions: https://www.icdp.net/our-services/publications/publication.aspx?pub=10052.
How will dealers buck this aftersales decline and where else will they be able to find sales and profit margin?
Business manager looks like a good investment
We believe the increase in sales over the last year now needs to translate into an increase in the sale of service plans for used and new cars to insulate dealers from potential falls in used car margins.
To this end, dealers need to look to hire a good business manager if they have not done so already. Trend Tracker points out that dealers employing a business manager have a finance penetration 5% higher than those that don’t. The fact that nearly three-quarters (74.2%) of all private new car registrations in the 12-months to September 2013, were sold with finance or leasing arrangements, says it all. PCPs and other personal lease products had a particularly strong year.
The signs are positive, as car parcs swelled last year so did absorption levels as more service plans were sold and after sales received a significant shot in the arm – increasing by several percentage points through 2013, boosted by marketing initiatives such as vehicle health check promotions; better tracking and retention of customers post-sale through use of CRM systems; as well as promotions of new car service plans and MoTs.
There has been widespread frustration about manufacturers’ wider application of fixed pricing for maintenance packages but dealers still found themselves able to vary servicing packages according to the age of the vehicle and cost of labour and workshop loading. There will need to be more of the same in 2014.
Interactive mobile revolution
The other big area of investment this year will surely be in improving the online buying experience. AM carried a piece last month on augmented reality which offers an easier way for prospective customers to look at the specification of cars and really get ‘under the bonnet’ of a potential new car online.
Augmented reality apps use the camera of a smartphone or tablet to overlay information, images, video and web links on top of static images or printed pages. Now that sales of tablet have exceeded 20m in the UK and mobile internet usage is set to surpass PC-based access this year, 2014 is surely the time to start planning for improving your online stores’ mobile browsing experience.
Website visitors are increasingly expecting to be able to click into 2D images and hypertext links to more information. In this context augmented reality views of cars displayed on dealer websites makes absolute sense so that the engaged customer can view specification details or upgrade options by hovering over the area of interest on the car and then clicking in at will. It is also important to consider the customer journey from there so that, for example, once a car and series of upgrade specifics have been selected, the visitor can be taken through to an online order sheet to analyse the resulting impact on the total cost and monthly payments. Building up the online customer journey; by making it more visual, entertaining and joined up; will surely be a key goal for DPs this year.
Industry analysts predict that there are tougher times ahead for main dealers particularly in after sales volume and value Europe-wide. UK dealers will have to work harder than ever to stop customers moving their servicing to the independents.
As well as investment in engineers and equipment for their workshops; they will also need to look to hire business managers to focus more heavily on F&I; while also investing in improving the experience for online visitors, especially these coming in from mobile devices. It’s important to recognise that more than three-quarters of pre-sale research by car buyers is now happening online and the number of visits to dealerships per car sale continues to fall – now sitting at 1.4 down from 4.5 visits per sale in 2005. Customer buying habits are changing fast and dealers need to get with the online retail revolution fast or risk losing out.
What else do you think is important for UK dealers to focus on to avoid after sales volume and value declines which ICDP predicts? Do let us know.