To be more specific, staff, and this sometimes includes parts managers, are less than adequately equipped to extract maximum performance from their business. It is not, as you might think, a deficiency of technical skills or product knowledge, but a lack of commercial acumen. Perhaps this was inevitable given the sophistication of stock control computers, which mean many staff members can get by with a minimal understanding of how the parts department’s financial model works – until the day dawns when thing go wrong, of course. In this respect it seems that available training quite often misses the mark.

By way of example, we came across a franchised parts wholesaling operation turning over £3 million including retail, workshop, bodyshop and trade; the latter accounting for 70% of turnover. The overall gross profit margin on these sales was just over 20% (after stock adjustments) and the operating or direct profit margin a fraction under 10%. With a contribution of almost £300K to the dealership you might be happy with this result and, admittedly, it is by no means the worst we have come across. What made us unhappy was it could have been so much better – at least £30K better.

The problem was a simple one: small percentages building up to bigger percentages. Buying margins were off the average of similar franchised operations as were sales discounts. All of this added up to an overall gross margin that was at least one percentage point – equivalent to a shortfall of £30K in profits - down on the average and some way off the best performers.

Ignoring stock adjustments, the dealer’s parts department results could be described as follows. For parts worth £100 at retail, they paid £54.40. When they sold the parts the average discount given was 31.9% off retail resulting in a sale price of £68.10. Hence the overall gross margin was £13.70 divided by £68.10, or 20.1%. The average overall gross margin for almost identical businesses of the same franchise, with a similar buying and selling mix, was 21.2% because they bought at £54.00 and sold at £68.50.

The lower than average buying discount was caused by bad deals on non-OE parts and equally poor deals on OE parts bought from other dealers. The selling margins suffered because discounts given on captive accident repair parts were too generous.

The parts manager in this case could extract the relevant data from the computer, but he was unable to analyse the results and isolate the fall-down areas. With appropriate training and a better grasp of key yardsticks, he has now added £45K to his department’s contribution.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in December 2007. (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

For example, a few years ago we carried out a series of site visits for a dealer group client looking specifically at gross margins in their service departments, and with their permission, we can share one of the findings. The group’s minimum margin for sublet and sundry sales was fifteen per cent. But the actual average across all the sites we visited was just over fourteen per cent. On closer inspection, we found the majority of sites just added 15% to the cost price of sublet and sundry sales, which is a margin of 13%. To achieve a minimum 15% margin they should have added 17.6% to the cost price.

In this case, the difference in gross profit between a 13% and 15% margin is around £2,000 per annum for the average service department, because sublet and sundry sales only make up eight per cent of sales. However this group’s minimum margin on sublet and sundry was too low anyway – between 17.5% and 21.5% is average. At this higher level, more than £3,000 potential profit is lost because of the wrong mark-up.

We have seen similar instances of incorrect mark-ups that cause far larger losses in potential profit in sales, service, bodyshop, and parts. We have also seen evidence that ignorance of this relatively simple maths can affect the ability to negotiate good deals with suppliers and customers.

In the body repair market,for instance, bodyshops invariably have an inflated idea of their margins on refinish paint. When you research the specific question of paint margins, the results usually range from thirty-five to forty-five per cent. Yet the average gross profit margin achieved on paint is a fraction over 30%. In fact body repairers are probably quoting the discount they get from their suppliers – their so called ‘buying discount’. They are not taking into account discounts they give to work providers and customers, the vagaries of computer estimating systems, or any wastage (which can be huge for the more careless).

Going back to the dealer group case study, the upshot of the gross margins audit was a five-hour training course on mark-ups and margins. This extended to all departments across the group, and individual courses included a mixture of departmental delegates. A further audit after twelve months revealed a big improvement, with some of the best results coming from accessory sales through the showroom. Getting the basics right can make all the difference.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in June 2006. (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

What Car? notes some significant price increases in the last twelve months: Ford Fiesta 1.25/60 up 32.6%; Ford Mondeo 1.6/110 up 19%; Fiat 500/1.3 up 17.6%; Ford Focus 1.6 up 17.6%; and Vauxhall Insignia/2.0 up 17.2%. In addition, What Car? reports that dealer discounts have been falling.

These are clearly substantial price increases and What Car? mentions the weakness of the pound generally and against the euro in particular. Since the introduction of the euro, one pound has bought 1.5 euros, but today it only buys 1.1 euros. This means that a new car coming off the line in Europe valued at 10,000 euros used to cost us £6,700 but now it's £9,100, which is an increase of 36%. So it's surprising that new car prices haven't increased even more and perhaps they will. Obviously we manufacturer a large number of cars here in the UK, but this doesn't help because most are exported.

There are also many other factors pushing up the prices of new cars both here and in Europe. The oil price is probably one of the biggest because it affects manufacturing and transportation costs. Before 9/11 the oil price had been fairly stable at less than US$30 per barrel since the mid 80s. After 9/11 oil prices increased considerably with, in the last twelve months, Brent Crude up from $45 to $75.

