The new car business in this country is now in such sharp decline that some forecasts suggest that there will be less than 1.7 million cars sold in the UK next year, with somewhere around 20% of this potentially being pre-registered.
If the car manufacturers who serve the UK network do not change the way their profit structures are arranged the reality is that there will be many more dealer groups closing down a lot more branches. There is a suggestion, with the growing expense on which the car makers are insisting their dealers take on with showroom modernisation and an insistence to carry more primary stock that dealers will increasingly look towards developing their internet sites to retail cars in the future.

It has long been argued that the customer would never abandon the showroom experience, in favour of buying a used car on-line which they haven’t touched let alone driven, however if the dealer can no longer viably offer that experience profitably then surely he will need to look for an alternative.

The average customer looking to purchase a new car in this country would without a doubt believe that he could and should be able to negotiate at least £1,000 off the list price of a new car and when they get down to business maybe a whole lot more. The reality is that the profit centres many dealers sign up to mean that selling volume and hitting manufacturer standards is the only place they make any profit. The percentage profit from just purely selling a new car is so low that once a sales manager encourages his staff to distress sell the value in the product or the service offered by the dealer is rendered worthless.

Within minutes of a customer entering the showroom he has already received a large discount offer. If a customer is not impressed by the big plasma screen with rolling movies, the 15 different types of coffee, glossy magazines, latest interior showroom designs and the massive atriums all glass fronted and modern, then why spend many thousands of pounds investing in them if the salesman is instructed to give all the margin away and just hold the back end bonus?

The bonus should be just that, a bonus. Increasingly though at the end of any year the manufacturers chasing market share start dangling the pre-reg carrot followed by the stampede of dealers desperate to hit their annual targets without taking into account the potential losses in having to dispose of this stockpile of pre-registered cars.

It would be much better for the car makers to offer improved profit schemes, or make the cars cheaper. The dealer could then negotiate more easily with the customer and perhaps, more importantly give the customer a better retail experience. Most customers really won’t mind a car dealer making a profit if they think they have received value for money and will be looked after in the event of problems. At present a sales manager who has made little or no money from selling a new car is hardly likely to roll out the red carpet to that customer when he comes back for any rectification work, as bad as that sounds this is the reality. Also with the alternative route to profit i.e. through servicing also under pressure by longer intervals and more reliable cars it is hard to imagine the industry keeping viable unless the manufacturers ease up on the volume bonus strategy, invest more of their own money in showroom development and actually introduce a fairer profit structure that will enable dealers to make a fair profit from a fair deal.

What customers need to know is that with some small cars – and let’s face it at the moment these will be the best sellers – if a dealer sold a car at full list without a penny discount (which is virtually un heard of today) the actual profit he can make from that car is no more than £500, include a set of mats and couple of percent discount and he is immediately relying on bonus money and that can’t be right.

If anyone wants advice on how to be a successful retailer maybe it’s time to ask Tesco’s.

The Motor Trade Insider Guide To Buying New Cars