January 2, 2024

Revving Up Resilience in Motor Trade Amidst Economic Headwinds

The motor trade has been through a rollercoaster of recent events, from Brexit to the pandemic and beyond. While these events have shaken many businesses, motor retailers have shown a surprising level of resilience. The spike in used-car profits helped many bounce back quickly despite the new challenges that came thick and fast.

Now, as we enter the new year, retailers face familiar pressures — inflation, wage increases, and more competition - many of which are the same faced by most businesses.

In this article, we take a look at the industry-specific influences facing motor-trade leadership.

What Has Changed, If Anything?

Arguably, many motor retailers had a “good” pandemic. Of course, they faced the same new unknowns and disruption as commerce in general. However, at least in the case of those not heavily dependent on new car volumes and margins, many were able to bounce back quickly and strongly, largely due to the sharp increase in used-car margins.

More recently, it is a different story, with “business as usual” in the current macro-economic climate bringing back all the “usual” challenges – inflation, increased interest rates, rising wage costs, tightening margins, normalising (even if still robust) used car values – with a vengeance.

The Chinese Are Coming!

So, what are the issues front and centre for motor retailers right now, and what might be the solutions to some of the challenges they face?

One potential bright spot for many is the arrival of the Chinese OEMs. Whilst a few seem determined to do their own thing, many are going the franchise-dealer route, simultaneously providing dealers with volume and margin in a sector that has seen severely restricted supply and been inaccessible to those without access to relevant, often prestige brands – BEVs; and critically, BEVs at a reasonable price-point.

Whether a Chinese brand is a sustainable, long-term proposition for a dealer remains to be seen. There is plenty of lively debate on that topic in all sorts of media, sometimes raising more questions than it provides answers.

Furthermore, the questions around Chinese brands, their products, their route to market, and their impact are frequently a resurrection of previous discourse about first the Japanese and then the Koreans. Plus, there's the wider debate on the merits and speed of, as well as the obstacles to, electrification.

What Else Is New?

The talk around brands is also tied to other variables, which, whilst critically important, remain subject to uncertainty and largely beyond the control of motor retailers themselves.

As new car supply improves (with growth in new BEV supply coming largely thanks to the Chinese), and the balance with demand is apparently restored, will OEMs revert to their usual binary (price vs. volume) view of the world?

Is current consumer price sensitivity due to the cost-of-living crisis, or is it part of a longer-term demographic trend towards reducing interest in cars and diminishing brand loyalty?

Have used car values stabilised, or are there further corrections to come?

To what extent will the apparently permanent capacity cuts being made by certain (mostly German) OEMs, help boost margins, as well as support future used values?

Is the trend of OEMs moving to an agency model an experiment that is over, or is it simply on hold?

Will the residual values of different powertrains continue to converge, as they have recently, or will they fragment again?

Will the market determine that, or will a new policy of a future government set the cat amongst the pigeons?

What Can Be Controlled?

If the outcomes in these cases are determined by others, what then can the retailers do themselves?

One of the most obvious trends to embrace, as it feels both inevitable and irresistible, even if the velocity can be inconsistent, is electrification. But electrification is about more than selling new BEVs and guessing right the future value of used cars. It coincides with a decline in ICEV after-sales revenue opportunities that pre-dates BEVs and is now accelerating.

Embracing electrification means integrating the retail business along the new BEV value chain – the provision of electric recharging facilities is one obvious example, but this could be extended to the installation of a renewable source of energy to do so.

Maximise the Value of Existing Assets

A car retailer’s most valuable asset, along with its people, and traditionally a big part of its value to the OEM, has been its location, that is, “bricks & mortar”.

As brands consider agency and at a time when brand loyalty appears to be declining, retailers, both large and small, urban and rural, have a chance to evolve into community hubs, at least partially independent of, but certainly not in conflict with, the brands they represent.

This will not be new to many local, family-run businesses and shouldn’t surprise larger city-based dealerships or groups. Apart from the previous example of electric vehicle facilities, there are broader mobility offerings – rental, subscription, and alternative mobility possibilities, all made easier with greater connectivity, both of cars and people.

Give people more reason to visit a retail location, and yes, in some cases, spend time there. There is a growing number of examples of brands and retailers capitalising on a prime location to become a destination in their own right. That experience can stay with someone, even if they don’t purchase at the time.

Deploy Technology to Improve the Effectiveness of All Processes

Having made the effort to facilitate a physical experience with premises, the technological optimisation of that experience represents a marginal, incremental cost many retailers overlook or dismiss.

Data is everything these days, so it pays to invest in finding out who is visiting you, why they are there, and capturing other seemingly incidental data about them, their behaviours and intentions.

You can do it both onsite and virtually and via the same technical means. And yes, today, if not already, that can involve applying AI – who says motor retail is an old-fashioned business?

Best Practice Is Simply Good Practice

There is a responsibility involved in accessing and handling all this information, but that too is nothing new.

Responsibly learning, recording and tracking all you can about your customers enables you to fulfil and track everything from effective identification and marketing of prospects, via consumer duty obligations at the time of a transaction, through to retention and remarketing activities to enhance, sustain and prolong the relationship.

With ever more customers spending ever more time online, including researching their choices before they present themselves at a retailer (in the case of younger generations if they ever do!), then a dealer is doing themselves a service if both online and offline experiences are harmonised, consistent and equally well informed.

Let's Talk

If any of these points ring a bell with you and you are perhaps unsure where to start, please contact one of us and we would be delighted to have a no-obligation chat with you to explore further:

Peter Cottle, Consulting Director, Finativ

e-mail: peter.cottle@finativ.co.uk

Simon Harris, Consulting Director, Finativ

e-mail: simon.harris@finativ.co.uk

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