In the ‘real world’ economy of average earnings, inflation, unemployment and consumer confidence there is every indication that the UK economy will struggle in the short-term. Economic growth will be flat and there is a chance of the UK dipping back into recession in 2012.

The year on year increase in average earnings has been around 2% for the last three months, and apart from January and June 2011, it has barely exceeded 3%. On the other hand, inflation as measured by RPI has run at around 5% during 2011. Clearly this disparity makes people poorer.

Unemployment increased substantially during the recent recession and has stayed stubbornly high since the middle of 2009, reaching 8.3% in October 2011 - the highest since 1994.

Predictably consumer confidence is extremely low. The Nationwide Consumer Confidence Index stood at 36 points in October, which is the lowest since its inception in April 2004. As we have pointed out here before, new car sales correlate strongly with consumer confidence.

These and other economic trends, suggest that 2012/2013 will be a re-run of 2011. After that, the return of economic growth depends on the success of government policies and what happens in the global economy and Euroland in particular.

It seems to us that the coalition government is on the right track with its aim of reducing government spending as a proportion of the economy. But, so far the coalition has failed to get a grip and will probably have ended up taxing, borrowing and spending more in 2011 than recent years.

The big unknown is what will happen to the euro. EU politicians seem utterly determined to keep the euro alive even if it means reducing southern Europe to permanent penury rather than fixing the basic flaws in the design of the currency.

This could end in the disorderly failure of the euro and even the collapse of the European Union. It is more likely, however, that ailing countries like Greece will be forced out of the euro. Whatever happens, the UK will undoubtedly suffer.

For UK auto retailing, uncertain economic conditions make planning difficult. Past experience suggests that used cars and aftersales represent the most reliable profit centres in times of uncertainty, and there is every reason to hope these departments will not disappoint in 2012.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin.(See auto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

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Every month since mid 1994, we have interviewed 1,000 motorists about where they last had their car serviced. Since 2005 we have added a host of other questions about common SMR operations. It is this extensive consumer survey that forms the basis of our Castrol Professional Car Service and Repair report.

Comparing retention of routine servicing and retention of the full range of SMR exposes only minor variations. Hence retention of routine servicing (“servicing retention”) is an excellent guide to the state of play in the SMR market.

Trend in retention of routine servicing by provider segments

Last month we took delivery of the interim results (January to September 2011) for our servicing retention consumer survey question.

These data have been added to the trends since 1995 for franchised dealers (“dealer for make”), independent garages and fast-fits (“other garage”), and DIY. Also shown is the percentage of motorists interviewed who hadn’t had their car serviced since buying it, noting that the “not yet serviced” element is included in the calculations.

As the chart makes abundantly clear, the independent sector has increased its share dramatically since 2006 (to 45.7%) whereas franchised dealers are going the wrong way and losing share (25.4%). DIY has apparently levelled off although a more detailed analysis of all SMR operations actually records a slight increase.

The reasons for these changes in fortune are complex but one of the biggest drivers is car parc age – and the chart shows this recent ageing trend. By segment, franchised workshops tend to appeal to owners of cars up to four years old, independents four to eight years old, and DIY over eight years.

Because new car sales have been falling since 2005, the number of cars up to four years old has fallen by over 20%. Meanwhile the high new car sales pre-2005 have populated the four to eight year old car parc and handed a lot of SMR business to independents. Clearly the recent recession has not helped.

Of course not every retailer is equally affected. Some makes of cars, like Skoda, have increasing four-year car parcs. And we have first hand experience of volume dealer groups bucking the trend with imaginative aftersales strategies including: service plans, customer communication centres, upselling and retention of used car buyers.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in November 2011.(See auto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

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At that moment customers see expenditure on accessories as quite small in the greater scheme of things and they will be concerned to protect or enhance their investment. Accessory upsell opportunities include: interior and exterior styling and protection, boot liners, towbars, roof racks and boxes, safety kits, audio-visual, and Sat Nav.

Clearly accessories add much-needed profit to car sales. But just how big is the opportunity and what do customers buy? We asked motorists interviewed for our Castrol Professional Car Service and Repair Trend Tracker 2011 survey.

The most likely buyers of accessories were those who owned cars less than one year old. Some 28% had bought one or more accessories for their car, which is nearly twice as many as the next highest – those with cars over ten years old, presumably upgrading.

Because of the need to survey all ages of cars, we cannot identify whether owners of cars under one year old bought accessories when purchasing their car, or whether they bought the accessories from their dealer. However over a quarter of new car owners buying accessories is more than a modest opportunity for retailers.

