Will the new Range Rover help Jaguar gain traction? Download this latest Whitepaper

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

This represents a bit of an about-turn for Ford. It has not been alone in raising prices in the last year or so. My Trend Tracker colleague Chris Oakham's noted in his column in Automotive Retail Bulletin recently that the Ford Fiesta 1.25's list price had risen 32.6% in twelve months, while other Ford prices had risen 19% (Mondeo1.6) and 17.6% (Focus 1.6). Reporting these price rises, What Car? also noted that dealer discounts had been falling. (See Chris' column in his 1 July blog on this site, Are new cars overpriced?

New car price increases in 2009 (and Ford's weren't the only examples) were justified by the weakness of sterling and the inflationary impact of $75/barrel crude.

The affordability of base model Fiestas (defined as list price divided by months of national average gross pay) has veered between six months when the first Fiesta was launched 34 years ago, just over four months back in 2006, and recently, back up to over five.

Ford's move in the UK won't, it seems, make Fords more affordable. Right now, a Ford dealer is offering 24% off the list price of a 3-dr Fiesta Studio. Ford's new RRP for this model will be 17% lower than the present one. The lowest dealer price will probably rise a bit as margins shrink.

As we wait to find out whether the recession will be a double-dip model, all acknowledge that it's going to be increasingly hard to sell almost any new car. Dealers should prize any wriggle-room to cut a deal. It's at the dealership that transparency is valued, rather than on the manufacturer's website, and there are enough price comparison sites around now to reduce the significance of manufacturers' RRPs - except to dealers.

Successful pricing strategies always involve effective balancing of demand and supply. Few volume car brands can strangle supply in line with demand falling at the rate we can now expect.

Given the weakening post-scrappage market, this week may not have been the ideal time for Peugeot to launch its Just Add Fuel, “completely transparent peace of mind motoring package”, wherein monthly payments include finance, insurance, servicing, road fund, warranty and roadside assistance.

“Completely transparent” is a questionable claim, inasmuch as bundling items makes price comparisons tricky, and new-car warranty cover was in any case never a chargeable item. “Peace of mind” in Peugeot's concept refers to fixed prices eliminating inflation, which is not the greatest of our concerns at present. And finance, insurance and servicing can be acquired easily, and possibly more cheaply, from third-party suppliers.

Toby Procter

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 latest intelligence on franchise networks indicates far fewer site closures than was estimated nearly twelve months ago from trends early in the recession. The number of franchise sales points is presently estimated to be just over 5,000 operating from around 4,300 sites. While this is a lot healthier than the estimates reported in January, thanks to many fewer closures in the second half of 2008, the rate of closure is still averaging over three per cent of sites per annum. This equates to 600 closures over the next five years.

In April we covered the half-time results of a survey of franchised and independent dealers looking at used cars. At that point the news was far from good with enquiries overwhelmingly down and interviewees - both franchised and independent - predicting used car sales down 15% this year compared to 2008.

The survey was completed at the end of May after interviewing 200 dealers in depth. The final result for used car enquiries compared to 2008 was still negative with 81% of franchised dealers and 75% of independents saying they had definitely noticed a fall. The final result for used car sales in 2009 compared to 2008 was less pessimistic than the half-time results indicated with both franchised and independent dealers predicting an average fall of 10%.

Another area we examined in April was gross profit margins, which at that stage of the survey were similar to 2006. The results of the completed survey confirm that franchised dealers are sustaining similar gross margins to 2006 - around 10% - but independents' margins have fallen three percentage points to just under 13% mainly because of a substantial rise in reconditioning costs to the same level as franchised dealers.

The dealer survey also looked at vehicle stock and what changes dealers will make because of the recession. Sixty per cent of franchised dealers and 57% of independents said they are re-profiling their stock and the chart details the expected changes.

How dealers are changing their stock profile due to recession

While the survey did not explicitly cover the now widely-reported shortage of used car stock, both franchised and independent dealers had between 5% and 10% less stock than in our 2006 survey. Comments collected during the survey reinforced the notion of stock shortages with franchised dealers apparently experiencing most problems probably because lower new car sales mean fewer part-exchanges to resell as used cars. We would therefore speculate that the current stock shortage is due to higher demand from franchised dealers focusing on used and buying at auction to make up for the lack of part-exchanges - rather than genuine consumer demand.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in September 2009. (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

If you look carefully, there is presently a distinct peak at 62 years old, but the largest group by age is between 38 and 47. Looking forward another five years to 2014, the peaks move along five years to 67 and 43 to 52. Clearly in ten years the peaks are 72 and 48 to 57 …. and so on.

