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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Since then, far less technical progress has been made than we anticipated. Indeed, very little has changed - which has left us wondering whether electric vehicles have ‘stalled’.

According to the SMMT, year to date October sales of EVs were a paltry 1,021 units despite a generous taxpayer subsidy of up to £5,000. This is a very small take-up of the 8,000 taxpayer grants available and the story is similar in other EU countries. So what’s the problem?

There has been a plethora of surveys asking motorists for their views on EVs. One of the most comprehensive is the recent GfK Automotive study. They interviewed over 3,000 motorists and discovered that 8% want to buy an EV.

They also discovered that potential buyers underestimate how much EVs cost and how long they take to charge up but overestimate the range on a fully charged battery. However among the motorists with no intention of buying an EV, GfK found a more realistic appreciation of purchase price, recharging time and range.

Perhaps that’s why these motorists wouldn’t buy an EV, or is that a ‘glass half empty’ conclusion? Or have GfK’s naysayers nailed the three core problems with EVs? Quite possibly.

Firstly, electric cars are too expensive even when subsidised, and are likely to remain so without volume production. Secondly, recharging is an almost insurmountable difficulty.

Fewer than 40% of motorists have driveway or garage parking which precludes home charging for most. Recharging on the move is presently near-impossible with very few public charging points.

However, private enterprise in the shape of Chargemaster’s Polar network intends to roll out an extensive charging network available to members on monthly subscription. Interestingly, Chargemaster talks about a 40% share of half a million EVs within a decade. Half a million? From where we stand at present, this seems unlikely.

The third problem is the range of EVs between charges. Unless there is a great leap forward in battery technology, which might well happen, the range of between 60 and 100 miles presently achievable is simply not good enough, especially if you can’t find a charging point.

So just on the basics, EVs are impractical as they stand. That’s even before you consider the perilous state of investment in the UK’s National Grid, and how to manage the ramping up of EV production.

Besides, with advances like Ford’s tiny, three-cylinder Ecoboost engine coming on stream - likely to achieve 120 g/km CO2 and 118 bhp - why do we need EVs? Perhaps EVs will have to wait until the oil runs out.

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

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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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Nothing since the publication of this still highly relevant report, which is still selling and doubtless making for uncomfortable reading, has made us waiver in our conclusion. Namely, that to bring real environmental and energy security benefits, EVs would have to escape their narrow niche status and replace, not add to, conventional vehicle capacity, and do so at a rate which no current forecast sees happening.

The battery chemistry’s the main problem. Rather than EVER READY, it’s not yet EV-READY. To come to fruition, EVs’ contribution to saving the planet’s inhabitants has in our view, and that of most observers, to be combined with the rapid de-carbonisation of energy supply, which raises more even larger and more problematical issues for politicians, scientists and engineers, and markets.

Yet, as we work for clients on monitoring and reporting news of the developments which show some promise of making electric cars far more competitive and environmentally valuable than they now, we can take courage, and foresee that all manner of technical fixes could move out of labs and into factories to bring clean vehicles nearer to reality. Luckily, venture capitalists are showing belief in some of these potential fixes, and the US government in particular is investing serious money in high risk, and only potentially high reward research.

Meanwhile, it’s clear that as the green transport lobby T&E has recently said, car makers have found emissions reduction and fuel economy improvements quite a lot easier than their rhetoric has suggested over the years. Quite a few affordable vehicles on the market anticipate future fleet average emissions limits by several years, without major compromise to utility of the kind suffered by EV buyers. Start-stop, engine downsizing, better turbocharging, electric supercharging, weight reduction, can all combined to accelerate motorists’ fuel use reduction, doing more for the planet and its occupants in a definable timescale than the tiny number of first-generation EVs could do.

In summary, the stance of EVs: Energy, Infrastructure and Mobility in the Real World is that while it will eventually be necessary to wean road transport off oil, it won’t happen unless the technology of alternatives to internal combustion improves dramatically in performance and cost, while overcoming materials scarcity through substitution; and it won’t happen unless the cost of road fuels rises far enough to make the total cost of ownership of EVs relatively more attractive than conventional cars. The best might be the enemy of the good in attempts to cut overall road transport oil demand in the short term, and wishful thinking, we argued, is no substitute for risk investment in overcoming EVs’ manifest present shortcomings.

Since few other observers have wished to argue for such a view, which we would claim to be a balanced, evidence-based one, it’s a comfort when one of the ‘big boys’ arrives at a similar conclusion, especially when it's based on clear evidence. Our own UK Car Buyer Brand Perceptions 2011 study confirmed that EVs are not on any of our 12,000-strong consumer sample’s shopping list, and now Deloitte has published a 32pp report on a similar-size (13,000) international online survey of adults over 25 with driving licences. Bluntly, it found that no more than 2-4% of global consumers are likely to be satisfied with today’s EVs.

The rest of this blog summarises Deloitte’s news release of 4 October:

Consumers worldwide expect electric vehicles to travel farther, require less charge time and retail for a lower price than manufacturers are offering, according to a new global survey from Deloitte. Consumers’ expectations of performance and purchase price are so divergent from the actual offerings available today, that no more than 2-4% of consumers worldwide would have their expectations met, according to the survey.

The survey for Deloitte’s 32-page report, Unplugged: Electric vehicle realities versus consumer expectations, canvassed more than 13,000 consumers in 17 countries across the Americas, Asia and Europe — revealing a general desire among consumers to buy electric vehicles, but a strong unwillingness to compromise on key performance criteria and especially price.

In the US, 12% of respondents indicate they would be a potential “first mover” when it comes to adopting an EV — with an additional 42% saying they “might be willing to consider” buying or leasing an electric vehicle. However, most global consumers, including those in the US, would base their final decision on the greatest challenges associated with EVs on the market today. These include range, convenience to charge and purchase price of the vehicle — all of which more than 85% of survey respondents ranked as “extremely important” or “very important” considerations for buying or leasing an electric vehicle.

“Vehicle range is clearly an issue among consumers,” says Craig Giffi, Deloitte’s vice chairman and automotive practice leader. “American consumers have the highest range expectations with only 63% satisfied with a range of 300 miles — despite the fact that 77% of American respondents said they drive only 50 miles or less per week day.
The survey also shows consumers want faster battery charge times. The majority of American consumers surveyed (58%) expect an electric vehicle to recharge its battery in two hours or less, and nearly one in four Americans (23%) expect a 30-minute charge time. Overall, in all countries, only a minority viewed up to eight hours (the normal time it takes to recharge the typical battery in today’s vehicles) as acceptable.

The survey also focused on the unwillingness of consumers to pay much of a price premium, if any, for an electric vehicle. More than 50% of all consumers globally indicate they are unwilling to pay any kind of a price premium for an electric vehicle, which includes 65% of American respondents. Chinese consumers are the most willing to pay a price premium, but even then, 44% indicate they will not pay anything extra. Consumers in the UK and Belgium are the most sensitive to paying a price premium, with 71% opposing.

Complicating the price premium issue further is the low overall price expectations consumers have for an electric vehicle. In 11 of the 17 countries where the survey was conducted, 50 percent or more of consumers said they expect a price of US$20,000 or less for an EV, far below actual costs. Consumers in the US exhibit what Deloitte describes as a good understanding of what electric vehicles are likely to cost, with only 34% looking to purchase an EV for US$20,000 or less. Nonetheless, 78% of American respondents expect to pay no more than US$30,000 for an EV.

The Deloitte survey also shows consumers see high fuel prices as a motivating factor for purchasing an electric vehicle. Around the world, on average, the survey suggests, it would take nearly a 28% increase in local petrol prices at the pump to result in a majority of consumers being more willing to purchase or lease an EV.

Conversely, the survey reveals that improvements in fuel efficiency for gasoline and diesel vehicles reduce consumers’ appetite for EVs. Though the tipping points may vary slightly from country to country, the study found that more than half of consumers across the globe — 57% in China and 68% in the US — will be much less likely to consider purchasing an EV if fuel efficiency standards approached the 50mpg benchmark.

The study also suggested that as consumers become more experienced with electric vehicles, new considerations for adoption — beyond factors such as range, convenience to charge, and cost to charge — are likely to emerge, especially operating costs to maintain and repair the vehicle and total cost of ownership including considerations of residual value.

“There is a clear disconnect between consumers’ expectations for electric vehicles and the actual capabilities and costs of technologies available in the market today,” says Giffi. “As consumers become more educated and as technology evolves, we certainly expect that gap to shrink, but neither will happen overnight.

“For the time being, the mass adoption of electric vehicles is more likely to occur in countries that are willing and able to take an aggressive policy approach that encourages and subsidizes the market. And in today’s world, with so many sovereign debt challenges, that is very likely to be a road less travelled.”

Deloitte Touche Tohmatsu Ltd’s (DTTL) Global Manufacturing Industry group conducted a global survey to explore consumer adoption of electric vehicles. The online survey conducted between November 2010 and May 2011 captures the views of more than 13,000 consumers across the Americas, Asia and Europe in 17 countries – Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, India, Italy, Japan, Korea, Spain, Taiwan, Turkey, United Kingdom, and the United States. To qualify for the survey, potential respondents had to be 18 years of age or older and to have a driver’s licence.

Add to this Deloitte survey a recent paper from Carnegie Mellon University researchers arguing that the embedded emissions in EV batteries make the potential environment benefits of electrified vehicles dependent on the size of their traction batteries – the smaller the better, to simplify somewhat – and the evidence is mounting that to clean up transport and reduce our oil dependence, we need to pull on all the levers available, and it would be far better to invest much more in making EVs much more market- and planet-friendly than to consign more public funds to support the pretence that the EVs currently on offer could ever fulfill their advocates hopes.

Toby Procter

Trend Tracker Limited

0870 421 4350

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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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If you would like to find out what else this new consumer research study covers, and in what forms it's available to users, please check out the links from the home page and the reports page on this site.

Readers familiar with our own report, Electric Vehicles: Energy, Infrastructure and Mobility in the Real World and earlier blogs on the topic on this site will understand why we agree with Dr. Wormald that cleaner technology alone will never be sufficient to permit the trend line of 20th century global car population growth to continue far into the present century. Many other resources besides that are too scarce for that; notably, space on the planet's surface. Another commentator, Dr. Peter Harrop of IDTechEx, has written about the concept of 'Peak Car' having its own logic, quite aside from 'Peak Oil'.

Meanwhile, every politician of every hue wants to be filmed in electric cars, boasting of their job-creating and planet-saving credentials, while their voters continue to find their price and restricted range deeply unattractive. There are limits to almost everything, and where the car industry's concerned, even more attractive new technologies and sustainable market growth will not be natural longterm bedfellows. Our aspirations for mobility need to be more realistic.

Toby Procter

Trend Tracker Limited

0870 421 4350

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Download 2011 Trend Tracker

When analysing the car servicing and repair market drivers, the ‘usual suspects’ include: car parc size and age profile; average car mileages; build quality trends; service intervals and content; new car warranties; labour rates …. with political and legislative factors barely a consideration. However, that could be about to change with the government’s review of the MOT test regime.

This is the second review of MOT testing in three years. The 2008 proposals, to postpone the first MOT test to four years from first registration and to test vehicles every two years thereafter (4-2-2), were not enacted.