So what did these owners buy? On average they bought nearly two accessories each (so what follows adds up to more than 100%) with the most popular item being floor mats. Over 80% (of the 28%) bought floor mats.

Next was ‘audio’ with 23% making a purchase, which is surprising given the high-end specification of most car audio systems these days. Breaking down ‘audio’: upgraded speakers and MP3 connections together accounted for the majority.

The next most popular accessory purchase was alloy wheels with 22% (of the 28%) opting for these. In fourth place was ‘mobile phone accessories’ (14%) of which nearly 60% were hands free kits wired into the car.

Sat Nav was in fifth place (11%) and seat covers and wheel trims each accounted for 10% of purchases. Cycle racks, dog guards, roof bars and boxes, and various other items all made minor showings in the survey.

Talking to a range of franchised retailers about these findings, they said that between 15 and 20% of new car buyers also purchase at least one ‘extra’, which suggests retailers are missing out.

But the majority mentioned that it is easier to sell accessories as packs - for example a ‘protection pack’ including the likes of mudflaps, floor mats, sill protectors and parking sensors – because it looks better value.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in October 2011.(See auto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

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Studies like this are often called ‘market sizing reports’ and they are principally used to inform business decisions frequently involving huge sums of money.

Assembling the data and facts for a market research report can be done in a number of ways; indeed several methods and sources might be utilised in a single report. Desk research is a popular way of gathering information, and the UK is extremely fortunate to have one of the world’s best sources – the Office of National Statistics. Its website is a mine of information and it is, for the most part, absolutely free of charge.

Data about the sales of new and used cars at the highest level are available free of charge from the SMMT and published in magazines such as Auto Retail Bulletin. Of course, if you want to know how many new and used cars were sold in your postcode area, you will have to pay for the information.

But desk research is limited. If someone or some organisation hasn’t already investigated what you want to know, then you have no choice but to consult the ‘horse’s mouth’. You have to carry out primary research – a survey.

For instance, a dealership can (and should) carry out a regular survey of used car selling prices in their area and I showed delegates at this year’s Auto Retail Network used car workshop how to do this. Quite simply, you list selling prices from your local newspapers. Similarly you can assess the ages of used cars on sale.

More complex requirements usually involve talking to people, lots of people. Our Castrol Trend Tracker 2011 report on the market for servicing and repairs, for example, is based on interviewing 15,725 motorists over a period of 16 months. Because this type of study is very expensive, the whole exercise was planned and organised right down to the last detail.

The same rigorous approach is required for business (B2B) surveys. There is a range of options for B2B – telephone interviews, postal, fax, and internet. While we have used all four, sometimes on the same project, telephone interviews are the most reliable and many readers will have taken part.

So that’s how you end up with lots of numbers. Interpreting the results is the final important step: what do the numbers mean and what should you do because of them? Analysis can be difficult but a good survey helps the process.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in September 2011.(See auto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

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Read more and download the full Auto Retail Network article above.

For the 2011 Trend Tracker, Lake Research carried out the consumer interviews and supplied the results as raw data. Truly, a ‘research anoraks’ dream! Digging around the new data, we were able to extract, for the first time, information about marques with smaller car parcs including: Audi, BMW, Hyundai, Kia, Land Rover, Mazda, Mercedes-Benz, Mitsubishi, SEAT, Skoda, and Suzuki.

Of course we cannot yet establish trends for these marques, or the accuracy of the measurements - that will take a few years - but the initial findings did raise some interesting questions about what drives business back to franchised workshops.

Our consumer questions relating to the whole range of servicing, maintenance and repair(SMR) give us ‘service retention’ for the various market providers in terms of volume (rather than value). For the 23 makes of cars in the survey with adequate SMR samples, the straight average franchised dealership retention worked out as 23.7% in 2010.

However, for the individual marques, the attraction of franchised dealerships as SMR providers doesn’t always have a single, logical explanation.

In fact, the average age of a marque’s car parc is the most influential factor on service retention. For example, long-lasting Land Rover vehicles had one of the oldest parcs in the survey and consequently the service retention of Land Rover dealers was poor.

The relationship between car parc age and service retention is not surprising given that franchised retailers lose SMR business quite quickly to the independent sector as cars get older. However there were a sufficient number of anomalies to suggest other factors are at work.

You might suspect that the retailers of prestige cars retain more SMR custom than retailers of more humble marques. The results confirm that this is true to an extent, although it could be equally true that owners of hi-tech, prestige cars want the best and they are willing to pay for it.

