Industry focuses on improving dealer profitability at Motor Trader Summit 2019

The Motor Trader Summit 2019 took place at the Ricoh Arena, Coventry on Wednesday 9 October, 2019. The theme of the event was “Boosting Dealer Profitability in 2020” as speakers looked at best practice in new and used car retailing, online marketing and e-commerce.

A range of motor retail subjects were discussed by major players in the industry. The presenters dealt with the FCA report, the use of social media, boosting financial performance, retaining staff and embracing digitisation.

The issue of trust cropped up throughout the day, in relation to breaking away from the stereotype of the haggling dealer by introducing a transparent pricing model, or by building familiarity with the customer base through social media. At a time when consumers lack the confidence to purchase a newcar, it is important that dealers foster trust with the customer as they will also be better informed of what they want and expect.

Profiting through digital transformation

Jason Cranswick, Commercial Director, Jardine Motors Group

Jason Cranswick focused on how a digital transformation could also allow dealers to live up to customer expectations by making the car buying process easier and ultimately less of a hassle.

He said: “It’s no surprise that customers find buying a new or used car a nightmare. They hate it. And that’s something where we have to make frictionless. To this end we’re doing a lot of work to make sure that the online experience is the same as the physical experience.”

The intersection of the online and physical experience of the dealership is something Cranswick believes needs to be complimentary and seamless, something achieved by omni-channel models like Rockar.

He said: “I really admire companies like Rockar, which already has that solution in play. There’s a lot of work to do as a leader business to emulate that as well.

“No longer can you just maintain the status quo. I hear of businesses that are thinking if I don’t look at it, it’s not there. If I can just hold it back for a little bit longer, it won’t happen. But the reality of it is that change is happening, and we’ve got to do something to drive it.”

Cranswick also pointed out the need for an always available culture in the motor retail sector.

“The other thing is being accessible 24/7. We’ve just made a massive investment to make sure that we can take text and chatbot bookings because our customers are demanding that they are able to engage with us through things like WhatsApp. That’s really quite normal in most other retail sectors. The bricks and clicks experience needs to be frictionless.”

Cranswick spoke on competition within the industry, and emphsised that co-operation between competing companies will be important in evolving the industry.

“We spend a lot of time playing frenemies. Sometimes I don’t know if they’re a friend or enemy, and some on that list are in the room today. But we’ll play nicely with you to understand what you’re trying to do with the ecosystem. And, we need you to understand what we do with the ecosystem. By working very closely with people such as Auto Trader we can really get under the skin of what consumers want.”

Overall, Cranswick claimed that dealers must be willing to adapt to changes in the industry in order to provide the consumer with the best experience. Ultimately, its “innovate or die”.

His presentation built on previous comments he had made to Motor Trader over the past year. What really counts, he said previously, is transparency.

“All the online classified portals are redefining how the consumer will find products online. We subscribe to concepts such as market pricing. I firmly believe that the transparency in the quality of service you offer must surely be a good thing.”

Navigating industry challenges

Steve Young, Managing Director, ICDP

Steve Young highlighted five main challenges that dealers will face. These were technology, customer behavior, structural changes, market uncertainty and regulations.

On the behavior front, Young said that customers are now more informed, and are willing to travel further to find the car they want at the dealership they want. He stressed that the modern buyer is unlikely to shop for a car based on convenience.

Young said that 88% of European new car buyers start their purchase journey online. However, he pointed out that but the majority look to combine this with physical shopping – only 8% would ideally like to finalise the deal online.

In order to adapt to these changes, Young suggested an omni-channel approach combining both online sales and physical dealerships. This would involve a level of network restructure, as well as implementing data sharing.

Young also highlighted a need for manufacturers and dealers to develop a closer relationship. He said: “We see no realistic alternative to the relationship between the OEM and the end-customer becoming closer than it is today, even if this is passive for much of the time. A number of services logically must be delivered by or through the OEM, such as over-the-air updates and monitoring of and response to telematics alerts, service recalls and emergency assistance requests.

“Customer expectations from other sectors are that there is an ‘always on’ relationship, and constraining this to the normal working hours of a dealership will become increasingly unacceptable. At the same time, operating this at the level of every dealer – even as part of a relatively large group – on a standalone basis would be highly inefficient.”

Overall, Young feels that dealers must respond to the changing industry with preparation and risk management.