This ageing process has implications for car sales and even aftersales. Older customers have different requirements - you don't need us to tell you that - and gradually you will see customer preferences change. Older customers are, for a start, more risk averse, which might see them choose, for example, cars with longer warranties or safer cars. Despite the recession these customers will be wealthier with many perhaps enjoying an inheritance. This could affect point of sale finance volumes. It is believed that older customers tend to be more loyal, but you have to wonder how this loyalty might be challenged by prolonged exposure to the internet in ageing generations who are undoubtedly savvy in this respect.

As these various 'lumps' of population get older their requirements might change when it comes to the style of car they buy. They might only need a small car if their children have left home with some opting for a sports car, perhaps. They might not need more than one car.

Other retailers are obviously already adapting and you can see the results in clothes shops and supermarkets. Clothes are bigger and styles are changing for an older population; supermarkets too are appealing to older customers in smaller households with reduced portion sizes and meals for two.

Our main point is that the UK's ageing population changes your customers and you will have to make a conscious effort to adapt. But how? What will happen and what you must do falls into a category we call 'research we would like to do' because, to the best of our knowledge, nobody has addressed this very important area as it relates to car dealers - unless the vehicle manufacturers are keeping very quiet!

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in August 2009. (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

Motor Trade Business Management Award
Sponsored by ASE incorporating Trevor Jones
Winner: Julie Oliver, Mitchell North West

Most Improved Business Award
Sponsored by NIG
Winner: L&L Automotive Mercedes-Benz Hertfordshire

Customer Care Award
Sponsored by Car Care Plan
Winner: Ken Jervis (Kia) (Stoke-on-Trent)

Aftermarket Innovation Award
Sponsored by Mobil 1
Winner: Ken Jervis (Kia) (Stoke-on-Trent)

Marketing Award
Sponsored by AutoTrader.co.uk
Winner: The Car Shop (Northampton)

Website of the Year Award
Sponsored by Motors.co.uk
Winner: Sytner Group Ltd (Leicester)
Highly commended: Clive Sutton, Holden Group

Product of her Year Award
Sponsored by Motor Trader
Winner: Castrol Professional - Red Carpet Training
Highly commended: Motor Codes

Used Car Retailer of the Year
Sponsored by Aviva Driveaway Insurance
Winner: Thame Service Station (Oxfordshire)
Highly commended: TC Harrison (Derby)

Bodyshop of the Year
Sponsored by Britannia Accident Assist
Winner: AJC Wilson Bodyshop (Essex)

Garage of the Year Award
Sponsored by Motor Codes
Winner: Academy Group (Manchester)

Car Franchise Of the Year Award
Sponsored by Mondial Assistance
Winner: Kia Motors (UK)

Service Adviser of the Year Award
Sponsored by Castrol Professional
Winner: Michael Allison, Sinclair Volkswagen
Highly commended: Jazz Mann, Chiswick Honda (London)

Sales Team of the Year Award
Sponsored by MAPFRE Abraxas
Winner: L & L Automotive Mercedes-Benz Hertfordshire

Sales Manager of the Year Award
Sponsored by Dealerweb
Winner: Gareth Lloyd Sinclair Volkswagen

Dealer Principal of the Year
Sponsored by eBay Motors Pro
Winner: Amarjit Shokar Romford Mazda (Romford)

Franchised Dealership of the Year Award
Sponsored by Experian
Winner: Now Kingston (Middlesex)

Dealer Group of the Year Award
Sponsored by HPI Finance Gateway
Winner: Sytner Group

Outstanding Achievement Award
Sponsored by Aviva
Winner: Robert Forrester (Vertu Motors)

The RAC Foundation has very different objectives to the authors of 'The Lex Report' who focused entirely on issues of importance to dealers. But then the RAC Foundation was established to protect the interest of the motorists whereas Lex was, at the time, the UK's largest dealer group. Essentially the new report is about the changing nature of car ownership and in many instances the data follow trends over decades. Unlike its distant predecessor, however, this new report is not based on a substantial and original survey but assembles various sources including government statistics. Nevertheless it is an extensive piece of work and many of the key findings and conclusions are crucial indicators for motor retailing.

Unsurprisingly the study finds that cars totally dominate travel in the UK. Quite simply with 85% of individual travel by car, no other form of travel comes even close, which has to be good news for motor retailing. But the report does point out that whilst car use has grown for nearly half a century, this trend now seems to have come to a halt with growth since the early 2000s only in proportion to increases in the adult population. The authors say that the reasons for this are unclear; however it seems to us that their reported 'saturation' of driving licence-holding of 70% of adults might be an important contributor.

