Dealer Profitability in the Current Economic Climate · Dealer Profitability in the Current Economic Climate ... Brief “With the current economic situation and saturated markets,

Dealer Profitability in the Current

Economic Climate

PresenterTrevor Jones F.C.A FIMIFounder ASE Plc

Brief

“With the current economic situation and saturated markets, what will dealers have to do to improve performance, even to the extent of adopting a new business model?”

Cecra Board of Management

European Dealer Results

Average Profitability

Year 2012 ½ Year 2013

Net Profit as a % of Turnover 1.0% 0.8%

% of Dealers in Loss 39% 43%

(Source: ASE Plc)

European Dealer Results

13 Second Health CheckYear 2012 ½ Year 2013

Overhead Absorption 58% 55%

Used Retail to New Retail 0.7:1 0.7:1

Vehicle Expenses as a % of Vehicles Gross Profit 64% 68%

Sales per Sales Executive 136 131

Used Vehicle Days in Stock 84 86

Used Vehicle Return on Investment 35% 38%

Overall Efficiency 80% 80%

Labour Gross Profit % 62% 63%

Service Expenses as a % of Service Gross Profit 65% 66%

Hours Sold per Retail Repair Order 1.7 1.7

Parts Gross Profit % 27% 28%

Parts Expenses as a % of Parts Gross Profit 34% 32%

Parts Stock Turn 4.5 4.4

Net Profit as a % of Turnover 1.0% 0.8%

(Source: ASE Plc)

Will the Channel to Market change in the Next 5 Years?

How Will the Retail Sector Have to Adapt to

Maximise Volume & Profit Opportunities?

Will the Channel to Market Change in the Next 5 Years?

Current dealership structure likely to survive

Manufacturers believe that a route to Market could be via virtual showrooms

A massive move to smart phones for on line searches

Customers like to see used cars before they buy

Failure of Tesco Cars in the UK

The in-store experience must be compelling

Will production be reduced to bring the supply/demand equation back into equilibrium?

Much more focus on used cars and customer retention

Dealers need to be profitable

How will the Retail Sector have to Adapt to Maximise Volume & Profit Opportunities?

1) An inability to retail used cars to optimum levels

Issues - Cultural - “We are new car dealers”

- Profiling - too many nearly new cars

- No buying policy

- Presenting used cars “around the back”

- Not enough attention to website - lack of videos

- No understanding of return on investment

“Forget cars think cash”

“Are you a collector or an investor?”

- New car volume targets are supply lead not demand lead


2) A complete review of the Sales Process

Think like a customer thinks

85% of meet & greet is done without the dealer knowing

The importance of the website

The importance of smart phones

The role of the Sales Manager

82% of his/her time spent on administration

A switch from owning to using?


3) The need to bring down the cost of servicing

Ageing vehicle parc

“We only visit a dealer because we have to under the warranty”

Independents are “perceived” to be much cheaper and much “friendlier”

The cost of the second service

Is 1.3 hours the target to improve retention?

The need for call centres with upsell offers



4) Improve overhead absorption by reducing facility costs

Nada Survey

‐ “If we spend $1 million on facilities, will we sell any more cars?”

‐ “What will a dealership look like in 5 years?”


5) Introduce a robust policy to challenge the parts independents for accident related parts

Are Manufacturers and Dealers Sleepwalking over the Edge?

Significant Quotes

“ I would like to thank all the vehicle manufacturers and their franchise dealers – we don't sell your cars but we’ve got all your customers”

Sir Tom FarmerChairman Kwikfit

“Our aim is to repair cars without ever having the need to use OEM parts”.

RBS Keynote SpeakerInternational Bodyshop Symposium (2011)

“LKQ is the worlds largest distributor of alternative aftermarket collision and in the US, it has transformed the market from 80% vehicle manufacturer parts to 80% alternative.

S S AhluwaliaChairman Eurocar Parts

60% of all Parts Sold are Accident Related

The Pressure exerted by Insurers at an Accident

Incident takes place and driver informs insurance company.

Insurer will arrange for the vehicle to be moved to an “appropriate” body shop after viewing it on Google earth with penalties if it is not.

Components will be chosen by the body shop, usually a “cheaper” version, to bring down the cost of the repair. It clearly states in policies that OEM parts may not necessarily be used – even second hand parts is usually the preferred option.

Courtesy car will / may be provided by the insurer.

Vehicle returned to the user.

The Pressure exerted by Insurers at an Accident

Effects on NSC’s and Dealers

Loss of component sales

Loss of courtesy car and no possibility of comparison cars

Car write off – no possibility of a replacement sale

Loss of contact – effect on retention

The University of Buckinghamshire, Report on Parts Profitability – Author Professor Peter Cooke

Conclusions

NSC’s and franchised dealers profitability is under attack in terms of new vehicle sales through oversupply and aggressive pricing.

The historically highly profitable parts aftermarket is also under threat from low cost substitutes and aggressive tactics used by insurance companies who have tight controls of routes to accident repair and profitability.

NSC’s franchised dealers have the opportunity to protect their parts sales and profitability, build customer loyalty and retention though the use of franchise insurance programmes.

With c 60% of NSC / Dealer Parts Sales at Risk there is a Desperate Need for an Accident Management

Programme

Motor Insurers are Committed to cut the cost of repair

The trend to independents must be reversed


6) Make daily operating controls a minimum standard with a visual display of results in each department.

10 must knows available by 10am

Every day

Every time

Without fail

No exceptions

A Major Initiative

The development of Self Help Groups

Is it possible to improve dealer performance in the current economic climate?

Norway – June 2012 v June 2013

34 dealers in groups National new volumes up

1.9% Group new volumes up 15% Used gross per unit up 26% ROI used up 67% Stock holdings down 16% Hours sold retail up 4% Dealers in loss down from

74% in 2012 to 44% in 2013 Overall result for 2012 –

loss 1.6% on turnover Overall result for 2013 –

break even

Brief

“With the current economic situation and saturated markets, what will dealers have to do to improve performance, even to the extent of adopting a new business model?”

Cecra Board of Management

Documents

Dealer Profitability in the Current Economic Climate · Dealer Profitability in the Current Economic Climate ... Brief “With the current economic situation and saturated markets,