MT Interview: Peter Vardy

Peter Vardy is planning the next stage of development for the group with investment in premium brands and supermarkets

It’s the middle of March and Vardy, CEO of the Scotland based eponymous dealer group is up to his eyes with the plate-change and the cars passing through the group’s Mini, Jaguar Land Rover, Porsche and Vauxhall franchises.

Motor Trader met with Vardy at the Car Store in Glasgow, which opened in 2014. It has another in Dundee. The supermarket is a bright, family friendly operation. A nice touch is the Car Store café where you can grab a cappuchino or an americano.

There is also a children’s play area complete with a model car transporter and cars. More down to earth is the ‘evaluation centre’ for trade-ins but an air hockey table provides some light relief while the paper work is done.

Vardy represents the third generation of the family in motor retailing. He originally worked for his father Peter in the Reg Vardy business in Scotland as a manager before it was sold to Pendragon. He founded the group in 2006 with the acquisition of Perth Vauxhall and has steadily expanded the business, adding premium brands. Today the Peter Vardy business is rated 36 in the Motor Trader Top 200 with annual turnover of £450.2m.

Vardy sees the next stage of growth coming from premium brands and the group’s Car Store supermarkets. “They are the priority,” he said. In fact his ambitions for the used car business are big with plans to have up to six supermarkets.

“Long term we would like to have five or six Car Stores. They take quite a while to establish but we love the business model and it plays to our strengths. Used car supermarkets are based on buying and sales processes, micro managing used cars and F&I, which we are quite strong on, too.”

But he warns that the business is far from straightforward and it is easy to come unstuck if you get the buying or prep work wrong.

“You have to be particularly good at buying. We are fairly good at supermarkets. We have a lot to learn and are really enjoying it. But it is very easy to see how you can get it wrong in supermarkets. It is quite different to the franchised world, remarkably different.

“The profiling of used stock is done in much more detail, looking at what sells and why it is selling. You need an incredible understanding of the ideal stock mix and pricing. It is really a production line in terms of prep centre, process, what you prep and what you don’t from a mechanical and paint perspective,” he said.

Timing too, is critical. “If you buy the wrong stock at the wrong time it can hurt you in terms of vehicle write down values. A lot of just-in-time management theory that you hear in manufacturing goes into car supermarkets. Sales control and processs are also at another level. It is really exciting but you are either in it or not. You cannot play at it.”

So, how long does it take to starting making a return on investment on the supermarkets?

We had Glasgow in profit in year one. To be very profitable the secret is to get the first batch of repeat customers coming back at about 24 months. Going into the third year you can see the value of the work you have done.”

But it is not all about back room preparation and processes. There is a customer approach at Car Store that is family orientated. It could so easily be clumsy in tone, but it isn’t.

“We do car supermarkets in a more experiential way for consumers. So there are kids’ areas and investment in family type stuff. We try and turn the not enjoying car phrase into something entirely different,” he said.

Vardy is nothing if not ambitious in his plans and hopes for the company, the Car Stores and the franchised business. The vision is to make it the best place to work and for customs to buy cars. He also wants to build the best relationships with carmakers, to push hard on digital and, notably, give 10% of company profits back to society, which it does.

“When I started the business we had a clear vision for the first 10 years to grow a network of premium and volume franchises, then to open a car supermarket or supermarkets and after that an ecommerce business.

“In the first 10 years we did all of those and really enjoyed launching a new culture, new ideas and building a fairly successful group, with loads to prove but enjoying it and seeing some early signs of success,” he said.

“Looking forward 10 years, we took time out to see what role would we want to play on the traditional customer journey, what experience do we have and where do we feel our strengths are. Where could we make a difference and also make a good business proposition.

“You set a business up with objectives which are similar to your own. I worked in my father’s business and am biased but I thought it was the best around at the time and if I am going to start my own business then I should be aiming for world class,” he said.

“I am trying to create the best place to work, to look after colleagues well. And then I thought if I can do that if I can I look after customers better than anyone else, that would give a competitive advantage. I presumed we could make money because if normally you get these first two right, you do.

“My background is Christian and some of my values are aligned with that. I have a responsibility, I was very fortunate to be able to start a business in the first place and having the support of my father. So I have a responsibility to do it well. And that means looking after the people

I work with well and looking after guests. “Last year we helped 25,000 kids, which I know a lot of colleagues in the business are very proud of. We helped people in Uganda, Rwanda, Scotland, all over the place. Yes, it might slow up some of the growth

of the company but I don’t think it has actually. It has created a culture in the business where people are good hearted.”

