Dealer profit centres changing at an alarming rate – adapting will be critical
This was the quote attributed to Cotswold Motor Group in its latest financial return. It is unlikely to be an ‘outlying’ statement across the motor retail sector, with a succession of motor retailers reporting challenging conditions for the motor trade.
What was interesting within Cotswold’s report is that their cost centre comment was made despite an impressive rise in pre-tax profits of 64% on turnover up 17% to £173.3m. What I found most interesting were the trends reported in the performance. The Group is focused upon BMW/Mini where a fall in volumes and increasing margin pressure saw direct profit from new retail BMW fall by over 60% from the previous year. The business’s successes came from a combination of used, corporate and motorcycle sales and aftersales.
The agility to adapt to this changing environment for new sales trends and emerging OEM models will be essential for the franchised sector. Nevertheless, Cotswold’s quote about the ‘alarming rate’ of profit centre change points to critical changes ahead.
The move to AFVs will have an impact on aftersales in the years ahead; F&I as a profit centre will need to grow in penetration terms if revenues are to be sustained. Even more so, if the ban on discretionary commission arrangements proposed in FCA’s recent consultation paper goes ahead, saving customers an estimated £165 million in annual interest charges and with the general insurance model also subject to a thematic review that has a focus upon pricing. Pressure on profit centres is, as Cotwold’s suggests, very definitely happening and I haven’t even mentioned potential developments for new cars as a profit centre!
Retailers it seems will need to look increasingly to used vehicle revenues and quite possibly at steps to increase margins. The lessons from the success of new car finance is that a switch within marketing to a monthly payment rather than cash price-led approach looks a natural route, while at the same time, developing added value services. Retailers must move ever faster to switch from selling cars/services to making them more accessible for customers to discover and buy in an omnichannel and lean manner.
Creating good customer outcomes is not going to be just a regulatory requirement, it will be an essential way of gaining and retaining, sales, reputation and loyal customers.