Times are extremely tough at the moment, and there doesn’t seem to any light yet at the end of this particular tunnel. Certainly there are casualties in many sectors of the economy, including pay cuts and job losses. The impact on car dealers has been significant with reported sales and profit levels well down in many cases.
“Glimmers of hope”
There are, however, some glimmers of hope. Not everyone is completely skint, not everyone will lose their job. There is a general feeling that the media, newspapers and TV, are just too ready (and perhaps a little too happy) to keep bringing us the bad news. We know that people are still buying cars, and the car is still, and will continue to be, the preferred if not the only transport option for many of us.
“Take the ‘Do Nothing’ option at your peril”
So what can be done? There is no easy answer. Feedback from our dealer customers is uniform – times are tough, and there is no getting away from this. Now is the time then to seriously re-evaluate your business, making sure that you are taking full advantage of all the opportunities, whilst fully controlling costs. Will you be able to do enough to weather the economic storm, especially through the traditionally quieter month of December? Time will tell, but one thing is for certain – take the ‘Do Nothing’ option at your peril.
We have seen car prices for mid range and large prestige cars plummet over recent months. Conversely the small car has held its value, and once sold this stock is extremely hard to replace. There are used car forecourts full of Mondeos and other mid range family saloons that, although the prices have dropped dramatically, are not catching the attention of buyers. Both Car Tax and fuel prices play an important role in this. Car Tax is a particularly emotive issue, and many dealers have reported being unable to sell a car to an individual customer because of a £35 proposed annual change in Car Tax! We have heard reports that the current planned increases may be adjusted, but we are unable to confirm this at the time of writing. Private individuals are still selling cars, and dealers who actively look to buy vehicles directly from the public have reported a steady flow of opportunities.
“The appetite for sub-prime business has disappeared all but completely.”
The world of finance has changed beyond recognition. The appetite for sub-prime business has disappeared all but completely. However, finance is still an important tool in persuading the prime customer that now is the perfect time to change his car – prices have never been keener, nor dealers prepared to work harder! Ask your finance company about the costs associated with offering prime customers 50% of the purchase price at 0% over a two year period – paying the interest subsidy may just bring in additional customers, as interest free finance has always been a powerful and successful sales tool since first used by Lee Iacocca to uplift sales of the Ford Mustang in the 1960s.
“If You Don’t Ask, You Don’t Get...”
Warranties are also an important tool in the dealer armoury, and always work best when the customer understands the associated terms and conditions and contributes towards the overall costs. We have seen a definite move towards offering all customers a basic warranty and actively giving every customer the option of upgrading and/or extending the cover. Of course there are a number of customers out there who are putting every last penny (and more!) in to their purchase and have nothing left with which to buy cover – but the old adage rings true here: If You Don’t Ask, You Don’t Get...
“…small profits from part exchanges critical to meeting the overheads each week.”
Every £1 is important, and never more so than now. Our dealers report that they are working much harder than ever before, and that they are finding small profits from part exchanges critical to meeting the overheads each week. The advantage of a part exchange trade sale of course is the fact that generally it is the end of the transaction and associated responsibilities, whereas with a retail sale enough of a margin needs to be made to ensure that the customer can be looked after post-sale. This is necessary due to the customers’ enhanced legal rights when purchasing a used car, and also for the practical commercial reasons of maintaining dealer reputation.
“Valuation Gap Insurance”
Any product that can bring additional revenue must be considered. Several dealers have recently taken on Valuation Gap Insurance, either as FSA authorised in their own right, or as an Appointed Representative. This product insures back to the value at time of policy sale and is not tied to the sale of the vehicle. It is suggested that dealers can offer customers on their database this product, whilst also canvassing them about when they are likely to consider changing their vehicle – actions which will generate sales leads and will also present the opportunity to bring the customer forward in the buying cycle. Vehicle valuation is a topical subject in light of recent dramatic movements, and a ready audience is waiting to hear dealer opinion.
“Google reported recently that 32% of buyers only visit one dealer in the car purchase process.”
It is a fact that dealers are seeing many fewer customers than they used to. This is not only down to the present economic climate. Google reported recently that 32% of buyers only visit one dealer in the car purchase process. The days when families would spend the weekend visiting many dealers are changing – research now takes place at home via the Internet, which means in 32% of cases only one dealer got the chance to sell a car. Shopping on the Internet is great – most of us do it. A key advantage is being able to shop by price – great if you are a customer, but margin eroding if you are the seller; and therein lies the dichotomy: too expensive and no one will see you, too cheap and you make no money. Facilities such as finance, warranties, and other add-ons can help in differentiating your offer, and perhaps getting noticed through the crowd. The main car advertising channels on the Internet do not always make this differentiation easy – in fact they very much categorise everything making your offer the same as the next dealer’s. Other media may offer flexibility and opportunities – the local paper, for example, although our feedback is that this media has lost much of its traditional effectiveness.
“Call to action”
We have a number of dealer customers utilising leaflet drops, where a leaflet is designed and printed with exciting cars and offers including finance and warranty. An important element in any marketing communication is the ‘call to action’, i.e. telling the customer what to do next. An attractive well designed flyer, with an inviting time bound offer, delivered to a few thousand local homes will generate interest, awareness, and some sales. A key advantage is that the dealer writes his own copy and includes his own offers, and has total flexibility in presentation – this is not the case if one is merely advertising using the templates provided by the online car advertising companies.
“…helping dealers to generate additional revenue,”
Other products such as Tyre and MOT Test Insurance also have their place in helping dealers to generate additional revenue, and also making interesting packages of products available, which can be sold or marketed and are additional opportunities to generate interest in their business.
“…up to date with all of the tools at our disposal”
Times are not going to be easy, and some things will never return to the way they were. We are all going to have to understand that the customer gets ever more educated and sophisticated, and to be successful we are going to have to be right up to date with all of the tools at our disposal.
