Vertu Motors saw profits come under pressure in the first half with WLTP supply restrictions beginning to bite. The group saw adjusted pre-tax profits decline 13.4% to £18.1m compared to £20.9m in the first half of 2017 on turnover down 7.9% to £1.56bn. September sales were hit by WLTP induced supply restrictions and this situation is likely to continue into early 2019.
Vertu is a company that likes to exceed like-for-like targets in all channels. There was lots of good news. On a like for like basis used retail volumes rose 5.8%, new retail volumes by 5.7% and new commercial vehicles by 8.1%.
But, significantly, fleet sales were down -12.4%. According to Forrester WLTP was not the sole cause of the 12% falls in fleet sales, it did have an impact but other factors were at play.
“WLTP had an impact because fleets could not order the cars, particularly in premium brands. They were worried about taxation under the new emission rules. If they did not know what the CO2 emissions would be, how could they advise their end users on what the tax was?
“There was another issue going on in car fleet, particularly for volume manufacturers. Sterling is low relative to its historic levels and fleet has always been a low margin business for the volume manufacturers. Who are pulling back on volumes. Sales prices are up, which can choke up demand and retail and consumer support is down. There is a move to less supply for certain volume manufacturers,” he said.
Forrester is confident fleet business will recover but it is dependent on market conditions.
“I think fleet will come back once WLTP is resolved. It is over the worst generally. People are waiting for the Budget to see what happens on personal taxation. Then we will see some unlocking of the fleet market. Clearly we have a big exposure, we are a big fleet player.”
Forrester points out that fleet was the only major sales channel where the group did not outperform the market.
“On new retail sales we saw growth of 5.7%, whereas the market went down. On used cars we were up 5.8% in volume terms and the market went down. Similarly with vans, we saw massive growth in a market that was down. I think I am happy with the performance overall in the first half because we sold more cars.”
The other area which saw a decline was Motability, down -6.3%. Did the same factors that impacted fleet also apply to Motability?
“There was a bit of that in Motability. It is a low margin channel and advance payments have gone up. But I also do think that the move from Disability Living Allowance (DLA) to Personal Independence Payment (PIP) is definitely having an impact.
“You will find plenty of motor retailers with historically large databases of people who change their car every three years. A proportion of these people have lost the allowance. There is a raft of other people, for example autistic people, who have got the allowance. Clearly we have not got them on our database,” he said.
Vertu used its first half results to discreetly flag up potential issues with parts distribution in the future as some carmakers changed the way they distribute parts.
“There are a variety of manufacturers who are currently reviewing how they distribute parts, which when we get the full details we will work out what we are going to do and update the City.
It could be an opportunity, it could be a threat,” he said.
On the aftersales side the group is pushing ahead with service plans and vehicle health checks to boost business. First half like for like service revenues rose 7.4%. Vertu has over 100,000 customers who pay monthly for their service and MOT on its own service plans. It said carmakers’ own service plans were also increasing, helping customer retention in the process.
“We have grown out average invoice value per customer visit on retail in volume dealerships from less than £200 to over £200 a visit. One of the ways we have done this is we are getting better with the vehicle health check (VHC) process and the use of video technology to show the customers the work, and increase conversion. There is still a long way to go but we are getting better.
The biggest challenge in aftersales is the acute shortage of technicians in the marketplace. Booming new car sales in recent years has expanded the used car parc and the market has not kept pace.
“The big battle ground in aftersales is technician capacity. There is a shortage of technicians and there is a fight and scramble to get them, which is leading to cost pressures. We are taking on 100 apprentices every year to fill the gap. We are, as is everyone else, short of technicians,” he said.
On the used car front Vertu is selling strongly, outperforming the market. Many of the big dealer groups are expanding sales, eating into the business of smaller independents and franchised dealers who find it more difficult to compete. The big question is whether used car prices can continue to rise as they have done over the past seven years, up 42%. Forrester thinks they can. Demand is high and the consumer is ‘robust’. For Forrester supply shortage is the hallmark of the new car market in its current state and this was impacting the used car demand.
“We are seeing fewer part exchanges coming out of new, we are seeing less de-fleeting because of the WLTP issue and we are certainly seeing less pre-registrations in the marketplace. At the end of September two years ago we had 1,200 pre-registered cars, we are now down at 700. That is a market thing and is currency related. The issue in used cars is going to be lack of stock. I think we will see strong margins.”