One survey question asked of motorists who hadn’t yet had their car serviced about where they will go when the service is due – and why. For those likely to go to the retailer for their make of car, some 31% valued the expertise and competence of the dealer. But 38% will use their dealer because their car is still under warranty.

The only other areas mentioned were cost/value for money, courtesy car, convenience and customer service. None of these rated above ten per cent of responses.

So it seems that warranty is another driver of dealership service business even though motorists appear confused about warranty contracts. Either way, longer new car warranties clearly provide franchise retailers with a competitive advantage and captive warranty work.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in July 2011.(See auto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

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The revised Block Exemption Regulation of 2002 brought some to imagine that a Tesco could just turn up and meet a chosen vehicle manufacturer’s stated objective franchise criteria and then flex its muscle in a way that even the biggest franchised dealer groups have never done. That never happened, and for good reason. The somewhat liberalised multi-franchising provisions of the 2002 BER never made the economics of dealership management strikingly different, or strikingly attractive to general retailers.

The closest motor retailing in the UK got to the big retail chains was with Sainsbury’s Drive programme, which depended on traditional motor trade intermediaries, and Virgin Cars, which depended, fatally as it turned out, on a less traditional motor retailer.

It’s not just these antecedents that make the launch of Tesco Cars, with its largely online presence as a direct retailer of de-fleeted lease and rental stock, less exciting than it might have been 20 or even 10 years ago. Tesco has, we understand, bought a significant minority stake in an existing online business, Carsites. But before it did so, the car supermarket had already begun to come of age, with several strong brands emerging from within the motor trade, and several online routes to an enormous array of used cars which can be retailed effectively by businesses large and small, specialized and generalist. Tesco can no longer bring so much to the party that’s entirely new.

It’s relatively easy enough to get some incremental revenues by lending your name to outsourced operations such as Tesco Tyres, Tesco Car Insurance and Tesco Breakdown Cover; much less so for a general retailer or supermarket to integrate such specialised operations vertically.

A plug: This reflection was prompted by Trend Tracker beginning work on the next, 2011 update of our The Future of the UK Used Car Market report.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

To quote verbatim: "The online poll by the car supermarket giant found 41% of people quizzed were impressed enough by the new generation of electric cars coming onto the market such as the Mitsubishi iMiEV and Nissan LEAF to invest in one at some point in the near future. Over 1,900 people participated in the study at www.motorpoint.co.uk."

As researchers, we'd just note that no-one betting the farm on EVs should take too much comfort from this. No such percentage of the motoring population at large is ever going to buy any vehicle of any type in the next 12 months (note this was softened to "at some point in the near future")- roughly 10% of the UK car population is renewed annually.

And all should beware surveys of the somewhat ignorant. Granted there has been an enormous volume of media coverage of electric cars over the past year and more, but little of it has been able to make the average citizen familiar with the operational issues concerned with EV ownership.

It's not only retailers in search of a story whose surveys should be read with interest - and a pinch of salt. McKinsey & Co published a recent paper, The fast lane to the adoption of electric cars, suggesting that "Catalyzing early adoption could take less than most auto executives and policy makers think". The authors believed their consumer research on demand for electric cars in very large urban areas showed that plug-in hybrid electric vehicles and battery-only electric vehicles could account for 16% of overall new-car sales in New York, 9% in Paris, and 5% in Shanghai by 2015.

Yet the authors also mentioned in connection with consumer education being critical for catalysing both early and mass EV adoption that, "Forty percent of New York and Shanghai respondents said they didn’t know much about electric vehicles and many were anxious about driving-range limitations. Few knew that battery-powered cars are relatively quiet and can potentially accelerate faster than conventional ones. And more important, many weren’t aware that electric cars help drivers save money on both fuel and maintenance in the long run."

Both electric car makers and politicians need more reliable pointers to how much they should invest in providing infrastructure and incentives to EV buyers.

Toby Procter (See ELECTRIC VEHICLES - Energy, infrastructure and Mobility in the Real World, 2011, on this site.)

Toby Procter

Trend Tracker Limited

0870 421 4350

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The CCC said this 2030 target could be achieved through reducing the carbon intensity of electricity by 90%, by dint of smart metering and adding the equivalent of 25 new large scale, low-carbon power stations (up to 40 GW) to the grid, with radical reform of the electricity market. Simple, then!

