December 22, 2014

The future looks less profitable for dealers

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Unfortunately there are several factors which point towards car dealers experiencing a challenging time next year and we have already pointed out why, apart from the end of scrappage, dealers will find it harder going.

The fact that, despite this year being better than expected, there have still been twice the amount of closures than this time last year and with the underlying strength of the new car market less than robust (and set to remain so for the foreseeable future) there will be an inevitable knock on for dealers. The effect will not just be in terms of lost sales opportunities but perhaps in the most profitable arm of a car franchise the aftersales sector.

Demand for main dealer servicing falling alongside diminishing sales and added to the fact that build quality continues to improve, means that whilst consumers look to smaller economical cars with longer servicing regimes there will be less chance for dealers to up-sell extra service work. In addition invoice value will be lower leading to profit erosion as in most marques market share has diminished.

The ‘false’ market created by self-registrations and “buy back” incentive deals will no longer be considered by dealers and whilst credit remains hard to access both for dealers and buyers alike the current new car sales figures of approx 1.7m will remain a similar figure in the years to come. In short the biggest and most well funded dealer groups, who can exploit their economies of scale, will almost certainly be left standing and will see the used car and accessory sector continue to be mainly responsible for generating profit in the next few years. The dealers who are able to offer choice and represent growing brands which are price pointed competitively for a down turn will eventually see the landscape of new car growth change beyond all recognition. If any of that is in doubt we need only look at our Car Makers Premier League for car makers to realise that scrappage or no scrappage there is an appetite for well built, good looking economical cars which are affordable to as many consumers as possible.

If the government continue to look at different ways of ridding the planet of ‘dirty’ cars this will be the growth market!


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Comments

  1. lets face it we only have ourselves to blame,if we had not gone for short term gratification we may have gotten some long term gains and customers would have kept the faith.I,m looking forward to a world where it is too difficult for just anyone to set up in business an call themselves a car dealer.The established proper car pros who have a passion for what they do and dont put profit before fair serrvice will be left standing if they can take the short term heat and evolve with the changing market and customer needs.There i,ve said it and i wont be shedding tears for franchises who have danced to the tune of the OEMs at the expense of a long term business strategy and not a relentless battle for market share.