But in mid-April 2011 the Secretary of State for Transport, Philip Hammond, announced informally (via a newspaper report) that the government would be consulting on proposals to adopt either a 4-1-1, a 4-2-1, or a 4-2-2 frequency regime. The current frequency of 3-1-1 does not seem to figure in the new review.

Any changes to MOT testing will have an impact on the retail market for car servicing and repairs. In our latest report on the market, we have not included the possibilities in our forecasts because at this stage we don’t know the outcome of the review.

We estimate that the total retail servicing and repair market including MOTs in 2010 was worth £9.46 billion (excl. VAT). A move to a 4-2-2 regime will reduce the market by at least £500 million in lost MOT test fee income – equivalent to the annual labour of 5,000 technicians.

In our most recent consumer survey of 15,725 motorists we noted that 70% of MOTs were completed by independent garages, which will obviously be hardest hit by any watering down of test frequency.

On top of the loss of MOT test fees there is the likely loss of associated work; servicing and repairs. From our consumer survey the chart illustrates the type of work carried out on cars over three years old. So, for example, 8.8% of motorists visited a provider for an MOT, routine service and one or more repairs. Nearly half of all visits to a provider included an MOT test.

Work carried out during visit to provider (3+ year-old cars)

In all likelihood, the number of repairs will stay the same if MOTs are less frequent. However the number of routine services could fall if motorists break the habit of the proverbial ‘service and MOT’. As a result, the more pessimistic forecasts of redundancies and independent garage closures could well come true.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in August 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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I previewed the half-time results of the latest consumer research in this column last October. They clearly showed franchised dealers losing out to the independent sector and a potential increase in do-it-yourself. The final results confirmed these trends and much more.

Now looking more widely at retail servicing, maintenance and repairs (SMR), our latest research emphasises the increasing grip of the independent sector since the recession, and a renewed interest in DIY. Indeed, our research into SMR retention by age of car reveals ‘dealer for make’ falls away quickly after the second year.

Looking at the raw data for three-year-old cars alone, tyres are the second most frequent job after routine servicing; independent garage workshops and fast-fits take 50% of this business. Independents also take 30% of routine services by this age. This suggests that franchised dealers presently have a precarious hold on even their traditional stomping ground of cars up to four years old.

Apart from the changes in providers’ market shares, the recession has affected the market for SMR in other ways. Perhaps most significantly, since 2007, motorists have been keeping their cars longer. This helps explain the rare, recent upturn in the retail service and repair market. When motorists keep their cars longer, they become liable for expenditure on servicing and repairs – rather than part-exchanging when retailers end up with the bill.

During the decade from 2000 to 2010, total retail spending on mechanical servicing and repairs to cars in the UK increased by 9% - although RPI inflation turned that into a real-terms fall of 17%. However, the decline levelled off around 2004/2005 and the market actually increased in real-terms value between 2008 and 2010 to reach £8.43 billion (excluding MOTs and VAT).

The increase in DIY bucks the long-term trend established in the early 1990s away from do-it-yourself car maintenance and repairs. In 2005, DIY accounted for just 7.6% of the service, maintenance and repair work done for (or by) the 18,000 motorists interviewed for the Trend Tracker report that year. But by 2010, DIY had increased to account for 12.1% of work.

This increase in DIY meant professional providers lost work worth £300 million (excluding VAT) to DIY in 2010. Alarmingly some 28% of DIY jobs were on brakes.

The real-terms increase in the value of the SMR market is almost certainly temporary and as the UK economy recovers the long-term gradual decline will continue principally because of ever-improving vehicle quality and reliability. In the meantime there are obviously opportunities for retailers to compete by promoting the right products at the right price.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in June 2011.(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

Economic shocks aside, it is comparatively easy to predict future used car sales volumes. This is because the churn of used cars in each age segment of the car parc is relatively stable. Hence the most influential driver of used car volumes is the number of cars in each age segment. Over a five-year forecast period the older segments – from roughly three years old onwards - are known because these cars already exist.

What you don’t know, of course, is future new car sales and thus the number of cars available to be sold as used at the younger end of the market, which make up around 20% of used volume. However new car sales trends can be predicted with some degree of accuracy, and besides, if your forecast for new car sales is 10% out it only results in a two per cent error in total used car volume.

Clearly there are many other used car market drivers other than new car sales, age segment parc sizes and churn. Economic factors have proved to be extremely significant in the last few years and these factors have slowed down churn - drivers keeping their cars (new and used) longer. The best you can do is to incorporate the government’s economic forecasts in the model.

The chart below summarises our preliminary forecast for total used car market volumes to 2016. And it is strictly ‘preliminary’ because we still require several more months of data. In particular we want to see how the government’s economic projections work out, which appear to be very optimistic. The first quarter 2011 GDP growth figures will tell us a lot.

As it stands, the total used volume forecast indicates slow growth back to pre-recession levels by 2016. Apart from 9+ years, which is of little interest to retailers, the most buoyant age segment will be 3-6 years old over the period. The 0-3 year old segment will be very sluggish because of slow new car sales.

With a fair (economic) wind, the used car market will still provide retailers with good revenue and profits. However franchised dealers should probably contemplate the older age segments presently dominated by independents to make up for lack lustre sales up to three years old.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in May 2011.(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

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

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The consumer survey focuses on the used car buying process and looks at the most important aspects of decision-making. We hope to break down as much as this data as possible by make of car, which will be an invaluable guide for auto retailers.

Although it is early days, and the consumer survey is by no means complete, some interesting patterns are beginning to emerge. The half-time results suggest used car buyers are ultimately quite conservative.

For example, when asked what makes of cars might be on their ‘shopping list’, the responses so far see the volume brands of Ford, Vauxhall and Volkswagen as the three most popular. Next are the premium brands of Audi and BMW.

However when challenged about the make of used car they are most likely to buy next, quite a few brands are dropped from the shopping list. The top five makes on the shopping list are the same albeit Audi drops down one place to fifth – supplanted by BMW – and Ford loses some of its attraction although it is still top.

Another aspect which could change is ‘purchase criteria’. The results to date, reflecting the views of 6,000 drivers, are reproduced here.

The top two choices could have been anticipated given the current squeeze on family budgets and the sky-high price of fuel. However we were a little surprised to see part-exchange price in such a lowly position. Otherwise used car buyers are obviously pragmatic when it comes to parting with their cash.

Another question in the consumer survey asks about fuel type. So far 47% of interviewees said petrol is their first choice for their next used car with 40% indicating diesel. There have been very few takers for hybrids, dual-fuel, LPG and electric. And although environmental considerations are low on used car buyers’ priorities, some 41% to date have expressed a wish to reduce their personal emissions.

Finally, and again emphasising the provisional nature of these results, used car buyers are apparently more likely than new car buyers to use the internet to research their next purchase. So far, we assume this is because of extensive dealer and classified internet advertising.

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

Chris Oakham

Trend Tracker Limited

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aftermarket report bodyshop market car finance electric vehicles car servicing

It was touching in this context to read in a review of Children of Light: How Electrification Changed Britain Forever by Gavin Weightman (282pp, Atlantic, £25) that the country’s first ever generating station, in Godalming, Surrey, was powered, fitfully, by the gentle current of the River Wey. Nothing new, then, about renewable energy, although what really got electrification under way (and it spread for a while to the early motor car’s ‘powertrain’ within three decades or so) was Parson’s steam turbine. Fitting that small turbines are also key to the promising series hybrid powertrain under development by Jaguar Land Rover right now.

The danger of entrusting policy to NGOs and politicians without enough knowledge of history is in their failure to foresee obstacles that tend to be less than novel, whereas the opportunities we stumble across, in the form of new energy storage chemistries, for example, may be much less expected, even accidental. Thus, as the above book’s reviewer Jonathan Glancey put it in The Guardian Review of 02.04.11, “The newborn (electricity supply) industry was quickly troubled by political problems, along with tough competition from the gas industry and the confusion caused by the proliferation of early generating plants.” Much like the afflictions of today’s renascent electric vehicle industry; and it’s worth remembering that the basic electricity distribution infrastructure (the UK’s national grid) didn’t come into being until the early 1930s, long, long after the first incandescent light bulbs were sold for the equivalent of £60 a pop in today’s money in the late C19th. If EV batteries dropped in price like light bulbs, chance would be a fine thing.

Meanwhile, it took the forthright Fiat Group CEO Sergio Marchionne to show the full scale of the difficulties battery technology still presents to EV manufacturers. Chrysler Group LLC will lose more than $10,000 on every battery-powered, Mexican-assembled Fiat 500 its sells from launch next year, according to Marchionne's remarks reported by Automotive News Europe on April Fool’s Day. That will despite at a price expected by Automotive News Europe to be three times the approximately $15,000 of the petrol equivalent Fiat 500.

Another eye-popping illustration of present-day EVs' contribution to greening real world transport came from Edmunds.com’s Green Car Advisor blog site, in A Quick Dive Into Toyota's Prototype Tesla-Powered RAV4 by John O’Dell. He wrote on 4 April, “As to the prototype battery, a member of Toyota's technical team - who shall remain unnamed in case he provided information he wasn't supposed to share - told us it takes 28 hours with a 100-volt cord and 12 hours with a 240-volt Level 2 charger to replenish a discharged pack.

“The RAV4 EV uses a 3.3 kiloWatt on-board charger, so 12 hours at 3.3 kilowatts per hour gives us a 39.6 kiloWatt-hour battery - round it up to 40 kWh to account for charging inefficiencies and you have a pretty good idea of what the RAV4 EV prototype is packing in the two battery boxes fitted beneath the passenger cabin.”

And a pretty good idea of how much spare time its users would need. Or rather, of how great their need for a second, fossil-fuelled vehicle would be.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

Namely, according to RAC figures out today, the average cost of a litre of petrol is now 133.55p - already 0.02p higher than the average price on March 23 when a 1p/litre duty cut was announced in the Budget. But the potentially negative effect of fuel cost increases on motorists’ ability to spend on servicing and maintenance is probably slight.

Which? Car greeted the recent Budget announcement on the reduction of fuel duty by checking that even at present elevated prices, road fuel is not effectively much more costly than it was back in 1980. The Which? Car team found that the annual cost of fuel for the average motorist had risen only by just over £100 since 1980, because of the improved average fuel efficiency of the vehicles we drive today. (Which? compared the 1980 Ford Cortina 2.0-litre petrol’s fuel economy with that of a 2011 Ford Mondeo 2.0-litre petrol.)

However, there are other, real, deflationary forces at work in the service and repair market, here and abroad. The American Automobile Association’s 2011 'Your Driving Costs' study shows light vehicle maintenance costs have dropped 2.2% year on year to 4.44 cents per mile on average for ‘sedans’, reflecting a trend by vehicle manufacturers to include some portion of scheduled maintenance in the purchase price and extending recommended maintenance intervals.

What is still increasing is the cost of tyres and other products, driven by materials price inflation. But depreciation remains the largest component of the AAA survey’s annual average sedan running costs of $8,776, and it increased year-on-year by 4.9% to account for an annual average $3,728 or 42% of annual holding and running costs for sedans driving 15,000 miles a year.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

Due to prior commitments we are unable to attend. However it did set us thinking about remanufactured parts and whether we should update the research we have previously carried out in this area.