The CCC said a 45% reduction in surface transport emissions could be achieved, mainly via a 60% EV (Electric Vehicle) share of the new vehicle market, with 11 million electric cars and 1.5 million vans on the road by 2030. Hydrogen could be used to power HGVs and half of all buses. “More could also be done by Government to reduce car trips, by 5% by 2030, (through initiatives including encouragement of car pooling and use of public transport)" according to the CCC.

In 2009, just 55 new EVs were registered in the UK, out of a market of over 2m cars and CVs (according to climate change sceptic Christopher Booker’s blog - the figures aren’t official).

Yes we Cancun? No we Can't

When energy storage technology has to improve by a factor of five to seven; reduce in cost by two thirds; and last twice as long, for EVs to provide a real alternative to conventional cars and reach a 60% penetration in 20 years is a tall order. To say the least.

These figures aren’t ours, but US Energy Secretary Steven Chu’s, speaking at the Cancun UN climate talks, as reported by Reuters. Secretary Chu reckons competitive energy storage technology is about five years away. Let’s hope he’s right. Starting from scratch in, say, 2020, when the first new cars with truly competitive metal-air 'batteries' may be ready for volume production, a trajectory like that achieved by hybrid powertrains would achieve a market share by 2030 not of 60%, but less than 1%. With the limitations of li-ion batteries, it seems implausible that EVs will break out of a small early-adopter niche before 2020 to pump-prime the market. And when vehicles with second-generation, post-li-ion batteries do hit the market, the first-generation EVs, having cost twice as much as their closest equivalents when new, will be pretty much worthless, regardless of age or mileage.

0.8-60 how quick?

In 2009, a decade after the launch of the first-generation Prius, UK new registrations of ‘alternative fuelled’ cars, mostly hybrids, totalled 14,963 units, or 0.8% of the 1,994,999-unit new car market. Remember, unlike EVs, hybrids require no dedicated refuelling infrastructure, nor do they impose any range restrictions. No democratic government on earth has enough sticks or carrots to inflate natural demand from 15,000 units to 1.2 million.

We should respond to this cavernous gap between wishful thinking and evidence with more than mere irritation at the apparent inability of intelligent public servants to inspect real-world data. We should demand that they invest more intensively, not in funding EV production lines and incentives, but, like Mr Chu, in funding more powertrain technology research. The US Department of Energy’s Advanced Research Projects Agency put US$400m into battery chemistries and other technologies considered too risky for the private sector. That’s not a lot compared to what was spent on bailing out Detroit, or the US$557 billion in subsidies that a report in The Guardian earlier in 2010 claimed the fossil fuel industry received in 2009.

At the same time, we need urgently to pull all available strings to de-carbonise electricity production. For now, we are still slaves to fossil fuels, while at this embryonic stage of 'EVolution', our politicians are over-investing in producing and subsidizing vehicles without seemingly understanding their infrastructure demands, market appeal or environmental credentials.

To quote Fuel Cell Today's newsletter from departing analyst Dr Kerry-Ann Adamson, “We need to work towards technology being politically neutral with government supporting the development of technologies that could play a role in meeting societal aims, not picking winners.”

We hope EVs will be winners for society at large rather than the few – tomorrow’s EVs, if not today’s – but there’s much more work to be done before we know how. Our forthcoming report on the subject explains why.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report, bodyshop market, car finance, electric vehicles, car servicing, automotive research

Trend Tracker'sEVs: Energy, Infrastructure and Mobility in the Real World is available to download and includes chapters on:

• EV technology
• Battery chemistries
• Profiles of X EV manufacturers and Y traction battery manufacturers
• EVs and power generation
• Recharging infrastructure development
• Oil and other critical resource constraints
• Market penetration forecasts
• Fiscal policies
• Business models

This report is based on strategic research and three years of tracking developments in the EV and automotive sectors. No mere technology update, it offers uncomfortable advice based on a mass of technology, energy and resources data. It’s designed to help investors, politicians, environmentalists and senior executives in the automotive and power utility sectors get to grips with the dynamics and problems of what could be the most difficult transition since globalisation –from oil to electricity.

The ‘Bosch: Driving Green Britain’ survey studied a sample of over 1,000 UK car buyers. When asked to rank what was the main influence behind their purchase decision, 63% of motorists surveyed said that price was the most important factor, closely followed by vehicle size (at 56%). Design, style, brand and safety were all rated ahead of environmental considerations.

This survey result followed a day after Trend Tracker director Toby Procter's visit to the third and final day of the inaugural ‘eco2’ transport show at London’s Earls Court, where the hall was sadly empty of visitors. The lack of obvious enthusiasm for lower carbon cars contrasted starkly with the enthusiasm with which powertrain innovations were being promoted at the LA Auto Show.