The group has also set up a share scheme for its employees to give them a stake and a vested interest to perform strongly and do well.

“When I started the company I put ‘Your car company’ under the brand. The reason was I thought it is was really committed to colleague engagement then I would engage them with some of the success of the business financially.

“I was trying to fulfil a commitment I made on day one that the better the company does the more wealthy I can make them. So we give shares when people have been with us for six months. It is not a bonus scheme but a genuine share scheme in a private company, which was difficult to set up.

“The idea is the longer you are with us the more shares you are awarded, the better your performance the more shares you get. On day one we committed £5m into the scheme and that grows with the value of the company. It was expensive but we thought it was the right thing to do,” he said.

So far so good for the employees, but does the scheme help with staff retention for example?

“We have the same difficulties with sales advisors as everyone else so I can’t say it fixed everything but I tell you it matters to some people and it matters to enough of them. Our colleague engagement scores are good. Over 90% of people want to be here in three years’ time. The share scheme is part of what motivates them and it supports the culture and vision of the business so we are made of more than words.”

Vardy freely admits through this own background that the company’s strength was in car sales and aftersales still had some catching up to do to be up there with the best.

“If you take my background when I came from my father’s company I was always focused on the sales part of the business. Sales has probably had more investment in my time so with aftersales we have a lot to learn from other groups and experts.

“We have a fantastic team but maybe we have not invested in innovation in aftersales like we have with sales. So this year and for the next two years we are focusing on a number of initiatives in aftersales, really about putting the basics in place,” he said.

The company is looking at best practice and has hired Jeff Smith, a motivational speaker and author of the The KPI Book to spend some time with the group. It is also working with RTC to invest in vehicle health checks, wants to improve workshop efficiency and has launched smart repairs in some of its dealerships.

“We are looking at lean process management to see how we can maximise our time in the workshop. We have some of the service managers going to see some best practice dealerships abroad. There is a lot of excitement on what we can achieve in aftersales, service and parts. That is probably behind what some other groups are doing but we are on that journey and enjoying learning and growing our aftersales. We hope that is a big area of growth for the company,” he said.

The management structure is flat with four franchise directors and 14 managing partners across the business. Vardy created the Vardy Central HQ with the firepower to cope with 25 dealerships in the group so there is surplus capacity with potential for expansion.

“We are not there yet. We are actively trying to grow our motor group, and are a very close team. I deal with the managing partners on a day-to-day basis as well as the franchised directors. I think it is very important to play on the benefits of the family business and be close to the action. It makes us more flexible and nimble and be able to change. We run the business by the week rather than the month. Performance is measured weekly,” he said.

Peter Vardy may be busy with the March plate-change and the business it generates, but nevertheless he points to a weaker new car market than a year ago as PCPs have come under pressure.

“We have found it more challenging on new cars than this time last year. I think it is all to do with the uncertainty. I think we are seeing prices price rises, some uncertainty and some brands with poorer residual values so it is more difficult to get customers out of negative equity situations across the piece. You have negative equity because

of residual values dropping, price rises on new cars and there are some challenges now on new vehicle sales,” he said.

On used cars the picture is positive but Vardy does acknowledge that there is a shortage of good used stock. This he believes is caused by the tail off in new car sales in recent times and tough competition from other dealers. He is a pragmatic. The solution, he argues, is for Peter Vardy to improve its used car buying power and it is currently hiring.

“There is good demand for used cars. You have to improve your buying ability to do a good job,”he said.

For Vardy the biggest problem facing dealers is not used or new car sales but the number of franchised dealers and the demands placed on dealers having to deliver blended retailing – online, offline, city stores, pop-up stores, driving days and trials and so on.

“I think there are too many dealers and franchise dealers full stop. The layout of the franchise dealer network looks and feels wrong at the moment. If the manufacturer, quite rightly, wants us to focus on online sales, call centres and physical premises then they will have to give us market areas,” said Vardy.

“I think there needs to be a change in the philosophy in what a franchise is and you have to work out who is building the dealership and who is paying for it, depending on the profitability of the franchise at that time. Otherwise you can see some franchises disappear,” he said.

For the future Vardy said the group’s focus will be on premium brands and argues that the case for investing in premium is a lot more attractive than volume businesses.

“You can still justify some of the premium brand investment on the scale of the territory. More and more customers are buying premium brands: you are selling what the customer wants to buy.