The last time we looked in detail at remanufactured parts was five years ago. Back then, over half of the franchised dealers that we interviewed said they did not use remanufactured parts at all and many interviewees were uncertain about their position on warranty replacement parts.

However, it was clear that franchised dealers were not big users of remanufactured components and assemblies outside warranty cover - primarily because they work on relatively young cars which are less likely to need repairs. The most common remanufactured items retailers said they bought and supplied were alternators, starter motors, steering and suspension, gearboxes, radiators and clutches.

In the same survey, independent garage workshops were more enthusiastic with, on average, interviewees telling us that 8% of the parts they used were remanufactured. There were some similarities with franchised dealers on the items purchased with any differences easily explained by the much older cars repaired by independents.

Our survey also explored the reasons for purchasing remanufactured parts and here franchised and independent workshops were in total agreement. Price and availability were the top two reasons with price by far and away the most important - 75% of franchised workshops and 60% of independents said price.

Franchised and independent workshops were also in agreement about the future of remanufactured parts with 85% of dealers and 78% of independents saying their usage will increase or stay the same.

Obviously, five years later the situation could have changed a lot and we shall include the appropriate questions in our next survey to find out. However price is almost certainly still the key driver for using remanufactured parts and, in the current dire economic conditions, it seems very likely that the survey results will be similar.

There is a very strong environmental case for using remanufactured parts, which can save 50% of the cost, 60% of the energy and 70% of the materials on average, compared to new products.

In our report five years ago, we speculated that their future might depend on ‘green’ legislation and vehicle manufacturers actively supporting sales because there was some evidence suggesting motorists were wary of remanufactured parts.

However, judging by the information coming out of China today, the price of remanufactured parts is falling dramatically in real terms and this could bolster sales to hard-up UK motorists without any intervention.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in February 2011.(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

On 8th March, "Deeply concerned by the news that Modec has entered administration, making about half of its workforce redundant," Liberty Electric Cars CEO Barry Shrier said he had committed "significant resources within the Liberty organization to see how to help Modec."

News like Modec's is unwelcome all round, particularly as battery-electric urban distribution trucks and vans operating on short-range routes out of depots capable of deploying fast chargers or fork-lift-type battery swaps are considered by some, (note that Ford's first EV is the electric Transit Connect van) to be a safer bet than wooing private consumers with electric cars.

In the light of this sorry news, we have reviewed the coverage of companies profiled in the initial edition of our Electric Vehicles: Energy, Infrastructure and the Mobility Market, we have decided to remove the sections profiling the activities of established and start-up EV makers and battery makers. Some things, we feel, are best left to be reported by media capable of monitoring news on a daily basis. The past performance of a company is not necessarily a reliable guide to its future survival, and in many cases in the still-infant specialist EV sector, there has not yet been any history of sustainable operation to go on.

Download Trend Tracker's Latest Electric Vehicle Report

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

To power it up, they will need to choose from five, four-year fixed price contracts with Renault’s partner Better Place, ranging from 1,495 DKK (£170.22) to 1,895 DKK (£212.98) per month for those driving under 20,000km (12,500 miles) p.a., up to 2,995 DKK (£341.29) per month for an unlimited mileage contract. Each package includes a one-off fee of 9,995 DKK (£1,147.04) for the installation of a private charge point, and unlimited free access to Better Place’s Danish network of public charge points and battery switch stations (supplied exclusively by Dong Energy’s wind power); plus electricity usage, personalised energy management and navigation services via in-car and network software, an inventory of batteries with a guaranteed service level agreement, and 24-hour access to customer service and support. Customers can terminate their subscription with one month's notice after the first 12 months.

Considering that start-up EV suppliers to date have majored on the low per-mile cost of electricity, it might seem to some rather expensive to spend upwards of £2,040 to travel 12,500 miles a year on cheap electricity, considering that a conventional car averaging 40 mpg would cost less to fuel (£1,843.75) at today’s £5.90/gallon petrol prices. But that comparison would ignore the investment in hardware installation and batteries reflected in the rates. Better Place is funding its own inventory of exchange battery packs for each one delivered with the Fluence Z.E., and investing in each of its Danish range-extending battery swap stations, and substantial sums in each Level 2 public charging point, besides the home-based chargers that come fitted with the contracts.

Furthermore, while the price of the battery-less Fluence car is as virtually as much as the Nissan Leaf was going to cost in the UK before currency exchange movements recently increased it by £2,000, any conventional or hybrid alternative would cost twice as much in Denmark, given that the country’s new car registration tax is 105% on a vehicle priced at up to DKK 79,000 and an even more eye-watering 180% on a vehicle priced above DKK 79,000, with some bonus-malus discounts/penalties linked to mpg figures.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

Automotive News writer Lindsay Chappell queried, “Is Nissan going to begin taking advantage of its initial tight supply-and-demand situation and push the Leaf into near-luxury pricing, thereby turning it into an interesting alternative car for a small, more affluent demographic rather than a realistic alternative for the masses?”

No. At least, not deliberately. Nissan told us, “It's foreign exchange. Since we priced the Leaf, Sterling has depreciated against the Yen by 13.4%. We absorbed half of the increase, but have had to pass some onto the customer.”

The 13.4% un-hedged currency shift on the pre-VAT, pre-incentive landed Leaf price of £16,792 cost Nissan £1,000 and its potential buyers another £1,000. So the Leaf you could order for £23,990 after a £5,000 government incentive a month ago is now £25,990 - 8.3% - more expensive.

That Nissan couldn’t absorb more than a £1,000/per unit cost hike may illustrate the precarious economics of building cars on unique platforms with batteries costing around $1,000/kWh. Or perhaps it shows a rational, disciplined approach to margin protection and budget control that contrasts with the ‘disorderly marketing’ among competitors that Ford was the latest to decry this week.

Either way, there’s a long, long way to go before the Leaf can appeal to the mass market, with or without a sales incentive worth the price of a reliable used car, plus free chargers and lavish personal attention to pioneer buyers. Autumn leaves may fall; this one may take longer.

Toby Procter

Trend Tracker Limited

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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

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It involves vast amounts of scientific research and development, massive modifications to the infrastructure, huge changes to everything from vehicle production to the automotive retailing model, and global expenditure of possibly trillions of pounds (much of it taxpayers’ money).

If EVs become the future of personal transport, the size of the transformation is almost beyond comprehension. It will be like the change from horses to present-day cars but compressed into a few decades.

The first problem is the batteries needed to ‘fuel’ EVs. Quite simply, the storage capacity of today’s EV batteries must increase many times and the cost needs to be 40 times lower than now. As it stands, the battery technology is nowhere near good enough and the ‘real world’ range of EVs between charges is derisory.

The next problem is the electricity to recharge batteries. The Environmental Transport Association explained to Trend Tracker its calculations of the Reva G-Wiz electric quadricycle’s power requirements. Assuming every motor vehicle in the UK was replaced by a G-Wiz, and charging was carried out overnight, the electricity demand would represent over half the capacity of the National Grid.

Another difficulty is the large proportion of cars parked on the street with no access to domestic sockets, which means charging points will be needed by the kerbside. It’s ironic that the very people who would benefit most from EVs - those living in suburban flats with short commutes – will be unable to recharge them without vast expenditure on infrastructure.

In this brave new world, vehicle production and retailing will see huge changes. EVs have far fewer parts than combustion engine vehicles, which introduces all sorts of possibilities for simplifying vehicle production.

For retailers, servicing and maintenance will be non-existent, which will wreck the retailing model that depends on aftersales for so much of its profits - although presumably EVs will still have crashes.

The biggest difficulty will be managing the transition from fossil fuels to EVs. As the world heads towards a population of two billion vehicles, and because the average petrol/diesel vehicle has a life of 14 years, the changeover will take decades.

In the meantime, vehicle manufacturers and retailers will have to manage the decline of petrol or diesel vehicles and the ramping up of EV production and sales against the backdrop of a fragile, or even failing, business model.

When I finished proofing the report, the sheer size of the revolution left me wondering if it really will be ‘all right on the night’.

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

Chris Oakham

Trend Tracker Limited

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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 second project involved researching bodyshops by phone. By phone? How could snow prevent making phone calls from a nice warm office? Well, the snow didn’t prevent making the calls; we made lots of call, but bodyshops were too busy to take part in the survey. For example, one bodyshop manager we contacted said they usually complete thirty jobs per month. The day prior to our call they had towed or estimated 29 damaged cars. In the end we made 460 calls to obtain 100 interviews, which is twice as many as usual and put the project two weeks behind.

Bodyshops have not represented the best of investments in recent years. So will 2010 prove to be better than average thanks to the appalling weather at the start and end of the year? It will be mid-2011 before we have a definitive answer to this question, and it also depends on what you mean by ‘better than average’.

Adjusted for inflation, the value of car body repair market has fallen by more than 15% in the last ten years. This is due to a real-terms fall in average repair cost and a fall in the number of repairs – both driven by a complex mix of market forces. On top of this, the recession hit bodyshops as businesses with closures and bankruptcies reach epidemic proportions in 2008/2009. This increase in closures was in addition to steadily declining numbers over the last decade.

The upside of large numbers of bodyshops going to the wall, even against the background of a dwindling market, is more business for the remainder. Indeed our projections suggest that the average turnover per bodyshop should increase by around 15% in real terms between the pre-recession year of 2007 and 2010.

But this will be thanks to the demise of competitors rather than any improvement in market conditions, prices for work or even the welcome boost of inclement weather. And whether this results in improved profits and return on investment, the real measure of 'better than average', remains to be seen.

Our survey interviewees were clearly pleased with the level of work coming through their doors, but worried in equal measure at the cost of the overtime required to meet insurance company delivery targets, which bodes ill for profitability.

On a positive note, bodyshops told us that a higher than normal proportion of cars had minor damage, below excess thresholds, and will therefore be lucrative retail work rather than insurance.

Written by Trend Tracker director Chris Oakham, this piece first appeared his column in the subscription monthly Auto Retail Bulletin in January 2011.(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

The study, which sampled over 1,000 UK car buyers, revealed that despite 69% of drivers claiming to do their best for the environment, only 5% of motorists buying a new car would be influenced by a car’s ‘green’ credentials.

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 all rated ahead of a car’s environmental considerations.

So it seems that pure plug-in electric vehicles (EVs), and their hybrid cousins, haven’t yet inspired UK motorists. Indeed for EVs, even early adopters are noticeable by their absence with only 55 cars sold in the UK in 2009. Hybrids have seen much stronger sales with 14,645 registrations in 2009, although this is still the proverbial ‘drop in the ocean’.

The recession might be partly to blame for the lack of interest in lower carbon and zero emission cars. The high price of EVs and hybrids is obviously an important factor given the results of the Bosch survey. And the EVs available to date have also been very poor in almost every way.

But with the anointing of the Nissan Leaf as 2011 European Car of the Year, and the coming availability of similar plug-in EVs from other vehicle manufacturers, EVs appear to be coming of age. Except for the price. Plug-in EVs are very expensive even after the £5,000 taxpayer-subsidy payable from January 2011.

