- June 23, 2020
- By Fraser Brown
- In Expert Opinions
It’s three weeks since car dealerships re-opened following the COVID-19 lockdown. In this time I have spoken with more than 20 dealer group Directors, and it is very clear that there is a big divide between those dealer groups that have set out to make money and those that have decided to minimise losses. Interestingly, most have achieved what they set out to do.
The risk-averse, accountancy lead dealer groups have very much limited the number of people they have un-furloughed and have not yet restarted their marketing campaigns. It is interesting to see that they are predicting losses in the month of June.
In contrast, things look far more positive for the sales and marketing led dealer groups, who turned on their marketing in the latter part of May, brought most of their staff back on the 1st of June, and now have everyone back at work. These dealerships are predicting profits for the month of June.
Many groups have seen a good level of used car sales, selling approx. 6 used cars to each new car sold, depending on the brand, and are achieving surprisingly good chassis profits. A number of sales led dealer groups we work closely with are now achieving between 130% and 180% of ‘normal’ unit volumes, and about £1480 PPU, again up on normal levels. These groups have their marketing machine on full, and all their sales teams back in the business working at full capacity. One of these organisations is forecasting a record June for net profit.
Those dealerships who began buying used cars and filled their workshops with vehicle preparation before retail work returned, are finding their used car sales continue to surge ahead of last year, week on week, as they have the stock to feed the demand. Dealerships that held back, are now struggling to buy stock at the right price and are then competing with retail to get their cars prepared through the workshop, and as a result, early used car sales surges are dying back.
Car dealerships have large core costs. To make a profit it is essential to market the business hard and have the right team in place across the business. I heard of a dealer group Finance Director saying, “We’ve far fewer people in our sales departments at the moment and we are selling a similar number of cars, let’s have some redundancies”. My prediction is that these businesses will suffer with customer satisfaction, compliance, and profit per unit issues over the coming weeks. Clearly having less available resources in your sales teams is going to have an impact, if not on units then on the quality of the sale. Interestingly, almost across the board, F&I income has taken a tumble. My analysis highlighted a direct correlation between the percentage of the sales force back at work, and the F&I income – the lower the percentage, the lower the income.
Selling the car is only about 1/3 of the job. Once deliveries of new and used car sales catch up with the sales volumes of recent weeks, the workload on the few salespeople back in the accountancy led businesses will result in a drop in conversion ratios.
As for new cars, it appears manufacturers are holding back. There clearly is a market there, as demonstrated by one brand in the daily registration figures. However, not all manufacturers have released strong enough offers into the market to drive PCP led, payment based, consumer demand. I expect this to change in the coming weeks.
It’s clear to me from my discussions over the first three weeks since car dealerships re-opened, that those dealer groups who prepared for getting back to full business profits have achieved this and more. So my advice to dealers is this, the market is there for the taking, get your marketing machines going, get your offers in place and fully staff your businesses now and get making money again!
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