- 2 million fewer car registrations by end of 2022 to severely impact the industry.
- 31 million vehicles currently in the Vehicle parc
April 2021 – Used car prices started to increase
- This has led an increasingly ageing number of older cars in the UK – This is only going to continue.
- This is forcing franchised dealerships to stock more older models, competing with independent dealerships.
- This has put up prices of second-hand cars.
- Average age of stock has increased from 1.5 years to 3.
Supply Chain issues
- There are fewer new cars into the market, this means there are less second-hand cars in the market – pushing up prices for all vehicles significantly.
- 2 in 10 polled by the SMMT believe that the issues won’t be resolved until 2024
- Future things to potentially impact Supply Chain – E.G. Gas shortages
This year alternative fuel vehicles have outsold ICE vehicles.
- Autotrader estimate that EVs will account for 50% of sales by 2026 and 90% by 2030.
- By 2030 a quarter of all cars on UK roads will be electric.
- Used EV will be 4 times larger by 2025 than it is now.
Are dealers ready?
- 80% of retailers responded don’t believe the 2030 ICE ban is viable.
- Only a fifth of retailers think they need to be ready by 2025.
- Significant number of dealers are planning for 2030 and beyond for ban of new ICE.
- EV market is going to grow rapidly in next few years.
- By 2026, 20% 3-5 years old year-old vehicles will be EV – Interesting for used car market.
- Only 43% of retailers have a fitted charger.
- 6 miles is the average range.
- Agency is now the preferred model for manufacturers
- Manufacturers and dealerships will need to adapt
- Regulation will impact what a dealership can do
- Four main things driving manufacturers towards agency sales
- Reduction in the cost of distribution
- Enabling more effective omni-channel – (online and in person)
- Direct access to the customer
- More consistent brand experience
- Automotive marketing, distribution and retailing represents approximately 20-30% of the value of a new car.
- 75% of customers want to buy a vehicle through omni-channel means
- Different customer base wants different things 7% want fully online, whilst 16% want fully in-person sales
- These changes depending on age group and BEV/ICE
- 17-34 age group want 8% entirely online and 8% want entirely in person
- This changes for 65+ only 4% want it entirely online, whilst 27% want entirely in person.
- For BEV, 15% want sales entirely online, whilst 4% want it entirely in person.
Customers still want in person sales; they will travel to do.
- Customers are now driving further and also are going to a greater number of dealerships in the UK
Manufacturers moving towards Agency –
Ford and Mercedes are the two front runners in the movement towards the Agency model.
The process of moving towards agency –
Modified franchise model -> Genuine agency -> OEM direct
Regulation surrounding agency –
- Vertical Agreements Block Exemption Order (VABEO) – Came into effect on 1st June 2022 with a one year transition; expiring in 2028.
- Motor Vehicle Block Exemption Regulation (MVBEO) – Comes into effect on 1st June 2023; expiring in 2029.
Definition of agency - “Genuine agents must bear no or insignificant commercial or financial risk”.
Online platforms/intermediaries will generally not meet the agency definition.
Key areas of concern for dealers –
- Legacy investments
- Impact on used cars
- Scope of the dealer
- F and I impact
- Profit parity
- Dealers’ greatest concerns relate to legacy costs, OEM capabilities and impact on used
- Manufacturers will need a combination of attributes and capabilities to remain competitive.
- Dealers will need to adapt their business models and yield some of their freedom
- Key things dealers must do:
- Transition from traders to retailers
- Working with partners who understand the meaning of the word
- Gaining scale advantages directly or through out-sourcing
- Developing a balanced business, looking for new opportunities
- Right-sizing the physical asset base, investing in digital capabilities
- Over 62% of Manufacturers are interested in the Agency model; 35% aren’t.
- Manufacturers see a 5-10% increase in the profitability through a change to agency.
- They `believe that they will save money on distribution costs
- Dealers must act soon in. It is recommended that they:
- Invest time and resource into scenario planning
- Optimise the key customer contact points
- Enhance Online Capability
- Use NFDA, dealer associations to lobby the OEMs and ask the difficult questions
- What does this mean for dealers:
- Lower margins or handling fees – Dealer F and I revenue is under threat
- Fewer points of network sales representation - 30% excess sales points in the uk.
- Complexity in the sales process
- Systems integration challenges – Franchised dealer sales process would need a complete re-write.
- Reduction in dealer business value
- Used Cars sourcing exclusivity challenged?
60% of new car sales expected to be direct sales in Europe by 2030.
- What should dealers be doing?
- Plan Dealers should assess the impact of the potential changes highlighted so they understand how a future P&L might be structured. It's not all about Agency – the shift to EV is huge for aftersales
- Re-imagine the property portfolio Whether it be assessing multibrand viability of a site or a mixed or alternate use development.
- Develop Online sales/retention capability Not everyone will want to transact fully online, but dealers should not want to surrender any sales to a slicker online only competitor.
- Reduce cost of logistics and fulfilment.
- Assess their scale - Scale often brings the ability to reduce unit costs and the pressure of agency margins, loss of F&I and competition in the Used Car market.
- Be excellent at sourcing and selling Used Cars.
Brand loyalty is dying in the automotive industry.
Key reasons for a manufacturer to go down the route of agency;
- Data sharing throughout the sales/aftersales process