When it comes to doing their best for the environment – as 69% of Bosch interviewees intimated - you don’t need us to tell you that there are three dozen diesel cars and a dozen petrol cars with CO2 emissions of less than 99 g/km currently available at often reasonable prices. Many are as good if not better than much more expensive hybrids and achieve similar low emissions. Clearly EVs are zero emission, but you have to wonder if these will ever take off without continuing subsidies, or if the serious range and durability issues will ever be overcome.

According to National Grid plc CEO, Steve Holliday, EVs will account for twenty per cent of UK new car sales by 2016 and there will be one million EVs on the road by 2020. This is one of many forecasts. Only in the first half of 2011, after the £5,000 taxpayer-subsidy has been available for a while, will it become clear whose forecast is correct.

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

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

We believe the standard dealership business model is ill-adapted to profit from electric powertrain technology - but that the risk of EVs eroding aftersales absorption is still too distant to displace other concerns. Such as the evidence that manufacturers are already having to extend warranties to recapture lost aftersales business for their networks.

Toby Procter

Trend Tracker Limited

0870 421 4350

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

Trend Tracker's 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 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

Bloomberg made him sound as if he’d been living under a stone for the past several years. There’s barely any country in the world that doesn’t already offer what Dr Z was asking for. But he had a point. He and his competitors are investing in EVs and FCVs to meet mandatory emissions targets, but, as he said, “Even in the best case, the cost of electric autos might run several thousand euros more than conventional vehicles for the foreseeable future … we won't earn high returns from electric vehicles for years to come.”

EVolutionary fiscal policy needed

Any returns at all would be useful, but they might not be deserved from today’s drastically limited EV performance and astronomic price. Dr. Zetsche suggested that government incentives for EVs should be linked to technological advances such as battery performance, making an admirably direct reference to the absence of a conventional business case for building EVs with present technology until the oil wells have finally run dry.

Replacing oil for light vehicles is going to take all the time we have before the oil does run out, according to a new report from the UK-based automotive research company Trend Tracker, EVs: Energy, Infrastructure and Mobility in the Real World. But between now and the next $200/bbl oil crisis, only the subsidies that Zetsche and other OEMs are banking on can have any chance of making EVs seem attractive purchases. And until their range trebles, most EVs will be second cars for short-range commuting, sold in small numbers to affluent early adopters who will be the least deserving of taxpayers’ involuntary support. Alternatively, most may be bought by taxpayers for city councils' car clubs, like Paris’s Auto Lib project.

Would you Adam and EV it?

The same fairness problem applies to over-generous feed-in tariff subsidies for home electricity generation, as pioneered in Daimler’s home market. UK homes with solar PV panels on the roof can sell power for 10 times what a large wind farm gets. They can buy it from the grid at around 12p per kWh, and sell it back at 44p per kWh. And their output is going to be based on estimates only. “Come on in, you crims, the door is wide open,” as green campaigner George Monbiot put it. None of this will do much if anything to decarbonise the UK’s power mix. But greening the mix to produce genuine ‘well to wheel’ emissions reduction for EVs is one of the many conditions, besides vastly better batteries and a quite different tax system, that will be necessary for their successful evolution.

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

aftermarket report bodyshop market car finance electric vehicles car servicing

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/and-so-it-begins Thu, 16 Sep 2010 19:43:55 +0000 office@trendtracker.co.uk (Trend Tracker) Previously we have explained how the number of cars on the road up to four years old has a knock-on effect to the aftersales market. As new car sales fall the so-called 'four-year car parc' diminishes in size and franchised dealerships, which rely on younger cars for servicing business, start to feel the effects. Then as time passes this dearth of cars becomes a problem for independent garages targeting older cars. What is less well understood is that a falling four-year car parc impacts on the market for car body repairs too, because it is generally newer cars that are repaired after an accident.

Using information taken from our car body repair and car servicing reports we can explore the effects of the falling four-year car parc.

The four-year car parc has been falling since 2004 because new car sales peaked in 2003. However the fall was barely detectable at around four per cent, 2004 to 2007. Then as new car sales fell off the proverbial cliff in the second half of 2008, the pace quickened and we calculate that by the end of 2009 the fall will amount to 15% since 2004; and by 2012 the fall will be 25%.

In the bodyshop market, the number of repairs has fallen eight per cent since 2006 and the falling four-year car parc is a key driver. Clearly there are other factors at work including: car usage, write-offs, recession, weather, vehicle design, used car sales (refurbishment), propensity for motorists to claim, etc. But there is a strong correlation with changes in the four-year car parc.

In the market for car servicing, maintenance and repair, our principal indicators come from a consumer survey we have run continuously since 1993. This survey asks 1,000 motorists every month the simple question: “Where did you last have your car serviced”. The earliest results found that 24% of motorists had their last service at a franchised dealership. This peaked at 30% in 2005 and the trend has been downwards ever since. The latest result for 2009 is 27.8%. Again there is a strong correlation with the four-year car parc.

Of course players in the service market do not have to accept this situation and they can reach out to motorists in other age segments. But in the car body repair market it is insurers that decide which cars are repaired. The number of car body repairs has already fallen by eight per cent in three years and our forecast model suggests a fall of 14% between the recent peak in 2006 and 2014.

Adapting to these 'black holes' in the aftersales markets will be a challenge for players, who need to adopt long-term strategies as these markets will not 'right' themselves any time soon.

Written by Trend Tracker director Chris Oakham, for his column in the subscription monthly Auto Retail Bulletin. (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

]]> http://www.trendtracker.co.uk/blog/2010/09/and-so-it-begins#comments http://www.trendtracker.co.uk/blog/2010/09/and-so-it-begins 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 http://www.trendtracker.co.uk/blog/2010/09/small-percentages-add-up-to-bigger-percentages Fri, 10 Sep 2010 12:00:00 +0000 office@trendtracker.co.uk (Trend Tracker) We make no apologies for returning to the subject of parts wholesaling again because it appears, judging by our workload, that this sector is seeing a real renaissance in the franchised sector. However our work with several vehicle manufacturers, looking at network performance on their behalf, has highlighted one interesting problem – staff lacking basic knowledge.

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

]]> http://www.trendtracker.co.uk/blog/2010/09/small-percentages-add-up-to-bigger-percentages#comments http://www.trendtracker.co.uk/blog/2010/09/small-percentages-add-up-to-bigger-percentages http://www.trendtracker.co.uk/blog/2010/09/automotive--mark-ups--margins Fri, 10 Sep 2010 09:59:51 +0000 office@trendtracker.co.uk (Trend Tracker) If you buy something for £100, what do you have to sell it for to make a gross profit margin of 33%? The answer is, of course, £150. Certainly every reader of Auto Retail Network’s Bulletin where this article was first published, would have got this simple example of ‘mark-ups and margins’ correct. However, our experience running training courses for sales executives and aftersales personnel is that the mathematical skills of dealer staff are often sadly lacking, and many would come up with £133 as the answer – how would yours fare? Furthermore, our research on gross margins strongly suggests that this lack of knowledge has an impact on profits.

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

]]> http://www.trendtracker.co.uk/blog/2010/09/automotive--mark-ups--margins#comments http://www.trendtracker.co.uk/blog/2010/09/automotive--mark-ups--margins http://www.trendtracker.co.uk/blog/2010/07/testing-times Thu, 22 Jul 2010 17:26:07 +0000 office@trendtracker.co.uk (Trend Tracker) The coalition government is, we hear, to review Britain's MOT test regime, the previous government having decided only two years ago to reject a government commission's proposal to save motorists money by complying only with the EU minimum requirement for a first test after four years, and biennial tests thereafter. It took two years for the no-change decision to be made after a delayed consultation.

Let's hope the right decision is reached quicker this time. Never mind that the European Commission Road Safety Programme announced this week wants to improve vehicles' active safety by mandating ESP and six other technologies for various types of vehicle; nor need we believe everything the independent garage trade may say about vehicle condition-related accidents increasing up to 150%: health and safety may be the nation's least favourite words in combination, but there's no point in having more mandatory safety equipment if it doesn't actually work, or if its effectiveness is compromised by duff tyres which are only inspected every two years.

Reducing MOT intensity to the EU Directive's minimum might save motorists £520 million a year in fees, as was calculated last time around. But the likely cost of at least a few more severe accidents, coupled with the cost of job losses and lost tax revenues from the garage sector, would cost a net increase of £270 million, according to the MOT Forum interest group that fought the last MOT cuts - as it thought, successfully. We ran these numbers in more detail in the 2008 edition of the Castrol Car Service & Repair Trend Tracker, and really didn't expect to have to revisit them again.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

]]> http://www.trendtracker.co.uk/blog/2010/07/testing-times#comments http://www.trendtracker.co.uk/blog/2010/07/testing-times http://www.trendtracker.co.uk/blog/2010/07/range-rover-evoque Wed, 07 Jul 2010 13:57:03 +0000 office@trendtracker.co.uk (Trend Tracker) From time to time, former Trend Tracker analyst and now business academic Dr. Michael Wynn-Williams delivers us his personal view of events and issues in the automotive sector. Happily this week sees Michael letting us air his view of the Evoque, the latest extension to the Land Rover brand portfolio. Whatever road-bound 4x4s in general evoke to you, I hope you’ll enjoy his robust critique of a company that has “thrown off its old mud-plugging ways,” but has nevertheless “slowly become bogged down in its models and brands.”

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

]]> http://www.trendtracker.co.uk/blog/2010/07/range-rover-evoque#comments http://www.trendtracker.co.uk/blog/2010/07/range-rover-evoque http://www.trendtracker.co.uk/blog/2010/07/pricing-strategies-for-a-declining-market Fri, 02 Jul 2010 10:09:51 +0000 office@trendtracker.co.uk (Trend Tracker) In a month's time, Ford is cutting the RRPs on all its medium and small cars, as it did in April with its large ones. And it has cut dealer margins too, with the stated aim of making “the whole purchase process more transparent and the value of Ford cars more obvious."

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

]]> http://www.trendtracker.co.uk/blog/2010/07/pricing-strategies-for-a-declining-market#comments http://www.trendtracker.co.uk/blog/2010/07/pricing-strategies-for-a-declining-market http://www.trendtracker.co.uk/blog/2010/07/are-new-cars-overpriced Thu, 01 Jul 2010 19:29:05 +0000 office@trendtracker.co.uk (Trend Tracker) Last month in this column, we shared our views on the scrappage scheme and how this had influenced new car sales in the short-term. New car sales volumes are, of course, important in their own right but also exert a crucial influence on the used car market and aftersales. Longer term we believe that new car sales volumes will respond in a similar fashion to the recoveries experienced after previous recessions. One potential obstacle to this recovery is the possibility that new cars have become overpriced - something that What Car? magazine raises in its latest issue.

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

]]> http://www.trendtracker.co.uk/blog/2010/07/are-new-cars-overpriced#comments http://www.trendtracker.co.uk/blog/2010/07/are-new-cars-overpriced http://www.trendtracker.co.uk/blog/2010/06/do-quangoids-dream-of-electric-cars Mon, 21 Jun 2010 16:22:12 +0000 office@trendtracker.co.uk (Trend Tracker) (With apologies to Philip K. Dick.) In July six electric Mitsubishi i-MiEVs will arrive in the North East for trials run by Cenex's Low Carbon Vehicle Procurement Programme at a leasing cost of £137,450 over four years, plus (we guess) around £6.5m for installing 1,300 charging points. The latter approximate figure is included in the last government's 'Plugged in Places' programme, channelled via the regional development agency One North East. In London, 20 Toyota Prius plug-in hybrids on lease will arrive on the fleets of various public bodies in London, courtesy of Toyota and EDF Energy. Similar trials are under way in the Midlands, funded by the Technology Strategy Board and Advantage West Midlands. Correction: funded by all of us.