“As a retailer if someone wants to give me a franchise opportunity I am going to look at the size of the territory, my ability to fulfil what the manufacturer wants online and offline and the additional requests to do pop-up stores, drive days and other things. Where the territory is big enough the investment is fine, particularly where there is demand for the brand.”

But Vardy is far less enthusiastic about some volume franchises. “It is quite difficult to understand that investment for volume brands because you are not making enough money in the first place to justify the building and when it is all mixed up with two or three operators in the same city, you are overlapping. You cannot do online and offline effectively because you are not making enough money to set it up properly. We really are in a phase where in the next five years manufacturers need to rip it up and start again in terms of what a franchise means and what territory you get,” he said.

Vardy harks back to the overhaul of the UK network carried out by Mercedes-Benz in 2000 when it began talks with 35 groups to set up large market areas.

“I looked after Mercedes-Benz in Glasgow. Because we had the west of Scotland for the brand we could invest what was needed to do the job really well. That market area approach from Mercedes-Benz is the right model going forward. Porsche have done it to a degree. You can make the investment, it is consistent,” he said.

For Vardy the return on investment in used cars is superior to that delivered by some franchises.

“If you look at some of the opportunities for volume brands I have looked at recently, I have done the maths. Although a car supermarket is about £8.5m to build and £4m of stock, the maths are still better as a return than most of the volume franchise opportunities I have been shown. It really is return on investment,” he said.

There are other challenges facing dealers. One of the big issues set to impact dealers in 2019 is the Financial Conduct Authority (FCA) investigation of dealer commission on motor finance. Vardy believes he is ahead of the curve on this one.

“A number of years ago we went to fixed rates. My thought was if a husband came in to buy and the wife came within one hour and did not give a surname, they might be given different finance rates depending on their ability to negotiate.

“I thought that was outrageous so I fixed the rates. If you come in you can choose one or two of the schemes but it does not matter whether you are 10 foot tall, husband or wife, a single parent a family man, they are all exactly the same. We will not negotiate on finance rate. It is what it is,” he said.

He argues that this way it is easier to sell finance because all of the sales staff know what they are talking about and feel more confident that they are being fair.

“It has helped us sell more finance. We have been transparent on that for years now and I can understand why it is important. The motor trade needs a better reputation,” he said.

Vardy pays tribute to his father Peter who plays a chairman role in the business and acts as a mentor.

“His experience of running motor groups is much larger than mine so he has been a tremendous help,” he said.

Both have invested in some digital ventures, outside of the main dealer group business.

In more recent times Vardy has moved beyond running dealerships to developing new e-commerce businesses. For him, online car finance brokering was a good candidate for growth with the creation of Car Money with his father, which launched two years ago.

“It is a different business altogether but it is a family investment –

my father and I invested separately from the dealer group – which provides finance to dealers and also to consumers who want to get finance before they get to a dealer.”

The online business now employs 50 people. The target is to grow the business from 5,000 vehicles in 2019 to 20,000 vehicles a year over the next three years.

Another departure is the investment in Silver Bullet, an online platform for car sales, which was initially intended to be used just for Peter Vardy alone but is now being marketed at other dealer groups. It is also been extended from just car sales to service and parts platforms, too. It’s always open, which is handy given that Peter Vardy does not open on a Sunday.

The group also found that customers specifying cars online spent more than if they visited a dealership, which is a bonus. The tool has been on the Peter Vardy website since last year and the group has three or four clients using it and a pipeline of interested dealer groups

The company is also looking at car usage with its Flex Auto subscription product, designed in-house and launched within the group, offering customers cars for as little as 29 days.

“The trial starts in July, we see that product being available to other dealer groups to take and use in their businesses,” said Vardy.

The company continues to push ahead with its classic car business, aiming to sell 90 cars a year with values of up to £250,000. Vardy is interested in classics and the business stemmed from this. It is a cyclical business which had two good years but last year was “a bit trickier” said Vardy. For a classic car business to be successful, he said, it needs good reputation and the highest standards of customer service.

It’s time to wrap up the Motor Trader interview. I ask Vardy Is there anything he would like to add? Anything missed? He has made it clear the group is pushing premium, wants to expand the Car Store business and is looking afresh at aftersales. But, underpinning all this is his belief in the importance of the employees and management in business.

“We are trying to look after the people who work for us. If you look at what we are doing with share schemes, benefits like death in service, investment in counselling, promoting flexible working and training and the family activities. We are trying to make things good fun but also looking after the people who work for us. That is my priority. If people know that we care for them, genuinely, then anything is possible in business,” he said.