Only towards the end of the first half of 2011 when the pre-orders for the first mainstream manufacturers' EVs have been fulfilled will it begin to be clear whose forecasts of EV market penetration are most likely to prove true. Meanwhile, to help the industry and its stakeholders understand the issues that will need to be addressed if EVs are to take off in time to save us from the effects of Peak Oil, Trend Tracker is preparing a new report.
EVs: Energy, Infrastructure and Mobility in the Real World will be published in January 2011, with chapters on:

• EV technology
• Battery chemistries
• Profiles of X EV manufacturers and Y traction battery manufacturers
• EVs and power generation
• Recharging infrastructure development
• Oil and other critical resource constraints
• Market penetration forecasts
• Fiscal policies
• Business models

This report from Trend Tracker Ltd., one of the UK’s foremost automotive research companies, is based on strategic research and three years of tracking developments in the EV and automotive sectors. No mere technology update, it offers uncomfortable advice based on a mass of technology, energy and resources data. It’s designed to help investors, politicians, environmentalists and senior executives in the automotive and power utility sectors get to grips with the dynamics and problems of what could be the most seismic transition since globalisation –from oil to electricity.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report, bodyshop market, car finance, electric vehicles, car servicing, automotive research

The crisis actually began in the summer of 2007 with the bursting of the sub-prime mortgage bubble in the US housing market. These sub-prime mortgages had been packaged up into bonds or mortgage-backed securities, and sold to banks around the world. The value of these packages collapsed and banks had to write them off. Banks became hoarders of cash to shore up their balance sheets and this caused the liquidity crisis in the wholesale money markets – the ‘credit crunch’.

The problem spilled over into the UK economy and gross domestic product (GDP) fell in the second quarter of 2008 and went on to shrink for a total of six consecutive quarters before increasing by 0.4 per cent in the fourth quarter of 2009. For the year 2009 as a whole, GDP contracted by 4.9 per cent, compared with growth of 0.5 per cent in the previous year. While that is a huge contraction, GDP had grown by over 50% between 1999 and 2009, and thus the fall was at least from a high base.

The new government hardly got off to a flying start with much horse-trading before the formation of a coalition. The emergency budget turned out to be less than billed. Meant to address our wildly out of control public expenditure, budget deficit and the UK’s huge ‘overdraft’, it seems to us that the cuts are likely to be nowhere near as large as the headlines suggest. The Chancellor’s sums rely more on GDP growth and higher taxes than cutting expenditure.

Continuing price inflation is also a problem. Fuel, for instance, is up 25% in the last twelve months driven by high oil prices and a weak £sterling. No surprise, then, that 86% of motorists are more concerned with fuel prices today than a year ago according to recent research by Halfords-owned Nationwide Autocentres.

With all this uncertainty - and a backdrop of unemployment and as yet unsolved economic troubles worldwide – consumer confidence is well down on, say, five years ago. For example, The Nationwide Consumer Confidence Index stood at 65 in May 2010 compared to its highest point of 110 in February 2005 and lowest point of 40 in January 2009. You probably wouldn’t be shocked to learn that there is a strong correlation between consumer confidence and new car registrations, and even used cars sales and aftersales.

So for at least the next few years, the outlook for the UK is at best flat. For the retail motor industry, so reliant on consumer confidence, it will continue to be very, very tough. That’s what the ‘New Normal’ looks like.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in July 2010. (See auto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

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Analysing correlation is important if you want to explore cause and effect. Sometimes, though, you don’t need to be a statistician to see how one thing correlates with another. As the graph illustrates, there is evidently a connection between consumer confidence and new car sales. Although the graph uses a six-month moving average to smooth out the background noise of the month-on-month swings in new car sales, the relationship between the two is still clear even if it hadn’t been cleaned up.

Such an obvious link between consumer confidence and new car sales suggests cause and effect. The relationship is intuitive anyway. If customers don’t feel secure they are less likely to buy a new car. Indeed, they are less likely to buy any big ticket items, including houses and holidays. And even if they have the money they would rather save it for the proverbial rainy day.

The graph also shows that the scrappage scheme boosted new car sales despite customer confidence declining over the period of its operation. However, the scrappage scheme is no longer with us and there is VAT increase in January 2011. As for customer confidence, it appears to be on the wane again and this is backed up by another measure from the same monthly Nationwide Building Society survey – the Expectations Index.