By comparison with the <£5,000 subsidy the last government proposed paying to EV buyers, let alone the size of the national debt, the cost of these EV trials may seem trivial. But what are they trialling? Users driving within the restricted range of these i-MiEVs from one conveniently placed socket to another will undoubtedly say how great they are. But then, they won't be paying. Who'd want to pay £30,000 for essentially untried technology for a second car? (No current-generation automotive lithium-ion batteries have yet undergone their expected lifecycles. Without a battery, an EV is worthless, as CAP has reasonably determined.) EV buyers will typically need access to two cars, because their EV may barely take them 40 miles and back.

A recent forecast from J.D. Power Automotive Forecasting suggests that the global market for pure electric cars will amount to no more than 500,000 units in five years' time. As 40m+ annual car sales drive us towards a global car population of two billion, that's so far away from reducing oil dependency, it's hard to imagine that EVs will be any real help by the time the stuff actually runs out.

Yet the whole point of electric cars is help us survive the eventual end of the 'Oil Age'; With our present energy mix, they won't cut global warming emissions. We need to invest in better energy, smart grids, and much better energy storage, before pump-priming a fantasy market with trials of vehicles that aren't market-ready. Unless we soon discover the battery technology needed to expand EV demand beyond a niche market of do-gooders subsidised by taxpayers at large, governments' EV support will have proved an expensive diversion from other, more urgent tasks. Those include investing in more energy production, and reducing car dependency - not expanding the second-car population with ruinously expensive EVs, used by the few, paid for by the many.

Toby is the lead author of a forthcoming Trend Tracker report which will survey the activities of the auto industry, governments and utilities relating to the electrification of personal transport, and assess the likely outcomes of efforts to replace oil as its fuel by the middle of the century. Details of this report will be posted on this site nearer publication in Q3 2010.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

]]> http://www.trendtracker.co.uk/blog/2010/06/do-quangoids-dream-of-electric-cars#comments http://www.trendtracker.co.uk/blog/2010/06/do-quangoids-dream-of-electric-cars http://www.trendtracker.co.uk/blog/2010/06/charting-the-decline-in-smr-work Fri, 11 Jun 2010 16:38:02 +0000 office@trendtracker.co.uk (Trend Tracker) Download and read our latest aftersales article, published in the June 2010 issue of Auto Retail Networks' Bulletin.

Auto Retail Network is the leading networking and best practice organisation for senior executives in the auto retail industry. Get free trial membership by registering at The Bulletin.

Chris Oakham

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

]]> http://www.trendtracker.co.uk/blog/2010/06/charting-the-decline-in-smr-work#comments http://www.trendtracker.co.uk/blog/2010/06/charting-the-decline-in-smr-work http://www.trendtracker.co.uk/blog/2010/06/black-and-blue-in-the-bayou Thu, 10 Jun 2010 15:28:48 +0000 office@trendtracker.co.uk (Trend Tracker) Dr Peter Wells of Cardiff Business School's Centre for Automotive Industry Research (co-author of Car Futures - Rethinking the automotive industry beyond the American model”, available from Trend Tracker), speculated recently in Automotiveworld.com's Environment Weekly that BP's fiasco could prove a tipping point in the evolution of a market for electric vehicles. Market and public sentiment can turn bad on a dime, and BP's bonds have dropped to junk status, although with oil at $75 a barrel, BP is still gushing cash flow and can easily afford the $billion+ Gulf clean-up cost, and pay a dividend to its US shareholders.

Moving from the horrific to the trivial, my own diesel car sprang a fuel leak last night, and the sulphurous, stinking mess it left on the street was a reminder that there's nothing nice about oil, except what it permits us to do. But breaking oil dependency is going to be hard, BP or no BP. Working on a report the future of the electric car for Trend Tracker, I pay a lot of attention to the renewable energy sectors without which EVs can't do what oil-haters and greens hope for them. EVs are being hyped no end, but there's scant evidence of industry, money markets and governments joining forces to accelerate the switch from hydrocarbons with the urgency required.

Talking of urgency, the German government's refusal yesterday to lend to Opel is only the fifth story on the BBC website's business page as I write. And GM's site has yet to respond at all. The Obama administration has been lauded for allowing US automotive capacity to shrink to a probably sustainable level, and the Europeans condemned for funking the necessary restructuring. The freshly sanitized, right-sized GM can hardly complain if the Germans, now saddled with bankrolling the whole Eurozone, apply some of the same medicine that helped save what's left of Detroit.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

]]> http://www.trendtracker.co.uk/blog/2010/06/black-and-blue-in-the-bayou#comments http://www.trendtracker.co.uk/blog/2010/06/black-and-blue-in-the-bayou http://www.trendtracker.co.uk/blog/2010/05/more-power-to-your-elbow Thu, 20 May 2010 12:59:12 +0000 office@trendtracker.co.uk (Trend Tracker) According to ASE (incorporating Trevor Jones), the average overall labour efficiency of dealers' service departments fell from 83% in 2008 to 80% in 2009. Our own data record a similar fall and you have to go back more than a decade to find service labour efficiencies regularly exceeding 100%. Bodyshops, too, have seen overall labour efficiencies declining over time.

On a brighter note, ASE reckons that car sales per sales executive increased by 22% from 144 in 2008 to 176 in 2009. Of course this improvement could have been distorted by redundancies due to the recession, but our own figures - based on new car sales per member of staff - confirm a near-20% improvement over the last ten years.

Given that around 70% of gross profits generated in a dealership go on paying wages and salaries, efficiency is a key factor when it comes to improving bottom line profits. Obviously if you can get more sales out of fewer people then you make more money. Recessions create the opportunity to improve efficiency and get more from less. Indeed the more successful dealer groups over the last two years have cut staff and actually increased turnover or at the very least balanced staff numbers with changes in turnover.

The apparent improvement in car sales efficiency has never been researched to our knowledge, but anecdotal evidence suggests that the internet (and computers more generally) and the appointment of fleet sales specialists could be the reasons. In other words, dealerships have got more from less thanks to technology (the internet) and through specialisation. Sadly, though, it appears that service departments and bodyshops haven't applied 'more power to your elbow' or embraced specialisation.

Clearly workshop overall labour efficiency is complex - composed as it is of productivity, or how fast technicians work relative to standard times, and utilisation which depends on having plenty of paying work available. Utilisation will have undoubtedly been affected by the recession, but looking at the longer term trends, utilisation has been falling but productivity has fallen more in both service departments and bodyshops. The fall in productivity could be because standard times are tighter now, but as cars change it is difficult to assess. What we probably can say is that, in general, workshops haven't focused on the potential benefits of investment in technology and specialisation but continued to operate along traditional lines.

This is not the place for a rundown on workshop equipment, but one example we came across recently was Robodry, which can massively reduce the time required to paint a car. And there are plenty of other technological solutions available for service workshops and bodyshops. As well as technology, it seems that sales departments have benefitted from specialisation and it is equally possible for workshops to employ a similar approach even if it means breaking with traditional practices.

Put simply, there has never been a better time to change things for the better, and workshop efficiency is a good place to start.

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

]]> http://www.trendtracker.co.uk/blog/2010/05/more-power-to-your-elbow#comments http://www.trendtracker.co.uk/blog/2010/05/more-power-to-your-elbow http://www.trendtracker.co.uk/blog/2010/03/wrong-footed-in-recession Thu, 25 Mar 2010 14:57:23 +0000 office@trendtracker.co.uk (Trend Tracker) Trend Tracker's associate Dr. Michael Wynn-Williams of Greenwich University Business School contributes some incisive thoughts on the state of the global car industry, reflecting at leisure on the variously effective and irrelevant ways that different automotive OEMs at the Geneva Motor Show were responding to the current dearth of demand. His overall impression of the show was that “this is an industry that is in almost complete denial.” See if you agree.

Toby Procter

Trend Tracker Limited

0870 421 4350

aftermarket report bodyshop market car finance electric vehicles car servicing

]]> http://www.trendtracker.co.uk/blog/2010/03/wrong-footed-in-recession#comments http://www.trendtracker.co.uk/blog/2010/03/wrong-footed-in-recession http://www.trendtracker.co.uk/blog/2010/02/diy-job-card-analysis Tue, 16 Feb 2010 19:46:27 +0000 office@trendtracker.co.uk (Trend Tracker) Analysing job cards is an essential research tool for our reports on the market for servicing and repairs. It is the simplest way of deriving the average values of jobs and revealing the strengths and weaknesses of the two principal market suppliers - franchised and independent. The method, albeit arduous and boring, is relatively straightforward and it's the kind of research any franchised workshop or independent garage can do for themselves.

There are two approaches: either an uncomplicated 'job count' or a full analysis including average job values. To paraphrase the instructions for computer software, the former is 'recommended' and the latter is for 'advanced users'.

For a 'job count', you just need to list common jobs in a table. These could include, for example, routine servicing, tyres, MOT testing, brakes, exhausts, engine/electronics, battery/electrical, suspension/steering, gearbox/clutch, cooling ….. 'other' (to cover everything else not specifically identified). As we are usually only concerned with the retail market for servicing, maintenance and repairs, we don't include internal or warranty work but you might like to add these as broad categories.

Next you select at least 100 job cards from a week or two during a reasonably busy period like September or October. If, for instance, the first job card off the top shows a routine service, two tyres replaced and front brake pads, then you place one tick against each of these categories. Then you just carry on through the rest of the job cards in a similar fashion. Finally add up the total number of entries in each category and overall to arrive at what percentage each is of the total.

In an analysis we completed recently on a franchised workshop, the dealer returned 1.7 operations per job card or 170 separate operations for 100 job cards. Of these 170 operations, 69 were routine services, 24 brakes, 19 MOTs, 16 engine/electrical, 7 tyre replacements and 3 suspension/steering. On the other hand a recent check on an independent revealed 1.3 operations per job card with 47 MOTs in 100 jobs cards, 29 routine services, 12 tyre replacements, 10 brakes and 7 suspension/steering.

These results are fairly typical and not unexpected. The franchised workshop is a routine service specialist with 70% of job cards led by a service. The independent garage carried out many more MOT tests than the dealer, more 'repairs' and does reasonably well from servicing too.

Interestingly, the franchised dealer concerned has a comprehensive DMS computer (dealer management system), but only markets its MOT facility infrequently. The independent has no computer at all however the owner runs a simple MOT reminder system. This consists of a filing box divided into 24 months (because MOTs can be for 13 months). He makes out MOT reminders when customers collect their cars and places them in the divider 12 months hence. When the time arrives he sticks stamps on that month's MOT reminders and puts them in the post. Remarkably simple but obviously very effective!

