A situation that is likely to be played out in other European
markets is being played in Ireland. The numbers of vehicles registered in the
last 10 days of the month to the end of May is increasing. Year to date 30,315
of the total cars registered have been registered in the last 10 days of the
month, this is 50% of all the passenger car registrations.
As a comparison that
percentage was 46% in 2011, 45% in 2010 and 37% in 2009.
It can’t be in the interests of the manufacturers to do
this or in the interest of the dealers, so what’s causing it?
PRIMARY REASONS
Number one;
there are as many dealers today faced with cash flow problems as there were in
2009. This is influencing the last ten-day figures in that dealers simply
haven't got the money available in the earlier part of the month to register
cars and pay for them.
Number two; the
manufacturers have likely over ordered for the market and are using pre-registrations
as a means to force vehicles onto the market. With the distributors forcing
registrations to this level they are simply pushing bigger problems down the
road.
Number three;
consumers are simply not coming in to the showrooms. If they have money they
are not spending it and if they don’t they can’t get it. There continues to be
poor availability of credit for consumers which means that larger purchases
cannot be funded (this isn’t true of all of the franchises represented in
Ireland but it is true of many).
The competitive playing field is uneven. The cash
flow situation faced by many is stifling those dealers ability to purchase
pre-registered cars and pass those savings onto their customers. Dealers with
funds available can maintain volumes and profits. It really stifles consumer
choice and may compromise competition when the game plays out.
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| First 10 days in June 2012 by franchise |
With numbers this low it means that down the road in 2015
there will continue to be a shortage of used cars trade-ins and a declining
service parc.
The last time there was a case of real pre-registration
madness identified in Ireland was in 2000, the difference between then and now
is that then it was a market fuelled by credit and now it is a market being strangled by the
lack of it.
CARLOS GHOSN WORDS
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| CEO of Nissan and Renault |
Carlos Ghosn of Nissan Motor Co and Renault today stated
that he expected "three to four more
years of stagnation" in the European auto business. European
consumers, facing tremendous uncertainty in their lives, are holding off from
making large purchases like cars and companies need to be strong enough to
make it through three or four tough years to outperform rivals, he said.
When a major player in the industry makes these
statements they should be heeded. It’s going to be tough going for automotive
sales in Europe and businesses need to be well prepared for it.
THE HUMAN PAIN IS A REALITY
Those franchises that recognise the new playing field, that
don't expose their dealers to pre-registration madness, combined with good
consumer offers and finance availability will be better placed for a toughening
market. The networks with oversubscribed dealers, too many registered units and
no access to consumer credit will suffer.
More dealerships will be forced into closure sooner than anticipated.
Is this a good thing down the road? If you don’t consider that there are real
people behind the closures then what is happening is simply the nature of
business and the change is needed.
If you understand that people are really suffering, that
business that have been established for years are failing and the human pain is
a reality.
A BROKEN FRANCHISE MODEL?
A question needs asking about the franchise model. If it
worked then why are the networks so oversubscribed? As new sales fall then down
the line service parcs fall as well which influences aftersales. New sales and
used sales are reliant on finance to support the sales (and to contribute to
profit). If credit isn’t available it hits sales volumes and reduces 2 profit centres
(chassis and F&I). Absorption levels are already at the lowest in years and
customer retentions levels are falling.
If a dealership can’t make a profit then it can’t
re-invest and serve its customers properly. If it doesn’t do this it will lose
its CSI rebates and possibly the franchise. And if the uneven playing field continues
then it’s more likely that only the larger groups, often supported by the manufacturer,
will prevail.
I know that this is a simplistic view however it’s a big
subject. 1-3% pre-tax returns are normal for the industry which really doesn’t
leave a lot of profit reserve for tough times.
This can’t be good for customers. Protecting the customer
is the purpose of the Block Exemption Regulation given to the industry.
A franchise model can’t be said to be working when so
many dealerships are forced into foreclosure simply because they were operated
to the rules of the franchise, who by the way are not retailers by their own
admission.
IRELAND; A MICROCOSM FOR EUROPE
This makes me think that what’s happening in Ireland is a
microcosm for what’s likely to come down the road in other markets in Europe. Given
that a new block exemption is coming into place next year the changes needed by
the networks will likely accelerate to accommodate the shrinking markets.
If Ireland is a microcosm for Europe then other markets
need to take notice as to what’s happening there as dealers are facing a tough times
ahead.
RIDING THE STORM
Short-term measures never solve a problem but they can
help, here are 10 that dealers can take:
1. Actively
reduce aged new and used car inventory as a matter of urgency, re-appraise,
recondition further if necessary, price to sell and review website pricing of
those units daily.
2. Focus
on parts stock control analysing all lost sales; look at your stock orders in minute
detail and only order when needed.
3. Chase
in all monies due from the trade, from customers, from finance companies and
from your franchise.
4. Review
trade payment terms, try to keep all less than 30 days.
5. Quality
control finance paperwork to ensure prompt payment
6. Review
warranty claims for accuracy and recalls for revenue
7. Work
every showroom customer, drive every trade-in, open up every finance
opportunity early, demonstrate every customer and make sure that every customer
through the showroom is managed to the best of your ability.
8. Make
sure a Vehicle Health Check (VHC) is completed one very car through the
workshop (sales, as well) and make sure that every lost service customer
receives a phone call from you asking them to come back.
9. Source
your used cars from your customer base; they have your prime stock.
10. Use
the time that you will have available to you wisely. For example if you are not
using social media as a marketing medium then learn about it, if you don’t have
a health check program in place then consider one.
PLAN FOR THE STORM
The most important thing to do is to complete a three
to four year business plan based on a worst case scenario, a flat 70000 to 75000
market for the next 4 years. If the company can survive then it may need to eat
into cash reserves. If it hasn’t got cash then the flat market will need to
sustain the business, if it does all well and good and the business plan will
show it. If the market can’t sustain the business with profit over a flat four years
then the sooner the big decision is
made the better.
And if you don’t crunch the numbers you will not be in
the driving seat to navigate the storm.
FRANCHISE MODEL AT
WORST NEEDS AN OVERHAUL
Is the franchise dealership model broken? I think the
situation being faced by Irish dealers proves the case that the model there needs
an overhaul.
Can the same be said for the rest of Europe? I think the manufacturers
probably know a complete overhaul is needed and this really is the time to start
making the changes. The playing field will further change again down the road
for sure; an urgent overhaul is needed now.
KING CANUTE; A CAUTIONARY TALE
King Canute is famous for the tale of the incoming tide.
According to legend, Canute’s courtiers flattered him into believing that his
word was so powerful that even the tide would recede at his command. Canute is
said to have taken this compliment literally and had his throne placed by the
shore and vainly attempted to command the waves to recede until he almost
drowned.
With all the data in Ireland pointing towards a sub 75000
real market in 2012, I was amazed to discover that one manufacturer is talking
about an 84000 this year and is advising their dealers to plan for the same. The
dealers know that this will not happen. If they ordered to the 84000 market they
would get caught with inventory, tying up cash and getting caught with pre-registrations.
It’s happened before and the bones of those businesses lie crumbling in the
grave.
With some franchises continuing to make basic market mistakes
on a grand scale then the immediate victims will be the dealers; and further down
the road it’s likely to be the franchise model and consumers too.
And the practise of pre-registering cars will never stop
whilst courtiers within the franchises continue to flatter and mislead their
masters.
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