The Expectations Index reports the views of people about the economic situation going forward six months, which on a personal level means jobs and household incomes. We don’t have the space to include a graph of the Expectations Index, but this too has the same obvious correlation with new car sales. The latest survey indicates a great deal of pessimism about the next six months.

In comparison, the UK’s franchised dealer groups are verging on optimistic. Most groups have now lodged their 2009 accounts with Companies House and the PLCs have been reporting interim results. In general, groups worked hard in 2008 and 2009 to pare down their operations. Unprofitable outlets and franchises were sold or closed, expenses and overheads were reduced, and staff numbers cut – substantially in some cases. As a result, the vast majority of groups made a profit in 2009 and many increased turnover too.

Some dealer groups also included a commentary on the future outlook in their 2009 accounts. These are generally positive and often explain how they will set about further improvements. Used car sales and aftersales feature prominently but there is hardly a mention of new car sales. Given that 2009 was an awful year economically, and most dealer groups still managed to turn a profit, perhaps their optimism for 2010 and 2011 is justified.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in November 2010.(See auto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

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]]> http://www.trendtracker.co.uk/blog/2010/09/pessimism-and-optimism#comments http://www.trendtracker.co.uk/blog/2010/09/pessimism-and-optimism http://www.trendtracker.co.uk/blog/2010/09/the-remarkable-resilience-of-retailers Sat, 25 Sep 2010 17:48:15 +0000 office@trendtracker.co.uk (Trend Tracker) At least some of Trend Tracker’s analysts, myself included, have shown a glass-half-empty attitude towards the standard-model new car franchise system, as some of our past white papers have attested. But we have to admit that earlier reports of its impending demise were more than a little premature. The system isn’t bust yet, indeed it survived the 2008 recession rather better than many might have expected.

True, the Motor Trader Top 200 UK franchised dealer groups shed some 7,000 jobs, or six per cent of their workforce last year, and complacency would be indecent. But if things weren’t worse, that was partly because the high gross margins achieved in dealer workshops (to the continued dismay of consumer lobbies) continued to underpin the expensive business of maintaining showrooms for new cars that fewer and fewer customers could consider buying.

One of Trend Tracker’s regular client engagements is the aforementioned Motor Trader Top 200 survey, whose latest, 2010 iteration, sponsored by Mobil 1, can be accessed at http://www.motortrader.com. The report shows that dealer profits in 2009 proved to be less sensitive to fluctuations in new car sales than to losses sustained from declining used car values: “We’ve always made so little profit on new cars that when sales dropped it hardly made any difference,” said the managing director of one Top 200 group responding to the Motor Trader survey.

Aftersales demand, which contributes around half of most dealers’ gross profits, declined slower than the new car market, so did not significantly impact on overall turnover, though many dealers saw overhead absorption weaken during the period.

We have in the past referred to “the falling props” (service/repair, parts and vehicle finance) which would ultimately, some of us felt, let the roof fall in on the franchised dealership business model. There has been decay in these props – but the edifice is still standing. Some networks have decided to become more competitive with their labour rates, and some tied finance houses have begun to fight back against direct lenders. Life for the average franchise will be tough at best in 2011, with a VAT hike and the downward curve in new car sales post-scrappage that will go on shrinking the dealer service parc. But considering the imminent demise of block exemption following hard on the heels of a major recession, the dealer body is still showing remarkably little appetite for change, and few volunteers for consolidators to buy out.

Toby Procter

Trend Tracker Limited

0870 421 4350

Twitter.com/TrendTrackerUK

aftermarket report, bodyshop market, car finance, electric vehicles, car servicing, automotive research.

]]> http://www.trendtracker.co.uk/blog/2010/09/the-remarkable-resilience-of-retailers#comments http://www.trendtracker.co.uk/blog/2010/09/the-remarkable-resilience-of-retailers http://www.trendtracker.co.uk/blog/2010/09/rare-earth-metals-to-get-rarer-faster Fri, 24 Sep 2010 16:34:44 +0000 office@trendtracker.co.uk (Trend Tracker) The New York Times reported on Thursday (22.09.10) that the Chinese government had officially denied halting exports of rare earth metals to Japan, in retaliation for the detention of a Chinese trawler skipper in a long-standing territorial dispute. China had already cut export quotas for the cerium, lanthanum, neodymium etc. etc. on which Toyota et al depend for their NiMH batteries, permanent magnet electric motors and much else besides, and has over 90% of the world’s known rare earth metals deposits.