Driving used car profitability

Neil Murphy, Automotive Data Scientist, Real World Analytics

Neil Murphy spoke on how the use of data can allow dealers to boost their profitability by analysing aspects of the business as well as being able to see metrics such as stocking levels and bestselling vehicles.

He highlighted the advantages of keeping track of what stock you can potentially buy from auction, as well as being aware of what are you currently stocking and what is coming in.

Overall, Murphy suggested that dealers collate data from all different sources, create one version of ‘the truth’, have insights delivered directly to their inbox, implement inbuilt Benchmarking at all levels and maximise profit potential from all sales, stock and distributor supports.

Boosting the financial performance of dealers

Mike Jones, Chairman, ASE Global

Mike Jones presented three options for boosting dealers’ financial performance: gaining consumer trust, taking used car opportunities and pushing aftersales.

He also looked into the September results, saying that they were below forecast. New car registrations rose 1.3% to 343,255 units in September in the second most important sales month of the year.

“It wasn’t quite the bouncing September that we were expecting as a result of the change of the emissions standards in the vehicles that needed to be to be registered.”

According to Jones some brands have got significant supply issues, making it difficult for them to have the stock to meet demand.

On the issue trust, Jones said that it was important for dealers to try and remove the anxiety and worry of buying a new car.

“I think that automotive, in general, is still not widely trusted. There is a lot of anxiety, which is not necessarily well founded, and we must address the customers’ needs going into the car buying journey.”

How are the larger groups performing?

Mike Allen, Head of Research, Zeus Capital

Mike Allen gave an update the financial performance of Plc operators as market conditions remain tough, with business and political uncertainty reducing buyer confidence.

He highlighted that new car registrations remain weak, but that the September market was up 1.3% (-10.3% in private) and is currently -2.5% YTD. However, the prior year comparator was very weak due to WLTP.

Allen said that a better picture will be seen in the August to October performance year on year, which will smooth smooth out the hit caused by WLTP and RDE.

He went on to run through the financial performances of listed dealer groups, including Pendragon, Marshall Motor Holdings, Lookers, Vertu Motors, Cambria Automobiles and Motorpoint. Allen said that ASE has seen a mixed financial performance from dealer group driven by internal and external factors. The balance sheet strength remains generally robust across the sector and he envisages further consolidation as smaller operators become more distressed.

Overall, Allen remains cautious. He said that while some dealers are delivering good results, and the consumer has proven robust to date, there is potential for greater uncertainty to impact trading.

Succeeding with social media

Tom Jaconelli, Director, Romans International

Romans International, the independent dealer of high end cars, has been building a significant social media presence since Tom Jaconelli, director, joined his father’s business in 2011. Since, the dealer has used platforms such as Facebook, Instagram, Twitter and LinkedIn to great effect, gaining 349,524 likes on its Facebook page and 189,440 followers on Instagram.

“You can turn those followers into customers, and then eventually turn some of those customers into real advocates for your brand,” said Jaconelli. “We also think social media is a great way of building and maintaining trust with your customers and prospects. Online reviews are very important but social media is really your brand voice, more so today than your website. It is a great chance to resonate with customers and build some trust in your brand.”

One part of Romans’ social media strategy is the use of video. The dealer posts high quality video to its YouTube and other social media accounts, showing new stock or showcasing original content.

“Video is becoming more important in marketing. Its popularity has gone hand-in-hand with the rise of social media. According to a study
by Smart Insights, 53% of customers engage with a brand after watching their video on social media. So as well as being engaging, videos are a brilliant way of increasing brand awareness and plugging customers to your website.”

Romans International shows that a commanding social media presence is a useful tool for dealers, particularly if they want to target a younger audience. The engagement that can be had with potential customers also helps to build trust with the dealership as the buyer becomes gradually more familiar with the brand and its message.

Creating a culture of retention

Stephanie Vaughan-Jones, Commercial Manager, Moneypenny

Moneypenny provides reception services for dealers, with 750 receptionists on staff. In her presentation, Stephanie Vaughan-Jones explained how the company looks to hire and retain the best staff for its roles by fostering a positive culture within the company and hiring on attitude rather than aptitude.

“Our staff turnover is at 5%. And that’s unheard of, not just in the communications industry. The average of the automotive sector is about 25%. Our low staff turnover ensures that when we’re allocating receptionists to a client, we know that the receptionist is going to be with that client for a long period of time.”