For new car buyers 'affordability' is the key and one way of assessing this is how long it takes 'the man on the Clapham omnibus' to buy a new car. In 1976 when the Ford Fiesta first went on sale the entry level model cost £1,860 and national average gross pay was £3,750 - so it took six months of gross pay to buy a Fiesta. Right now the entry level model Fiesta is £11,500 and the latest average gross pay (April 2009) is £26,470 and thus it takes 5.2 months. However only a few years ago (2006), the entry level Fiesta cost £8,300. So with national average gross pay of £24,134 in that year, it took 4.1 months to buy.

From this perspective, 'affordability' of new cars could have been adversely affected in a very short time and even more so when you consider the lack of cheap credit. If the pound doesn't grow stronger, the recovery of new car sales could falter unless private and company buyers are willing to downgrade.

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

Chris Oakham

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

The background to the present troubles began with a financial crisis in the banking system in 2007, followed by a credit crunch in 2008, which has resulted in worldwide recession. The UK government and the Bank of England have taken fiscal and monetary measures to lessen the effects of a potentially severe recession, but so far these actions appear to be having a limited effect on the fundamental problem underlying the recession - the unwillingness of banks to resume lending to small businesses and consumers.

The consequences for car sales have been dire. Registrations of new cars to private buyers were down by 11% in 2008 compared with 1999, but they were down 44% compared with their peak of 1.25 million registrations in 2003. Sales of used cars have remained more resilient falling by an estimated 3% between 2003 and 2008 but still 12% higher than the 6.46 million used sales in 1999.

We estimate that the total retail car finance market including dealer point of sale (POS) and direct lending declined by 50% in value between 2003 and 2008. In real terms, taking into account the effect of inflation, the market fell in overall value by 58% between 2003 and 2008.

The dealer POS car finance market declined in value by 17% between 2003 and 2008 with the number of finance transactions declining by 23%. So clearly the dearth of available direct lending is a major cause of the present problems in the new and used car markets.

Competitors in the retail motor finance market comprise vehicle manufacturers' captive finance companies, independent finance companies, the high street banks and building societies, and other direct lenders. The number of independent finance companies operating in the UK motor finance market has declined over the past decade, due largely to consolidation effected by mergers and acquisitions.

The independent finance companies rely on their bank parents for long-term funding, but the banks' need to shore up their own balance sheets, and coupled with their inability to raise funds cheaply in the wholesale markets, it raises questions over the long-term future of their motor finance subsidiaries. Here in the UK vehicle manufacturers' finance companies need to access state-funded liquidity and credit guarantee schemes to continue lending, which they have so far been unable to do.

Recovery of the new and used car markets, particularly retail, clearly depends on the availability of finance. We estimate that the total number of loans and finance transactions for both new and used retail car purchasing fell by 51% between 2003 and 2008. And although our forecast for the next five years is for an increase of 38%, this falls well short of 2003 levels and represents a market volume similar to 2006/07.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in March 2009. (See www.auto-retail.com for subscription details.)

Auto Retail Bulletin is a subscription journal to which Trend Tracker director Chris Oakham contributes a monthly column on topical auto retail and aftermarket issues. Our thanks to editorial director Rupert Saunders.

The UK Retail Car Finance Market 2009 from Trend Tracker analyses the impact of the global financial crisis and the recession in the UK from a longer-term perspective, basing market forecasts to 2014 on a clear understanding of trends in market volume and value since 2003. If you work for a company that will still be around to exploit the coming recovery, you will need to understand just how far the market has moved since before the crisis erupted. You need to assess how vigorous that recovery is likely to be, and understand why it won't restore demand even to the level of three years ago. This report will help you do just that.

There's no doubt the motor finance market is influenced by complex factors. It plays chicken-and-egg with supply and demand for new and used cars, just as inter-bank lending and retail credit are also directly, painfully related. Finance oils the wheels of car sales, but it can also lock them up, as now. Understanding the complexity of the factors behind the trends is what distinguishes Trend Tracker as the preferred source of intelligible, relevant data to so many major companies in the UK automotive sector.

While the full extent of toxic debt in the banking system is still unknown, and the full horror of 2008's decline in new car sales has yet to be revealed, it's still possible to see clearly beyond the current crisis. Trend Tracker remains confident that our analysis fully supports a rational forecast for the finance market's direction out of the crisis. A forecast that suppliers would be wise to heed when assessing the resources they will need in future.

Please go to the 'reports' section of our website to download the detailed contents pages and list of tables and charts for this report to see if it really can help you plan a post-crisis future for your business.

Available now the report is £1,450 + VAT for a PDF file and bound copy. You can buy the report using your credit card online now and download a zip file containing a PDF of the full report and a 15-slide Powerpoint summary. The hard copy will then be despatched to you within three working days. Alternatively phone us on 0870 421 4350 for other ways to buy.