Terrifying news for all who are betting on hybrids & EVs weaning us off oil. First they flood us with cheap exports of almost everything, then turn off the tap just when we get addicted. See the issue assessed in Trend Tracker’s forthcoming report on the future of EVs, of which more news soon. One point is clear: technology which depends on costly metals which may be depleted sooner than oil is something to be cautious about. But don't imagine we can relax with our nice, familiar petrol and diesel cars. They need platinum for catalysts, and cerium, Europium, Yttrium for glass manufacture, and goodness knows what else, too. What isn't getting scarce, apart from scare stories?

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report, bodyshop market, car finance, electric vehicles, car servicing, automotive research

]]> http://www.trendtracker.co.uk/blog/2010/09/rare-earth-metals-to-get-rarer-faster#comments http://www.trendtracker.co.uk/blog/2010/09/rare-earth-metals-to-get-rarer-faster http://www.trendtracker.co.uk/blog/2010/09/forecasting-the-future-2009-2015 Tue, 21 Sep 2010 10:49:41 +0000 office@trendtracker.co.uk (Trend Tracker) Essentially the Car Service and Repair Trend Tracker Update 2010 combines three longstanding research reports into one. First, and perhaps best known, is the Service Trend Tracker. Published since 1995, this report is based on extensive consumer surveys. Every month, 1,000 motorists are asked about where they last had their car serviced. The result is ‘servicing retention’ by make of car and provider of servicing – dealers, independents and DIY – a measure we have always found to mirror, very closely, the industry standard ‘service retention’ that includes all types of mechanical work including routine servicing.

The second report is the Repair Trend Tracker, run since 2005, and based on consumer surveys too. The third report is the UK Car Service and Repair Market report, published every two years since 1994, looking at market size and trends and the garage supply structure in the UK.

The USP of this body of work is the trend data reaching as far back as 1987, crucially before the recession in the early 1990s, which enables us to produce the forecasts going forward five years to 2015 contained in the new report. We shall not bore you with the details of the econometric model utilised, but suffice to say it has produced surprisingly accurate results in the past.

Of the various inputs to the forecast model, the effects of each vary and can be interdependent. This time, as in the recession of the early 1990s, the dominant variable was the fall in new car sales leading to changes in the age profile of the UK car parc. Of course new car sales have been falling since the peak in 2003 and thus the number of cars up to four years old, so essential to dealers’ service departments, had been falling for a while to stand 15% below its peak at the beginning of the recession. By the end of next year the four-year car parc will be 25% lower.

The recession of the early 1990s resulted in similar falls in the four-year car parc, and the effects on the servicing and repair market this time will be the same, although ameliorated by longer new car warranties. Quite simply, the ups and downs of each car parc age segment affect, in turn, the market providers. Thus franchised dealers draw most of their work from the four-year car parc, as the new report illustrates, and therefore a 25% fall in this segment obviously reduces the potential customer base for dealers’ workshops. In other words, the changing car parc age profile, and the number of cars in each age segment, effectively transfer work between provider sectors. So with such concrete historic trends available to us, the forecast was relatively easy, and we trust accurate.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in June 2010. (See //auto-retail.co.uk
for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

]]> http://www.trendtracker.co.uk/blog/2010/09/forecasting-the-future-2009-2015#comments http://www.trendtracker.co.uk/blog/2010/09/forecasting-the-future-2009-2015 http://www.trendtracker.co.uk/blog/2010/09/facts-and-figures---dft-analysis-of-mot-testing Fri, 17 Sep 2010 10:39:13 +0000 office@trendtracker.co.uk (Trend Tracker) Two invaluable sources of facts and figures for our research reports come from the Department for Transport (DfT) – the snappily-named Transport Statistics Great Britain and Transport Trends. Hardly the most thrilling reads, but crucial to understanding what’s happening in the car market and why.

The most recent editions of these compendiums give some reason for optimism. For example in 1952, buses accounted for 42% of all travel (expressed as billions of passenger kilometres) followed by cars at 27% and rail 18%. In the latest year for which complete statistics are available, cars were the basis of 84% of all travel with buses and rail on 6% and 7% respectively. So cars are firmly entrenched as the UK’s premier mode of travel and it would require a seismic shift in public transport to compete. Indeed the forecasts provided by the DfT going forward to 2025 anticipate a 33% increase in the number of cars compared to 2003.

The popularity of cars is further emphasised by the growth in driving licence holders – up from 48% of all adults in 1975 to 75% in 2008 to around 34.5 million. Access to cars for households has also increased dramatically, from a mere 16% of households having one or more cars in 1952 to 76% in 2007, when 6% of households had three or more.

