What does 2023 hold for Automotive Retailers?

Never in the history of the motor trade in the UK have we experienced a swing in the market like we are experiencing today.??

Years of limited supply of new vehicles and huge consumer demand since the end of lock down one in 2020, have seen amazing times for the retail motor industry.?But this week the consistent message from all dealer group directors I’ve been speaking with is that new car order take has gone off a cliff.?Huge increases in new car stock availability, many manufacturers now having stock in the UK sitting at docks.?Much of that being the less desirable models and specs.

New car prices have increased between 3 and five times over the last 12 months.?Reductions in incentives, with low or non-existent FDA’s,?increases in finance rates, part exchange prices now dropping away all resulting in huge jumps in monthly payments for customers to upgrade their cars.??All at a time where consumers are feeling the pinch from inflation, fuel prices rising and increased mortgage costs.??

Take a small car, previous payment might have been ￡189 per month on PCP 3 years ago, today over ￡300 per month.?Even the equity parity finance renewal gold mine is drying up, because customers just can’t afford to double the payment for a newer version of the same car!?So even when you do manage to get a customer sitting in the showroom conversion ratios to sale have dropped making life even harder!

With less popular models building up at the dock sides, production lines in car plants continuing to churn out inventory and reduced demand across the world something is going to have to give.?

Will the pound strengthen in 2023??According to Morgan Stanley the pound sterling could be one of the best performing financial assets to own in 2023.?If the pound strengthens then invariably, we see car production for the Eurozone being diverted to right hand car production because they can get more for the cars in the UK as the exchange rate shifts.?This then normally results in superb consumer incentives in the form of PCP Finance deposit allowances, then we see the return of pre-registration exercises with significant bonnet bonuses paid to dealers to register cars, just look at 2001, bonanza time for car dealers as the pound strengthened, will history repeat itself?

As Mercedes become one of the first to implement the agency model, now two weeks in, I very much doubt many more will make the leap.?Agency is great when demand is ahead of supply and yes Tesla have done well with a direct supply until now.?Nothing ties up cash like unsold cars, manufacturers end up balancing cash flow with profit and without a dealer network of independent franchised dealers who can buy register and hold cars dripping them out into the market without distress, manufacturers end up with nowhere to go with undesirable inventory other than the incredibly expensive route of dumping stock at huge discounts to fleet companies.??Just look at what Tesla was forced to do in December registering huge quantities of cars with no end user to fleet companies at huge discounts.?Watch what happens to their residual values over the next 3 months and watch how their PCP’s In the UK become less competitive as finance companies back away from underwriting such high residual values and monthly payments shoot up!?December’s activity for Tesla could cost them dear in the long run!??

The good news is used cars seem to be ticking along nicely, but as values soften a little later in the year fast stock turn and speed of preparation are going to be key to success in 2023.?With the demise of Cazoo at some point in 2023 or it being taken over by a traditional dealer group, that should see more stock flowing more easily to traditional retailers who don’t have investors’ money to burn selling cars at a loss, this should make used car sourcing a little easier!

So what does all this mean for car dealers in terms of tangible actions to take now?

Sales and marketing

It means 2023 will be good for the proactive go-getting retailers.?Those groups with cash in the bank to register cars will do well in the second half of 2023. Those that run sales events and proactively market to their databases as early in the year as possible will do well in the first half.?2019 was a huge market and most of those customers will be out there looking to change their cars this year!?Keeping close to your database and marketing to them regularly is a must in 2023.?The market is turning, the proactive dealer groups on the front foot able to take advantage of opportunities will do well.

Retail Finance

When re negotiating your finance deals with finance houses, DO NOT negotiate a years deal!?Go for 3 or 6 month deals as interest rates will fall later this year as the Bank of England stimulates growth to pull us back from recession after inflation bottoms out in May.?Build in clauses to renegotiate and improve your?package earlier than this time next year!

Aftersales, maximise profit from available hours.

Limited availability of technicians and limited workshop hours is the key note I’m hearing from all aftersales directors.?So what can you do to maximise the return from the available hours in your workshop??Change your booking in process.?Loyal customers who buy and service their cars with you get access to your workshop fast!?Create limited slots for customer who want diagnostic work doing who did not buy their car from you or are not loyal service customers.?Create a minimum 6 week lead time to get a non-loyal customers car looked at for diagnostic work, chances are they will then book else where.?Fast track existing customers and profitable service and MOT bookings, take the easy work for your available hours and maximise profits until you can address your technician shortage

Technician shortages.

The only way we will all address the shortage of technicians is by growing our own, every dealership should have one apprentice for every two technicians at all times, otherwise this shortage will only get worse!??

Attracting technicians is a key issue at the moment, you don’t want to offer huge pay rises to new starters because of the pressure that then creates to pay your existing team more, but a ￡5000 golden handshake seems to do the trick for attracting new Techs to your business, but make sure you have T’s and C’s attached if they leave after a short time!?Another old one recycled, is set your technicians up on a 4-day working week, it’s a no brainer, they work 10 hours a day 4 days a week. The ramp is used 10 hours per day instead of 8, you free up one in 5 ramps, more productivity, happier techs who can go fishing or play golf of look after children 3 days a week!?It’s extremely popular, you also don’t increase non productive costs as you have half your non-productive service and parts team starting and finishing early with the other half starting and finishing later!?It works for everyone and is something I’ve implemented successfully in many sites.??The headline that works to attract technicians is….. "Vehicle Technicians wanted?￡5000 signing on bonus and only work 4 days a week!”

Used Cars

As pre-registered vehicles begin to appear in the market place and financial incentives on new cars begin and the increased volume of new car sales release part exchanges in to the market place we may begin to see a little softening in values. When this happens Speed of preparation, stock turn and daily price checking and amendments are going to become more critical.?Overaged cars will once again become loss makers!

So for the nimble, quick to respond, dynamic, go getting dealer groups 2023 could present many superb opportunities. For the cup half empty dealers looking for excuses as to why they are not performing, 2023 will be a great harvest of reasons for poor performance!