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

]]> http://www.trendtracker.co.uk/blog/2010/02/diy-job-card-analysis#comments http://www.trendtracker.co.uk/blog/2010/02/diy-job-card-analysis http://www.trendtracker.co.uk/blog/2010/02/dealer-survey-is-not-all-doom-and-gloom Tue, 16 Feb 2010 19:37:25 +0000 office@trendtracker.co.uk (Trend Tracker) Earlier in the year in this column we discussed the state of franchise networks and our new study of the used car market. As is often the case in these troubled times, the situation changes almost daily as better information comes to light. For once, though, the new information is not all doom and gloom.

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

]]> http://www.trendtracker.co.uk/blog/2010/02/dealer-survey-is-not-all-doom-and-gloom#comments http://www.trendtracker.co.uk/blog/2010/02/dealer-survey-is-not-all-doom-and-gloom http://www.trendtracker.co.uk/blog/2010/02/death-and-taxes Tue, 16 Feb 2010 18:56:34 +0000 office@trendtracker.co.uk (Trend Tracker) The saying “Nothing is certain but death and taxes” has been attributed to various authors including Daniel Defoe and Benjamin Franklin. Almost as inevitable as 'death and taxes' is the way the UK's population is ageing. This evolving age profile will be a key factor in car purchases in the future. And it is not even the distant future that politicians baffle us with when they talk about pension provision. Your customers' needs will be changing quite dramatically within ten years.

The chart is our interpretation of data freely available from the Office of National Statistics and shows the age profile of the UK's population now and in five years. Noticeably the two lines are almost identical in shape reflecting the certainty that people who are around now are quite likely to be here in five years - give or take influences like immigration and emigration.

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

]]> http://www.trendtracker.co.uk/blog/2010/02/death-and-taxes#comments http://www.trendtracker.co.uk/blog/2010/02/death-and-taxes http://www.trendtracker.co.uk/blog/2009/11/why-scrappage-incentives-are-wrong Thu, 05 Nov 2009 15:14:27 +0000 office@trendtracker.co.uk (Trend Tracker) Former Trend Tracker analyst and now business academic Dr.Michael Wynn-Williams has contributed our latest white paper, Scrappage by Numbers, explaining why importers have been almost alone in benefiting from the taxpayer's investment in resuscitating employment in UK car production. And sad to say, although we like to be right, two reports from the BBC noted by Trend Tracker's Chris Oakham confirm his argument:

On 5th November a BBC online news item entitled "Scrappage sees UK car sales surge" reported that new car sales had recorded their biggest increase so far this year in October, helped by the scrappage scheme. "Encouragingly, there has also been an increase in demand in the fleet and business sectors, which will be critical in sustaining recovery next year," the BBC reported SMMT chief executive Paul Everitt saying.

On 11th November, another BBC online news story reported, "UK trade gap widens in September". The UK trade deficit widened more than expected in September, it said, led by a jump in car imports as Britain's scrappage scheme helped foreign carmakers. The difference between what the UK exports and what it imports was £7.2bn in September, well above analyst expectations of a £6.1bn deficit. September's overall trade deficit was the biggest since January.

Who'd have thought that one might cause the other?

]]> http://www.trendtracker.co.uk/blog/2009/11/why-scrappage-incentives-are-wrong#comments http://www.trendtracker.co.uk/blog/2009/11/why-scrappage-incentives-are-wrong http://www.trendtracker.co.uk/blog/2009/10/auto-retail-bulletin-on-the-uk-used-car-market Tue, 20 Oct 2009 10:33:08 +0000 office@trendtracker.co.uk (Trend Tracker) The October 2009 issue of Auto Retail Bulletin, the business newsletter for senior executives in auto retailing, carried a feature on some of the key findings of our latest 'Future of the Used Car Market in Great Britain to 2014' report. (Click on the heading above to download.) Those of you who are concerned with used car market trends may find it usefully amplifies the information posted in our Reports pages. For more information on the excellent Auto Retail Bulletin - to which Trend Tracker's Chris Oakham contributes a regular column - go to www.auto-retail.com.

]]> http://www.trendtracker.co.uk/blog/2009/10/auto-retail-bulletin-on-the-uk-used-car-market#comments http://www.trendtracker.co.uk/blog/2009/10/auto-retail-bulletin-on-the-uk-used-car-market http://www.trendtracker.co.uk/blog/2009/09/redundancy-is-not-the-only-option Tue, 01 Sep 2009 15:08:45 +0000 office@trendtracker.co.uk (Trend Tracker) There are many ways of executing research projects and our preference is to utilise telephone surveys. We like to go directly to the horse's mouth and obtain our information first hand. In other words we don't guess anything; we use so called 'primary research'. If necessary we will phone up and interview hundreds of people or businesses. However the sample so obtained has to be representative. In the case of franchised dealers, for example, the profile data always include total staff employed and might even include a breakdown of staff employed by department. And thereby hangs a tale.

When completing a telephone survey you don't obtain an interview from every call. But for franchised dealers we usually complete an interview for every two or three contacts. We call this our 'hit rate'. Lately out 'hit rate' for franchised dealers has fallen from one interview per two or three calls to one in six and the reason is fairly clear - redundancies combined with holidays. The downturn, and dramatic fall in new car sales, has hit franchised dealers hard and they have been forced to act on staffing levels and the average number of staff employed has fallen by over 10% from a year ago.

Digging deeper, we note that car sales executives and service technicians have been affected most by either 'natural wastage' or redundancies. Given that two-thirds of the staff in dealerships work in these positions, it is hardly surprising. But as sales executives and service technicians are responsible for generating sales, are cuts here a sensible choice?

Obviously every franchised dealer has to act swiftly and responsibly to economic conditions otherwise they could join the burgeoning list of failures. Our point, though, is that it might be better to cut jobs in non-productive areas and/or ask employees to accept fewer hours, and therefore less pay, or simply reduce pay rates. This might seem controversial, but other industries and retailers are implementing such options successfully.

Preparing for our forthcoming service report update, we have investigated the effects of the recession on franchised dealer service department revenue and the fall in service sales is around 12% - accounting for both retail and internal (new car preparation). The average dealership employs just short of six technicians so by making one technician redundant, or not replacing one who leaves, the productive capacity is reduced by 17%. The shortfall has to be made up by the remaining five technicians through increased productivity, thus increasing bonus, or overtime working. More than that, we have found a large number of dealers disinclined to take on apprentices, who almost always contribute to overall productivity.

The upshot is that the savings are nowhere near as large as might be expected and it is a similar story in the sales department especially as salaries are highly-geared to commission. Clearly every case is different, but it is well worth considering all the options with staff before acting.

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

]]> http://www.trendtracker.co.uk/blog/2009/09/redundancy-is-not-the-only-option#comments http://www.trendtracker.co.uk/blog/2009/09/redundancy-is-not-the-only-option http://www.trendtracker.co.uk/blog/2009/07/nineteenth-motor-trader-industry-awards-2009 Fri, 10 Jul 2009 05:53:30 +0000 office@trendtracker.co.uk (Trend Tracker) Trend Tracker director, Chris Oakham, was amongst 830 people at the Motor Trader Industry Awards 2009 held at the Grosvenor House Hotel, Park Lane, London yesterday evening, 8 July. The 19th Motor Trader Industry Awards celebrated the achievements of companies and individuals challenging the worst recession in the UK retail motor industry since the early 90s - and succeeding. Trend Tracker would like to add their congratulations to the winners of the 18 categories:

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)

]]> http://www.trendtracker.co.uk/blog/2009/07/nineteenth-motor-trader-industry-awards-2009#comments http://www.trendtracker.co.uk/blog/2009/07/nineteenth-motor-trader-industry-awards-2009 http://www.trendtracker.co.uk/blog/2009/06/cars--choice-or-necessity Fri, 26 Jun 2009 15:02:43 +0000 office@trendtracker.co.uk (Trend Tracker) A weighty tome landed in our office this week: 'The Car in British Society' from the RAC Foundation. It is the latest incarnation of what started out life as 'The Lex Report' latterly becoming 'The RAC Report'. Running to 158 pages, it is impossible to do the 2009 edition justice here, but merely pick out a few uplifting facts for motor retailers.

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.)

]]> http://www.trendtracker.co.uk/blog/2009/06/cars--choice-or-necessity#comments http://www.trendtracker.co.uk/blog/2009/06/cars--choice-or-necessity http://www.trendtracker.co.uk/blog/2009/06/new-car-finance-research-highlights-dearth-of-credit Thu, 04 Jun 2009 13:06:37 +0000 office@trendtracker.co.uk (Trend Tracker) Our latest investigation is into car finance, updating a report which we first published in 2004. Since then the whole world has gone pear-shaped and the financing of car purchases has been hit hard in the credit crunch.

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.)

]]> http://www.trendtracker.co.uk/blog/2009/06/new-car-finance-research-highlights-dearth-of-credit#comments http://www.trendtracker.co.uk/blog/2009/06/new-car-finance-research-highlights-dearth-of-credit http://www.trendtracker.co.uk/blog/2009/06/new-car-sales-could-take-six-years-to-recover Thu, 04 Jun 2009 12:46:12 +0000 office@trendtracker.co.uk (Trend Tracker) Not since the recession of the early 1990s have so many dealers asked us what will happen over the next few years and what they should do to prosper against all the odds. Well at least some dealers seem to have overcome the initial doom and gloom and are now looking for the upside. But this does not lessen the problems in the new car market and it is here that we must initiate any search for upside strategies.

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.)

]]> http://www.trendtracker.co.uk/blog/2009/06/new-car-sales-could-take-six-years-to-recover#comments http://www.trendtracker.co.uk/blog/2009/06/new-car-sales-could-take-six-years-to-recover http://www.trendtracker.co.uk/blog/2009/05/mashing-bangers--the-uks-revenue-neutral-scrappage-scheme Mon, 18 May 2009 16:38:19 +0000 office@trendtracker.co.uk (Trend Tracker) When UK dealers taking part in the scrappage incentive scheme invoice for new cars exchanged for scrapped clunkers, they will find that the £2,000 allowance is VAT-inclusive. Manufacturers passing on the £1,000 allowance they receive from the Government can reduce their input tax on the sale of the new car by £130, leaving a net contribution of £870 from the taxpayer, based on the current temporarily discounted 15% tax rate.

Discussing the scheme, Auto Retail Bulletin's May issue helpfully notes that when it went live on 18 May, it was still not clear how HMRC would treat the VAT involved in the scheme, particularly where it may involve VAT-registered light commercial vehicle dealers who would not normally pay VAT at the point of sale.

The scheme has been introduced with an apparent lack of joined-up government among the government departments and agencies involved, and with apparently an at best lukewarm blessing from The Treasury. As Professor Garel Rhys has noted, it stands to boost the sales of a number of dealers, but only those of Nissan among the UK's remaining car plants, since 86% of UK-sold new cars are imported, and the rest are all far beyond the reach of those who've made do with old bangers.

Some of us think all scrappage schemes are market-distorting and create sated consumers to dampen a future recovery based on consumer confidence in paying real, sustainable market prices. At least in the UK scheme's case, it hasn't been clouded with dubious claims of environmental benefits. And we can take comfort from the modesty of the UK scheme. The Germans have spent €2.5bn on allowing clunker owners to swap ancient Polos for cheaper new Porsches should they wish, and they can buy them in Poland if they prefer.