On the downside, car owners are driving less, according to the DfT. In their 1995/1997 survey, they calculated average annual mileage as 9,700 miles. In 2008 it had fallen by 10% to 8,690 miles per annum, with private motorists averaging 8,130 miles and company car users 19,760. The fall in average mileage probably has a lot to do with multiple car ownership.

The DfT’s analysis of MOT testing reveals the potential of this area of aftersales business. Before 2006/07 MOT testing was not computerised, so the data are not as robust, but in 1999/00 some 22 million cars were tested and 7.4 million failed. In 2008/09, with computer data available, 28 million cars were tested and 10.2 million failed. The major areas for failure in 2008/09 were lighting (18.9%), brakes (17.1%) and suspension (12.2%). While a reasonably significant proportion of MOT tests is paid for by dealers when selling used cars – perhaps three million tests –MOT testing clearly represents an important profit centre in its own right, in addition to the ten million failures requiring a fix.

Another point of interest from these reports is how many people are employed. The DfT lists garage owners and proprietors, mechanics and technicians, car body operatives, and tyre and windscreen fitters, so there are many other occupations not researched by the DfT. The total for these four categories in 2008 was over 300,000, with mechanics and technicians the largest contingent at 207,000.

Overall, then, the facts and figures paint a picture of a large and essential sector of the UK economy, and leave you with the overwhelming impression that the car business is here to stay, along with cars.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in May 2010. (See //auto-retail.co.uk
for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

]]> http://www.trendtracker.co.uk/blog/2010/09/facts-and-figures---dft-analysis-of-mot-testing#comments http://www.trendtracker.co.uk/blog/2010/09/facts-and-figures---dft-analysis-of-mot-testing http://www.trendtracker.co.uk/blog/2010/09/grossing-up-gross-margins Mon, 13 Sep 2010 13:33:08 +0000 office@trendtracker.co.uk (Trend Tracker) At this time of year, dealer group PLC’s publish their half-year results – informative barometers of the past six months. Also at this time of year private limited companies with financial years ending last December must post their accounts to Companies House.

In some ways private limited company accounts are a better indicator of the state of the retail motor industry. Small companies are more sensitive and vulnerable to market conditions, and hence they often react more quickly than PLC’s because they have to. As many private limited companies have still not posted their accounts, it is early days yet, but we have noticed already that the companies bucking the recession have clearly worked hard to improve their gross profit margins.

You will have undoubtedly come across the basic financial model so beloved of consultants everywhere. It goes like this. Imagine a dealership with a turnover of £100 that generates a gross profit of £15. The cost of sales (mainly purchases of new and used cars) is therefore £85. Expenses and overheads come to £12 and thus the net profit is £3, or three per cent of turnover. The consultant then says what if turnover is increased by £1. And what if expenses are reduced by £1 and overheads are reduced by £1. The answer is that net profit as a percentage of turnover increases to five per cent. Magic!

But what some consultants tend to ignore is the gross profit margin. Their model often leaves the gross profit margin – in this example 15% - the same. And therein lies a problem that we have noted across many sets of 2009 accounts: static or even falling gross profit margins. Indeed some dealers express pride in maintaining their gross profit margin at 2008 levels.

In a recession rather than turnover increasing, it is more likely to fall. If you then aim for the same gross profit margin, gross profit as money falls and you have to over-compensate by larger cuts in expenses and overheads. Obviously in a recession you have to act fast and cutting expenses and overheads – principally headcount – must be a priority. But savage cuts, especially to staffing levels, can exacerbate the downward pressure on turnover caused by the recession.

The alternative is to improve the gross profit margin and we have discovered many instances where it has been a clear strategy. For example in the accounts for one dealership, the directors describe 2009 as “a very successful year” despite the fact that new and used car sales fell by six per cent as did turnover. However, the business managed to increase its gross profit margin by two percentage points – “by implementing a strict used car purchasing policy” – and maintained expenses and overheads at 2008 levels by cutting headcount by 10% “without any detrimental effect on the business”. The net result was that pre-tax profit actually increased by one-third in monetary terms compared to 2008. The improvement in gross profit margin was a major contributory factor.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in September 2010. (Seeauto-retail.co.uk for subscription details.)

Chris Oakham

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

]]> http://www.trendtracker.co.uk/blog/2010/09/grossing-up-gross-margins#comments http://www.trendtracker.co.uk/blog/2010/09/grossing-up-gross-margins