Vaughan-Jones also highlighted that employing new staff can cost a significant amount of money, saying that it can cost the business around £12,000 to hire and train a new employee. Where recruitment is necessary, Moneypenny runs a golden ticket scheme in which employees can put forward people they feel would suit the role, and receive a cash reward should they be hired and pass probation.

Retaining skilled staff is an issue for dealerships, with a shortage, particularly on the technician front, the tactics Vaughan-Jones highlighted in her presentation could help dealers lower their recruitment expenditure and hold on to valued members of staff.

Latest insights in new and used cars

Chris Penny, Brand Director, Auto Trader

Chris Penny looked at the online and physical experience of car buyers when purchasing a new car, saying that it is not an experience many enjoy. As a way of getting away from the traditional car buying model, 45% of consumers would buy a new car online without seeing it in person if they were taking out a finance deal on it. This number increases to 64% for those aged 18-34.

However, Penny stressed that retailers will remain crucial to the purchase, as the research shows most consumers still value human interaction of some kind during their car buying journey, with three in four (74%) saying they wouldn’t buy a car without speaking to a retailer.

He argues that there’s a clear need for a seamless, omni-channel experience for consumers so they can choose the journey that’s right for them – be it online or offline, or any combination of the two. He said that a one-size-fits-all approach won’t work, and that an experience will need to be created that’s flexible enough between digital and physical
to cater to everybody’s needs.

He said: “We know the human connection is going to remain significantly important to the transaction. Act like an online retailer now, because by acting like this in 2019 there is an opportunity to profit and improve customer experience. We know that speed, simplicity and transparency are the fundamental underpinnings of good online retail.” Penny feels these apply to physical dealerships too.

Penny also covered the need for transparency through accurate pricing and phasing out haggling.

He said: “I think transparency, if managed correctly, can actually empower margins by giving consumers all the information up front
and changing the back end physical experience to make sure you match what’s happening online.

“I believe the key to transparency is in the culture of pricing.”

As Romans looks to build trust through social media, Auto Trader feels dealers should address the way they price their vehicles, and the way those prices are marketed to be as transparent as possible to dispel the stereotype of the haggling dealer.

The impact of the FCA review

Adrian Dally, Head of Motor Finance, Finance & Leasing Association

Adrian Dally used his presentation to dig down into the Financial Conduct Authority (FCA) report from March 2019, highlighting intent of the FCA going forward.

Since his presentation at the Motor Trader Summit, The Financial Conduct Authority (FCA) has announced that it will ban car retailers’ discretionary finance commission model. The current system allows the broker to set the rate, and the FCA found that the widespread use of this type of commission creates an incentive for brokers to act against customers’ interests.
It estimates the changes would save customers £165m a year.

The FCA is also proposing to make changes to the way in which customers are told about the commission they are paying to ensure that they receive more relevant information. These changes would apply to many types of credit brokers and not just those selling motor finance. The FCA is consulting on the new rules until 15 January 2020 and plans to publish final rules later in 2020.

Dally said: “The FCA was preaching to make sure that the industry was compliant, both managers and dealers, brokers and also the products that are being sold.”

“PCP is a good product for its time, and it gives consumers flexibility and that was an example of the best innovation in the credit sector.
So the FCA does have a very positive view of the sort of products that are in the market and our sector.”

Using your digital marketing budget

Martin Dew, Digital Solutions Director, Autoweb Design

Martin Dew spoke on the best way to use a digital marketing budget to direct the most traffic to a dealer’s website, highlighting common mistakes as well as some effective options. Among these mistakes he included incorrect attribution and misaligned agencies.

In explaining the first of these, Dew said: “One of the biggest things is incorrect attribution, where a dealer is saying that a campaign is successful because it generated leads, or giving it credit for generating leads, when all the relevant touch points have not been hit.” In other words, leads are all well and good, but if they don’t convert to sales then they are wasted.

On misaligned agencies, Dew pointed out that often dealers and the digital marketing agencies they hire to increase their website traffic,
for example, often aren’t on the same page when it comes to the goal for the project.

He said: “I don’t think it is always necessary for a small dealership to use a digital marketing agency,” and that dealers are able to do things such as paid advertising through Google or social media without the need for an agency.

Overall, Dew encouraged dealers to know their audience and make sure their digital marketing strategy caters to them and also to use social media to further their reach.