While we estimate that if the average price of a scrappage incentive-driven new car purchase in the UK is £8,500 or so, the Government's £3,000,000 budget for the scheme will be more or less recouped by VAT receipts that HMRC would not have had without the scheme. So at least the rest of us won't have to pay for other people's new cars.

Toby Procter
18 May

]]> http://www.trendtracker.co.uk/blog/2009/05/mashing-bangers--the-uks-revenue-neutral-scrappage-scheme#comments http://www.trendtracker.co.uk/blog/2009/05/mashing-bangers--the-uks-revenue-neutral-scrappage-scheme http://www.trendtracker.co.uk/blog/2009/05/why-the-decline-in-auto-retail-finance Mon, 18 May 2009 15:58:14 +0000 office@trendtracker.co.uk (Trend Tracker) Auto Retail Bulletin's May 2009 issue carries a feature on Trend Tracker's 2009 UK Retail Car Finance market study, explaining how the global financial crisis has interacted with new and used car demand and hit direct lending even harder than point-of-sale vehicle finance.

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.

]]> http://www.trendtracker.co.uk/blog/2009/05/why-the-decline-in-auto-retail-finance#comments http://www.trendtracker.co.uk/blog/2009/05/why-the-decline-in-auto-retail-finance http://www.trendtracker.co.uk/blog/2009/02/brand-new-from-trend-tracker---the-uk-retail-car-finance-market-2009-report Wed, 25 Feb 2009 15:38:01 +0000 office@trendtracker.co.uk (Trend Tracker) Does your business have any exposure to the UK retail car finance market? If it does, you won't need to be told that it has done neither lenders nor borrowers any favours in the past year. But in our 2009 update of the UK retail car finance market study we offer something much more useful.

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.

]]> http://www.trendtracker.co.uk/blog/2009/02/brand-new-from-trend-tracker---the-uk-retail-car-finance-market-2009-report#comments http://www.trendtracker.co.uk/blog/2009/02/brand-new-from-trend-tracker---the-uk-retail-car-finance-market-2009-report http://www.trendtracker.co.uk/blog/2009/02/buy-single-sets-of-results-from-the-rts-auto-retail-industry-salary-survey-2009 Tue, 03 Feb 2009 18:46:05 +0000 office@trendtracker.co.uk (Trend Tracker) You can now buy single pages from the rts Auto Retail Industry Salary Survey 2009 reporting basic and total pay for individual jobs for £15 + VAT each. Available as an instant PDF download, in most cases the information comes complete with the job description as well as salary information by region and nationally. Download the free sample for a car valeter now!

These individual pages cover:

• Bodyshop Painter / Panel Beater
• Bodyshop Foreman / Estimator (job description for Estimator only)
• Bodyshop Manager
• Bodyshop Receptionist / Adviser
• Car Sales Executive (job description for Sales Executive but salary details merge Sales Executives and F&I Managers)
• Dealer Principal / General Manager
• Dealership Accountant
• General Clerical Assistant (job descriptions are for Ledger/Accounts Clerk, Database Controller, Accounts Assistant/Cashier and Sales Administration Assistant
• Sales Manager (job description for General Sales Manager)
• Parts Counter / Warehouse Assistant
• Parts Manager
• Parts Sales Representative / Telesales (no job description available)
• Parts Delivery Driver / Van Sales (job description for Parts Delivery Driver)
• Service Department Clerical Staff (job description for Warranty Administrator and Service Receptionist
• Service Mechanic (no job description available)
• Service Foreman / Workshop Controller (job description for Service Foreman)
• Service Manager
• Service Receptionist
• Service Technician

]]> http://www.trendtracker.co.uk/blog/2009/02/buy-single-sets-of-results-from-the-rts-auto-retail-industry-salary-survey-2009#comments http://www.trendtracker.co.uk/blog/2009/02/buy-single-sets-of-results-from-the-rts-auto-retail-industry-salary-survey-2009 http://www.trendtracker.co.uk/blog/2008/12/new-trend-tracker-research-on-automotive-sales-training Fri, 12 Dec 2008 18:20:13 +0000 office@trendtracker.co.uk (Trend Tracker) The December '08 issue of the excellent Auto Retail Bulletin newsletter (see www.auto-retail.com if you haven't seen it before) has a summary of a pilot survey carried out by Trend Tracker this year - the first ever independent survey of UK franchised auto retailers' satisfaction with the short sales training courses offered by carmakers.

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

]]> http://www.trendtracker.co.uk/blog/2008/12/new-trend-tracker-research-on-automotive-sales-training#comments http://www.trendtracker.co.uk/blog/2008/12/new-trend-tracker-research-on-automotive-sales-training http://www.trendtracker.co.uk/blog/2008/09/new-data-on-the-german-aftermarket-from-trend-tracker-partner Mon, 22 Sep 2008 15:55:31 +0000 office@trendtracker.co.uk (Trend Tracker) Later this autumn Trend Tracker expects to be able to offer UK customers an unrivalled new report on the European aftermarket, published by our German colleagues at Wolk & Partner following a very extensive research programme. As soon as we have more information, we'll let you know full details.

Meanwhile, Wolk & Partner has developed a comprehensive database of 47,594 automotive service & repair businesses which are either franchised dealer workshops or belong to various independent garage networks. All are listed by name and address with mail, phone/fax and e-mail contact details, are mapped to show network densities throughout the German regions, and can be sorted by location and by manufacturer/franchise.
The data can be deployed for mailings, acquisition assessments and network planning, and Wolk is able to support clients' B2B marketing efforts with geo-marketing, applying mapping to the database at federal and regional levels. Wolk can also supply bespoke analyses of the database, analyzing workshops, for example, by number of productive staff. Ask Toby Procter for more information if you could use this data - call 0870 421 4350.

Wolk & Partner, a company which has kept tabs on the structure and size of the German light vehicle aftermarket since 1996, says there are currently some 1,050 trade aftermarket parts outlets serving over 1,950 workshops in the independent aftermarket. The trade is dominated by six major wholesalers (Stahlgruber, WM, Trost, Europart, PV, KSM) operating on a national scale, and 17 supra-regional wholesalers. Around 1,000 parts & accessories retailers serve a still-growing German B2C market.

A recent report from Wolk & Partner covers the German independent aftermarket for parts in two volumes, the first including data on the market size and structure, the second providing detailed information on the various players, with over 60 corporate profiles of aftermarket suppliers and their networks.

A second two-volume report from Wolk & Partner covers Germany's independent workshop networks. The first volume includes the results of a survey of workshops' opinions of their 'soft franchises', and gives contact details for 91 major 'soft franchise' businesses. The second volume compares 44 independent garage networks, each being analysed in 4-6 pages of comparative data for benchmarking purposes.

These reports, in German, are priced from €950 depending on a choice of optional formats and packages, but special UK prices will apply. Contact Toby Procter of Trend Tracker on 0870 421 4350 for more information.

]]> http://www.trendtracker.co.uk/blog/2008/09/new-data-on-the-german-aftermarket-from-trend-tracker-partner#comments http://www.trendtracker.co.uk/blog/2008/09/new-data-on-the-german-aftermarket-from-trend-tracker-partner http://www.trendtracker.co.uk/blog/2008/08/pre-publication-offer-on-the-castrol-professional-car-service--repair-trend-tracker-2008 Tue, 05 Aug 2008 14:22:54 +0000 office@trendtracker.co.uk (Trend Tracker) The latest addition on our Reports page offers advance information on The Castrol Professional Car Service & Repair Trend Tracker 2008 report. Due for publication in October, this report can now be ordered at an 'earlybird' saving of £225 off the published price of £1,250 plus VAT. While we're grateful for Castrol's sponsorship which continues a long association with Trend Tracker, this latest report represents a major development of an established series. To see why we feel justified in believing this report will be THE definitive UK automotive aftersales market study, go to the Reports page on this site.

]]> http://www.trendtracker.co.uk/blog/2008/08/pre-publication-offer-on-the-castrol-professional-car-service--repair-trend-tracker-2008#comments http://www.trendtracker.co.uk/blog/2008/08/pre-publication-offer-on-the-castrol-professional-car-service--repair-trend-tracker-2008 http://www.trendtracker.co.uk/blog/2008/07/tips-on-car-paint-care Wed, 09 Jul 2008 14:01:29 +0000 office@trendtracker.co.uk (Trend Tracker) !

]]> http://www.trendtracker.co.uk/blog/2008/07/tips-on-car-paint-care#comments http://www.trendtracker.co.uk/blog/2008/07/tips-on-car-paint-care http://www.trendtracker.co.uk/blog/2008/07/dealers--bet-the-farm-on-used-cars Mon, 07 Jul 2008 13:07:57 +0000 office@trendtracker.co.uk (Trend Tracker) In 2006 when we published our used car report, we took the view that disposable income would fall over the ensuing five years to 2011. And while the basis of our reasoning - tighter monetary policy - now appears almost irrelevant in the light of recent events, the reduction in disposable income has surely come to pass and is likely to get worse before getting better.

Less disposable income will impact on motorists whether running a privately-owned or company-owned car. The most obvious effect is a reduction in travel, which clearly affects demand for servicing and repairs, and during the recession in the early 90s vehicle-kilometres levelled off after a period of substantial growth.

Another likely outcome is that motorists will keep their cars longer. Based on total new and used car sales as a percentage of the car parc - so called 'parc turn' - the current average length of ownership is around 3.1 years and it has been at this level for most of the decade. Surprisingly the average before the recession of the early 90s was shorter. Or perhaps it is not surprising given that cars are so much better built these days. As the recession took hold in the early 90s, the frequency of change increased by 15% and it was new cars that took the hit with sales falling 13% between 1989/1990, and 21% between 1990/1991. On the other hand, used car sales remained relatively stable throughout the period of the recession.

Overall the evidence from the early 90s suggests that although motorists kept their cars longer there could have been a switch to buying used rather than new when they did change. As far as we know there was no research at the time to prove that this was the case, but it seems entirely logical that motorists in reduced circumstances will opt for cheaper alternatives.

Of course franchised dealers already focus a huge amount of effort on used car sales, and this effort needs to be re-doubled if the new car market goes pear-shaped. Or, as the Americans might say: “Bet the farm on used cars!” But which used car market segment will prosper? Households with lower incomes are most likely to be affected by any downturn - the primary market for used cars costing under £6,000. The new to used switchers, and these could even include companies, will be looking for newer and more expensive used cars including 'nearly new'.

With approximately one-third of all independent used car dealers specialising in older used car sales and nearly 60% selling used cars at a retail price of £5,000 or less, any downturn could favour well-prepared franchised dealers over independents. The 'get out of jail card' for independents will be to specialise - prestige, nearly-new cars, performance, etc. For both dealers and independents betting on the used car market, the key issue will be sourcing the right used stock, which is good news for the auctions.

Trend Tracker director Chris Oakham contributed this topical advice for dealers in the credit crunch-afflicted car sales market in his column in the subscription monthly Auto Retail Bulletin (See www.auto-retail.com for subscription details.)

