Perfect storm forecast for Q4. But it’s not too late to act

24 September 2015

Any plan to batten down the hatches at the end of Q3 could prove to be a nail in the coffin for many car retailers this year, unless they develop an alternative strategy and act fast.

Perfect storm forecast for Q4. But it’s not too late to act

The traditional approach of trying to hold onto as much of the profit generated during the first nine months of the year, to then weather the storm of Q4 losses through to the year-end, will not be a viable course of action for many.

The impact of higher sales volumes at the expense of greatly reduced retained margins is seriously effecting the smaller groups and single sites in particular.  It’s these retailers without sufficient scale to leverage the best deals from manufacturers that are most vulnerable, but even some of the larger groups are already reporting some pretty sick trading.

Having recently sought the opinions of 257 business leaders from our database of clients and contacts, it’s clear from responses received that UK retailers are in choppy waters right now.  Add to this the recent comments from Andre Konsbruck, director of Audi UK, that “the industry is being damaged by such high volume being pushed through the UK” and we know that we’re heading for trouble.

When you lay down the facts of a) too little chassis profit being generated at point of sale, b) the wrong profile of part-exchanges being brought into stock at too high a value, and c) credit lines already being stretched – even before the raft of self-registrations hit the books; it’s clear that motor retailers are heading for a perfect storm in Q4.

A different course of action is therefore required and it needs to centre on retailers ringing more profit from aftersales.  There’s a growing  one to three year old car parc that when stimulated by an effective CRM strategy, will generate plenty of opportunities to connect with the customer.  Demonstrate brand expertise and excellent value for money to customers when presenting work identified by effective use of VHC processes, and this will have an immediate impact on profitability. There’s an apathy to Aftersales, however, that that has led to pretty much every Aftersales yardstick reported by ASE remaining static year on year.

The apathy is fuelled in part by the growth of “internal” labour sales masking the real issue for so many businesses, that actual “retail” service work is going backwards!  Too many retailers have been overly reliant on new car sales and have paid scant regard to service and parts, the area of the business that for many brands delivers the majority of the total direct profit.  Let’s be clear also, that many manufacturers have been complicit by allowing their networks to amble on without having to present credible marketing and operational plans that demonstrate how they intend to maximise Aftersales.

In summary, for retailers to continue on the same course whilst waiting for the storm in new car sales to blow over is dangerous.  The reduction in car sales direct profit is impacting so hard for so many, that cash reserves and credit lines are likely to become exhausted very quickly.  It’s therefore time to set sail for “Plan B: Aftersales” – as only by growing retail labour sales in the workshop will many retailers find a safe passage to calmer waters.

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