The choice is frightening but so is the profitability

Thanks to the power of the web consumers are better informed and savvier than ever. They are also feeling far more empowered when it comes to haggling on price and are more likely to compare before making a decision. Of course this can only be a good thing as far as buyers are concerned and with new improved products and services coming to the car market regularly being educated is more important than ever. In recent months, mainly due to scrappage schemes both here and abroad, a feel good factor of sorts has returned to showrooms. Dealer profitability however is under pressure like never before, and larger dealer groups with better economies of scale are more likely to weather the storm than others.

Many dealers, because of the way that scrappage works, are consistently making more per unit from these cars than ever before, however because of the demographic of the range it also means that these models yield the smallest profits. This means dealers have to work harder than ever to maximise the opportunities on every sale. Where there is a gap in more profitable larger cars it’s largely being filled with finance and insurance income which is accounting for as much if not more than the profits made on the cars themselves.

With the race for registrations becoming more competitive than ever, many dealers are struggling to find the investment required to be constantly upgrading facilities and adhering to demanding showroom standards insisted on by manufacturers. Brand strength and awareness are the keys to increasing market share and therefore smaller “owner driver” type operations are finding it harder to remain profitable in the current climate. This will unfortunately lead to more closures and buyers being forced to travel further to buy a car.

With fewer customers about in today’s market, and razor thin margins, some dealers will be selling cars at a loss just for the opportunity of acquiring a new customer and ensuring that other products which are profitable are sold. Used car sales have largely been responsible for the bounce back in profitability seen by many dealers in the first half of 2009, however with stock harder to source than ever and prices on the wholesale market continuing to strengthen margins will be under severe pressure for the remainder of 2009 with the first quarter of 2010 the likely time to judge whether the full recovery is really on the way. Another thing to look out for is the end of the scrappage scheme, with many predicting the general success of the incentive being a mere papering over the gaps and a prelude to an even bigger fall in sales.

Before we start feeling to sorry for car dealers however the good news on the horizon is that customers have never had such model and price choice, with manufactures such as Hyundai and Kia really upping their game and all manufactures making products which give greater choice than ever before, the biggest problems facing potential buyers, especially those buying a new car for the first time is how to narrow the choice down.

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