Supporting Residual Values, Have The Rules Changed?

Supporting Residual Values, Have The Rules Changed?

As I currently mull over some recent discussions surrounding some opportunities that have arisen in used car markets, I found myself reflecting on the included (below) post and thought it worthy of discussion; not because I have any right to tell those at Polestar how to run their business (I neither care or assume that I do), but in order to open discussion on how some manufacturers new to UK car markets seem to differ in their approaches; in terms of the strategies required for protecting residual values.

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Now, that Polestar have some problems to address at the moment is irrefutable; currently new car sales in the UK are 63.7% down year on year (SMMT figures for May YTD – or 3,657 fewer new car registrations), so it could be reasonably argued that all is not well at the business.

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I certainly would, and those who follow the posts and comments in my feed, will know that I have disagreed with some senior personnel at the business on many occasions. And it is my professional opinion (not that it matters) that although they can (no doubt) fall back on some very deep pockets, they are in danger of being the next high profile failure, of those operating solely in EV markets. Something I think their recent advert looking for a Remarketing Relations Manager may only support.

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My fears come from the skills mentioned in the post, which said; “If you have experience in Fleet, Retail, RV’s, then you might be just be what we are looking for!” What struck me as strange was that there was no reference made to any experience required in building, delivering and running successful used car programmes; the only proven strategy (in my opinion) for supporting residual values in the long term and therefore protecting the new car retailing “Eco-System.”

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As much as the link to the job advert has now been take down (so I was unable to read the job spec in great detail), I am morbidly curious to see how this alluded to strategy plays out for the business; a business that seems to be lacking in real world used car expertise and experience on their company LinkedIn page.

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Polestar are in operating in a challenging new car market in the UK (one that I predict will see many business failures), so getting hiring decisions like this right will be paramount to the long term survival of the business.

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I have a sense that in the real world "Actual" residual values will be falling off a cliff and this will present an existential threat to their funding partners, and those holding the risk associated with the residual values that were set at the time of the new car sale.

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This is only my professional opinion and a sense I have (I am not privee to the management accounts and/or operational procedures for the business), but it can’t be a coincidence that 4 years after launching the Polestar 2 in the UK, the new car business is struggling and suffering sizeable year-on-year declines in retail numbers and performance.

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As much as I also have no doubt that this will be due to a plethora of trading challenges, increased costs of ownerships driven by poor performing residual values can be a “Death Spiral” that it becomes impossible to escape. So protecting strong residual values is important for confidence in both the business and its cars.

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Those supporting the business via leasing and funding strategic alliances will (and should) demand the highest levels of business acumen in this area of the retailing strategy. Ergo they will want to see a strategy that protects their long term risk to losses from collapsing residual values.

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Unfortunately though (as much as this is not entirely the fault of Polestar), the used car market for EV’s in the UK is best described as a trading disaster; and worse, not many operating in this market seem to be doing what will be required to bring confidence and profitable retailing models to this used car market.

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I have little doubt that the losses will be both mounting and unsustainable; should the current strategic funding partners lose confidence that their risks will be protected (and decide to end the relationship), then the new car challenges will really begin to mount up.

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So, on the face of it, this is an interesting approach to an existential trading challenge. We are about to find out whose approach is the one of the future and/or whether it is wise to veer away from previously accepted best trading practices; including securing access to the proven professionals required to deliver on them?

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Matt Woodward

Here to help SME's, Corporate's and private individuals to achieve their vehicle aspirations through a range of funding mechanisms including Contract Hire and Salary Sacrifice

5 个月

Within the leasing industry there are some excellent and innovative discussions how to take some of the used EV to market amongst the contract hire funders and the OEMs. I don’t think Polestar’s challenges aren’t necessarily unique to them, but with the latest senior recruit into that business in the UK, they’re in good hands. There seems to be a bit of a paradox between the sole EV OEMs and the ones who have an ICE and EV production split. The sole EV producers are at the mercy of the tough RVs on every car that they produce. Albeit they build some of the best EV product. They also have the use of the zero emmission “credit selling” to support their businesses. The multi fuel type OEMs are fighting to keep their proportion of BEV sales mix up above the 22% ZEV mandate requirements to avoid the fines, as such seem more under duress to force EV registrations than their sole EV counterparts. There’s definitely an argument to challenge dealer groups in terms of the new breed of sales person required to position a used EV correctly to the customer. On the surface it’s tough for EV RVs at the moment, but there’s certainly light at the end of the tunnel in terms of some of the products coming to market.

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Andrew Mortimer

Consultant I Interim & Fractional C-Suite I CEO I NED I Chair I PE+VC Advisory I Founder I UK Market Launch | AI Use Cases I Business & Technology Strategy

5 个月

I think many dealers and OEMs still struggle with the complexities of used car retailing and I am not convinced it’s a priority for the latter. Appropriate staff training, and KPIs that should be monitored and improved upon often feel neglected. Your phone should be ringing off the hook!

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