]]> http://www.trendtracker.co.uk/blog/2008/07/dealers--bet-the-farm-on-used-cars#comments http://www.trendtracker.co.uk/blog/2008/07/dealers--bet-the-farm-on-used-cars http://www.trendtracker.co.uk/blog/2008/06/comment-on-eu-block-exemption-review-and-service-regulation Fri, 13 Jun 2008 17:32:28 +0000 office@trendtracker.co.uk (Trend Tracker) An initial reaction to the current state of play in the run-up to the revision or abolition of the automotive block exemption: I'm inclined to agree with the European Commission's desire to simplify things, having found some of the 2002 Regulation's clauses irrelevant. It's clear that the 2002 block exemption gave vehicle manufacturers an opportunity to tear up old contracts and write new, sometimes more onerous ones. Also, that it has facilitated none of the retailing innovation or cross-border investment by dealers that the EC hoped for.

There has been no significant re-balancing of power between supplier and retailer. The consumer has benefited from more price competition, but thanks to oversupply, not regulation reform.

So why keep an automotive BER beyond 2010? Because franchised dealers prefer the devil they know is not a wholly convincing argument in favour. They enter franchise agreements voluntarily. The official argument for the original BER - that cars are dangerous, so safety needs the expertise of tied service and repair channels - wasn't even mentioned last time around, and has anyway been superseded by efforts to dilute these tied channels' monopolies.

This should be crux of the matter for the Eurocrats and ministers now considering the BER review report. CECRA and the other members of the European Right to Repair campaign have right on their side, because their members can offer consumer value which dealers' with their higher cost base can't usually match. Provided, that is, that independent repairers can access the requisite vehicle data and codes at a fair price as is assured (though not fully) by the current BER. Under current EU emissions regulations the 'right to repair' is only assured in respect of Euro 5 vehicles. That right must be extended to pre-Euro 5 vehicles if the BER is abolished, or the baby will be thrown out with the bathwater.

With independent repairers' rights to market access come responsibilities, which under the BER have been left to national regulations. Which brings me to the muted response to the new volntary Motor Industry Code of Practice (http://service.motorindustrycodes.co.uk/). To quote its sponsors, “It's a straightforward, cost effective scheme with no rigorous pre-entry audits or overblown costs … For garages who engage and comply with the code, nothing much changes.”

The same could be said for their customers. The code's low cost (£75 to join, £30 for the code itself and briefing material, and £175 for biennial inspection charges) may encourage more independent garages to apply than have done for the BSI's more costly PAS 80 Kitemark. But why the consumer bodies were ready to welcome so anodyne a proposition, given the weight of their previous verdicts on the misdemeanours of the garage trade, is not immediately clear. Maybe they couldn't face any more meetings on the subject.

Toby Procter
13 June

]]> http://www.trendtracker.co.uk/blog/2008/06/comment-on-eu-block-exemption-review-and-service-regulation#comments http://www.trendtracker.co.uk/blog/2008/06/comment-on-eu-block-exemption-review-and-service-regulation http://www.trendtracker.co.uk/blog/2008/05/dont-put-all-your-eggs-in-one-basket Wed, 28 May 2008 19:43:42 +0000 office@trendtracker.co.uk (Trend Tracker) Whether 2008 will see a downturn in the UK economy is hard to say, but the media is doing a brilliant job of talking up a recession. With 30% of motor trade employees under 30 years old, and a further 50% between 30 and 50 years old, there are probably not too many in the business old enough to remember the last severe recession in the early 90's. The lessons learned back then are surely applicable today - don't put all your eggs in one basket and act quickly to cut back overheads at the first sign of trouble.

The severity of the fall in new car sales was the most surprising aspect of the recession of the early 90's with new car sales plummeting almost overnight. The result was a fall of over 400,000 in the annual new car market between 1990 and 1991, and it was 1996 before the market recovered. Partly because of this, almost one-fifth of franchised dealership sites disappeared in the six years from 1990 to 1996 - an attrition rate nearly twice as high as subsequent years.

We say “partly” because the damaging fall in new car sales (and used car sales) was, for franchised dealers, followed by a 'black hole' in aftersales. This was caused by falling new car sales knocking on to a decline in the four-year car parc - the traditional customer base for dealer aftersales. And with motorists seeking cheaper ways of getting their cars serviced and repaired during the recession, franchised dealers lost over ten per cent of the service and repair market to the independent sector. The body repair market was hit too as many motorists moved from fully comprehensive to third party insurance.

Today the retail motor industry could be in better shape than in the early 90's. The number of retail sites - franchised dealers, independent garages, bodyshops, etc - has fallen considerably since the early 90's, and this has benefited those which remain. Thinking about franchised dealers, the average dealer now sells one-third more new and used cars compared to 1996 with only 15% more staff. And while dealers have exited body repairs in great numbers, service and parts operations are reaching owners of older cars thanks mainly to three-year warranties.

The only question mark for dealers is the heavy reliance of new car sales on fleet and business users, which could be much higher than the SMMT data indicate; dealerships which endured in the recession of the early 90's were those with a spread of revenue streams.

Another difference between the early 90's and now is the domination of dealer groups with 70% of franchised dealers now in groups compared to just over 50% in 1996. Of course this is no guarantee of financial robustness in the face of recession, as recent group failures have demonstrated, but it could mean better financial controls and the ability to cut back quickly if and when problems arise.

(This first appeared in Chris Oakham's April 2008 column in Auto Retail Bulletin. For a FREE trial copy of Auto Retail Bulletin go to www.auto-retail.com or e-mail: francis@auto-retail.com.)

]]> http://www.trendtracker.co.uk/blog/2008/05/dont-put-all-your-eggs-in-one-basket#comments http://www.trendtracker.co.uk/blog/2008/05/dont-put-all-your-eggs-in-one-basket http://www.trendtracker.co.uk/blog/2008/05/the-law-of-unintended-consequences Wed, 28 May 2008 19:03:53 +0000 office@trendtracker.co.uk (Trend Tracker) 'The Law of Unintended Consequences' says that for every action we take to achieve a particular result there will always be another fall-out result that we did not intend. It might well be that the Chancellor's latest budget could have unintended consequences for the new and used car markets and the future shape of the car parc.

One example of unintended consequences was 'The Supply of New Cars Order 2000', which planned to create a level playing field for private and fleet buyers of new cars. However used car residual values over-reacted and the 'cost to change' actually increased so making all new car buyers worse off. Another example is how, between 1921 and 1948, Vehicle Excise Duty (VED) was based on RAC Horsepower. This encouraged inefficient engines with long strokes and held back technical progress.

A similar litany of unintended consequences could result from Chancellor Darling's recent budget with its selective increases in VED and increases in 'showroom tax' to be introduced in 2010/2011. In particular the Chancellor has set a VED trap for cars emitting more than 226g of CO2 per km, registered after 1st March 2001 but before 23rd March 2006. The Chancellor will also increase duty on fuel in October on top of the 20% increase in fuel prices over the past twelve months.

Another measure in the budget, which has received far less publicity, will be a write-down allowance of only 10% from next year for company cars emitting more than 160g/km of CO2 and 20% for emissions below 160g/km. The rules disallowing a proportion of car lease rental payments will also be reformed in line with the new capital allowances rules.

The budget changes over the next two years will probably affect the new and used car markets much sooner because business cars make up nearly 80% of new car purchases. Although DVLA figures say 50%, an investigation by the International Car Distribution Programme (ICDP) suggested that non-private new car sales should include company fleets of all sizes, Motability, public sector purchases, rental companies, franchised dealers, and vehicle manufacturers and their employee purchase schemes. On this basis ICDP calculated that the new car market in 2004 was split 22%/78% between private and non-private.

Clearly the Chancellor's measures will affect business users more than most and thus the new car market. And the effects might come to pass much sooner than the proposed dates of introduction because leasing and contract hire payments are sensitive to residual values, which are calculated far in advance when agreements commence. It would also be surprising if the trade market for used cars did not react quickly to the budget measures and the present economic uncertainties by marking down prices - especially for the most affected cars.

The unintended consequences could be a dampening down of the new and used car markets, and a complete change in the future shape of the car parc - the latter Alastair Darling's RAC Horsepower legacy.

(This first appeared in Chris Oakham's April 2008 column in Auto Retail Bulletin. For a FREE trial copy of Auto Retail Bulletin go to www.auto-retail.com or e-mail: francis@auto-retail.com.)

]]> http://www.trendtracker.co.uk/blog/2008/05/the-law-of-unintended-consequences#comments http://www.trendtracker.co.uk/blog/2008/05/the-law-of-unintended-consequences http://www.trendtracker.co.uk/blog/2008/04/welcome-to-the-new-trend-tracker-site Fri, 11 Apr 2008 10:30:00 +0000 office@trendtracker.co.uk (Trend Tracker) With the 2008 re-launch of www.trendtracker.co.uk to fully automate our online reporting shopping facility, Trend Tracker has also launched into the blogosphere, with a mission to alert our customers and associates of any new facts, figures or issues we believe can usefully inform readers' thinking and business planning. To live up to this mission, we will contribute new content to these pages whenever we have good reason to, rather than daily or weekly.

For the automotive industry, the world has changed in many ways since Trend Tracker last published a conventional newsletter. We've covered the startling rise of private equity in one of our white papers, but this first Trend Tracker blog provides a first opportunity to comment on what has surely become the biggest issue for anyone involved in making, selling or fixing cars: the cost of complying with greenhouse gas emissions limits while facing up to the likelihood that oil will never again be as cheap or plentiful as it has been.

It's not a done deal, but it seems more than likely that in four years' time, 130 g/km of tailpipe CO2 will be as much as any manufacturer's fleet will be permitted to emit without being fined in Europe. And on the basis that both the manufacturers' lobby and the anti-car green lobby have greeted the EC's proposals with a degree of simulated outrage, this policy is probably as good a political compromise as it could be. True, the fines envisaged by Brussels are apparently much more expensive per tonne of carbon than the 'market' value enshrined in the EU's Emissions Trading Scheme. But, at least in the early years of the regime, the fines for non-compliance with the EU limit - assuming they are passed on to buyers of high-emissions cars - are unlikely to be big enough to change the complexion of the car market overnight. Nor will the £5 gallon, or the UK's new showroom tax plans for high-emissions vehicles.

A deficit of 10 mpg alone costs the driver of a big petrol-fuelled car around £1,000 a year compared to the driver of a comparable diesel car - so another £500 in purchase tax on a large BMW or Mercedes using a present-generation powertrain, or another £2,000 to pay for a comparable hybrid, won't be enough to drive many large cars off the roads.

Since 2007 was the first year that the majority of the globe's population living in cities, it may be that urban congestion and scarce parking spaces will have a greater effect on consumers than the cost of their cars, or the mild incentives available to buy more abstemious models.

With its legislation on car CO2 the European Commission seems to have been as clever in balancing conflicting interests as it was in drafting its 2002 block exemption regulation. The result is horribly complex, and will still leave governments open to the temptation to levy taxes on bogus 'green' premises. One of the most egregious is the UK's tenacious grip on a duty premium on diesel fuel, which serves as a disincentive to make the most rational, environmentally-sensitive choice of powertrain currently available to most car buyers. Even more absurd than the premiums some manufacturers still exact for the diesel versions of their cars.

Toby Procter

]]> http://www.trendtracker.co.uk/blog/2008/04/welcome-to-the-new-trend-tracker-site#comments http://www.trendtracker.co.uk/blog/2008/04/welcome-to-the-new-trend-tracker-site