Low-income households have experienced the most growth in car ownership over the last ten years. And although there has been some convergence in car use between low income households and the average population the difference is still large. The study confirms that car owners highly value the freedom and independence a car offers. In particular there is reference to the necessity of cars for work, shopping, and even after-school child escort trips for parents. Compelling evidence is provided to suggest that the vast majority of drivers have little interest in public transport and the report points out that between 80 to 90 per cent of people say they would find it difficult or impossible to adjust their lifestyles without a car.

Drivers are, though, not unaware of the costs of owning a car - economically and environmentally. People do adjust car use according to economic pressures, but most cannot envisage a future without their cars and most would go to considerable lengths and expense to maintain their ownership and use.

You cannot help feeling after reading this report that cars are a necessity and it would take events of seismic proportions to change usage patterns, which in the long run has to be good for retailers.

The Car in British Society can be downloaded as a PDF file at www.racfoundation.org.

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

The starting point for any prediction of the future prospects for new car sales is the long term trend. What happened in the past? The download chart records new car registrations between 1959 and 2007 and then runs forward with predictions to 2013. Highlighted in red are the years affected by recessions - 1974/75, 1980/81, 1991/92 and 2009/10 (prediction).

At first sight the consequences of previous downturns appear similar. In '74/'75 new car sales fell by nearly 25% and took six years to recover to pre-recession levels. The fall was less at 12.6% in 1980/81 and the recovery only took four years even though the recession was severe with GDP falling by 6.1% between its peak in 1979 and its trough in 1981. A fall of 20.7% occurred '91/'92 and it was another six years before new car sales reached the same level as 1990.

Arguably, though, the consequences of the 1990s recession were actually worse because, as now, new car sales started to fall earlier (in September 1990) and the fall was 31% from the high of 1989 with the recovery taking 12 years on this basis. The present situation has some similarities to '91/'92; new car sales were already falling since the peak in 2003 and have deteriorated substantially since August 2008.

The most optimistic scenario is that shown, which is based on new sales in September 2008. The prediction is 1.78 million new car sales in 2009 - a fall of 18% from 2008 - followed by 1.8 million in 2010 and a six-year recovery period to the same level as 2008. However the picture is potentially much worse if you start with 2007's sales and apply the fall of the early 1990s. This works out as 1.66 million registrations in 2009 and a recovery of 12 years. The downturn could easily be this bad or worse if for no other reason than the present dearth of credit. Back in the early 90s credit was not really an issue if you could afford the sky-high interest rates - the Bank Base Rate reached 15% in 1990.

Our own assumption is the best-case scenario and we have utilised this in several market models already including our recent report on the UK market for servicing and repair. And thinking about servicing and repair this is surely one of the more recession-proof areas, or is it? If new car sales fall as shown, then there will be a consequent reduction in the 0-4 year old car parc of 20% within five years and thus less work for franchised dealer service departments, which rely on younger cars. Overall we don't believe the market for servicing and repair will fall appreciably because when motorists hang on to their cars they eventually have to spend money on maintenance. So servicing and repair is potentially an upside provided dealers act decisively to retain service customers with older cars. The simplest strategy is to retain customers who bought used cars from the dealership. Service retention levels for used cars sold by dealers average 22% but the best performing dealers exceed 40%. It almost goes without saying that upselling service customers is now crucial.

While the new car market has suffered badly in previous recessions, used car sales have been more robust - dropping less than 10% and recovering more quickly. This time it could be more tricky if credit is problematic, but the big slide in used car values does make used cars more accessible and perhaps easier to finance.

As always when business is tough, expenses and overheads must be reined in. Staff cutbacks are inevitable and in 1991/92 the average franchised dealer reduced staffing levels by 15%. Quite simply seventy per cent of an average dealer's total gross profit is spent on wages and salaries, and therefore a 15% reduction here is worth considerably more than a 15% reduction elsewhere.

You view on the final upside depends what happens to your dealership. In the last five years 17% of franchised dealer sites have closed down. In the next five years we believe another 14% are likely to go. Clearly this means more business for those that remain, which was certainly the case after previous recessions.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in December 2008. (See www.auto-retail.com for subscription details.)

This pilot survey revealed a 20 percentage-point gap between the best and worst performers, and most importantly, indicated where each manufacturer is most in need of improving specific aspects of their sales training provision.

We hope to carry out a full-scale version of this initial survey during 2009, and will be inviting manufacturers' training departments to join a syndicate programme to fund the work. And then, we hope to be able to conduct a similar survey of aftersales staff training programmes. For those who pay more than lip service to the principle that competent people are the most valuable resource of a retail network, we believe this research should provide valuable insights that haven't so far been available to benchmark performance in the field.

You can download the Auto Retail Bulletin summary here.

Toby Procter
December 2008