FUTURE OF AUTOMOTIVE RETAIL WRITE UP AND PRESENTATION SLIDES

Presentation 1: Forces of change – Supply and Electric – Nick King AutoTrader

• 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

Electric

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.

Presentation 2: Agency and Regulation – Steve Young - ICDP

• 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 –

1. Vertical Agreements Block Exemption Order (VABEO) – Came into effect on 1^st June 2022 with a one year transition; expiring in 2028.
2. Motor Vehicle Block Exemption Regulation (MVBEO) – Comes into effect on 1^st 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 –

1. Legacy investments
2. Impact on used cars
3. Scope of the dealer
4. F and I impact
5. 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
  

Presentation 3: - Agency Sales Model - Alastair Cassels - MHA

• 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;

1. Data sharing throughout the sales/aftersales process
2. Profit