MT Interview: Phil Clay, MD, Chapelhouse Motors

“We always make our decisions based on the best performing people in the business, the people that have been with us for a long time, that are loyal to the business, which are part of the Chapelhouse family.

That’s Phil Clay spelling out the culture of Chapelhouse, a £112m-turnover dealer group based in the North West selling Suzuki, Kia and MG with more to come. Chapelhouse appointed Clay as its new managing director in January 2023 when Nick Coen stepped down from the role. Clay, 24 years in the motor trade overall, joined Chapelhouse in 2015 as group aftersales manager, was promoted to aftersales director a few years later, becoming group operations director in 2019. In the year leading up to his taking on the MD role, Clay had been mentored by the outgoing MD and the chairman.

Because of the Pandemic, Chapelhouse had been instrumental in the accelerated roll out of digital so that customers could continue to do business with movement restrictions and showrooms closed for business. In fact, the company renovated most of its systems. It had a new website, leads management and new telephone system with its Keyloop DMS.

“Nick Coen, our chairman, he’s been a great mentor and still is. He’s at the end of a phone if ever I need anything. But in terms of the day-to-day running, Nick really hasn’t been in the business since 2020. So, in terms of the changes, I was already making a lot of changes in the business,” said Clay.

“We changed the business massively. We rolled out all these new systems. And we did that in conjunction with the team. So, I got their buy-in by making them part of part of the decision-making process.”

Working practices

Clay also changed the working practices for sales executives. Whereas before they got every third weekend off, this was altered to every other week to improve life work balance. Sick pay benefit was also overhauled. Clay and his team were aiming for best practice to become an employer of choice.

“A lot of companies, not just in the motor trade, a lot of companies tend to make decisions based on the worst performing people in the business because they’ve been caught out in the past. They’ve been burned. We always make our decisions based on the best performing people in the business, to the people that have been with us for a long time that are loyal to the business that are part of the Chapelhouse family.

“We always work on that bottom 25% to keep up in the average. We are looking at the package, looking at how we pay commission. You’ve got to keep moving forwards and that’s what we’ve done,” he said.

Chapelhouse has expanded in recent years. It now represents Kia Suzuki and MG at its network of franchised retail operations throughout the North West and has approved aftersales franchises with Fiat, Vauxhall, Citroen, and Peugeot. In 2022 it also opened the doors to a new Suzuki dealership in Blackpool.

Q1 performance

I ask Clay how business is shaping up in the first quarter with the all-important plate-change. He said the market has picked up after a difficult Q4. Customers were still concerned over the cost-of-living crisis and high interest rates but the market had countered these challenges with strong sales incentives.

“Our brand partners that we support have come out with some strong offerings, which has certainly helped in in Q1. We’ve certainly bounced back, and I think even with a slow start to the quarter, I think we should be able to pull it back and overall looking at the quarter, I think we’ll have a good result. The initiatives that they’ve put out there certainly help” he said.

The company has shown imagination in the way it awards its employees. Chapelhouse bought an apartment in Majorca for employees which it uses for 30 weeks a year.

“We bought an apartment with the sole purpose of sending families where their employees work for us for a for a week away. It can be used as a ‘well done.’ It can be an incentive. It can be a prize for [hitting] a target. I’m using it in different ways, but ultimately, it’s a thank you from me to that individual. It’s just thinking outside the box.”

Clay recalls the Chapelhouse chairman asking him when he was operations director what he wanted to do with the company, what did he want it to be?

“I said, I want to become an employer of choice. I want to attract the best people out there. That’s the mission I’m on. So, we have first aiders for mental health. We’ve got 10 sites across the group and every site has a mental health first aider on-site.”

Community work

The group has strong community ties with carefully targeted charity aid. It wrote to its customer database and asked them to put forward deserving charities. For Clay, it is important that customers choose the charities. According to Clay the response was overwhelming and eventually it was whittled down to eight charities, each getting £5,000.

“I just had the pleasure of driving round and visiting these charities over the last couple of weeks and making the payment and seeing what the charities do first-hand and how we can support them  We continue to support them moving forwards and it might not just be financially, it might be with staff working days in the charities, it might be with sporting and with marketing, said Clay. ”

The company has also rolled out Medicash health cash plans for employees which are valuable at any time but even more so in a cost-of-living crisis.  Weekend working and holdiay allowances have also been overhauled.

“Work life balance is at the forefront of my mind, and it is important that we give our teams the right balance. It was therefore imperative that we implemented this new working structure into the business. Our teams now work alternate weekends, which has replaced one weekend off in three. This gives all our sales teams a five and a half day working week on average. We have had brilliant feedback from the staff,” he said.

“We’ve looked at holiday allowance and said we want to give everyone 25 days as standard and when they’ve been here a period, we want it to be 26 and 27 days. What we’re trying to do is be top quartile, it’s back to being that employer of choice I guess,” he said.

 

Return on sales

Chapelhouse is a successful business that regularly features in the Motor Trader top dealers by return on sales. In 2023 it delivered pre-tax profits of £3.3m with a return on sales of 2.9%. The year before it was pre-tax profits of £5m and RoS of 5.2% and 2021 saw it deliver PTP of £3.3m and RoS of 4.4%. How does Chapelhouse achieve 5%?

“We run it as a family business. When I joined, we had five sites and we’ve grown to 10 today. We still manage the business in the same way. Some people might say it’s micromanaging and it’s not healthy, but we try and control the controllables within the business.”

Good communication and teamwork between sales and aftersales is also pivotal. When Clay joined the company on the aftersales side, car sales was uppermost in mind, aftersales a poor cousin.

“I guess a big example of this is when I joined the business aftersales was a bit of an afterthought,” he said.

Clay put basic controls in place, with more process and as a result greater consistency while rewarding staff for superior results.

“If the results come, as long as you reward people correctly, then they will keep going and keep pushing for that for that next ladder or level. We reward people very, very well,” he said.

“So, I guess I run 10 sites the same as somebody else might run one big site. It’s unusual way to run a group this size, but it works for us. It works that everybody has got a voice, and everyone feels that they’re contributing.”

 

Taking on Chery

Any dealer group is only as good as the product it sells and in Chapelhouse’s case that is MG, Kia, and Suzuki. MG sales are soaring, Kia is the Motor Trader Carmaker of the Year for its strong sales, stock line-up and relationship with dealers, and Suzuki is a popular brand with dealers.

“We have three amazing partners to work with without a shadow of a doubt I mean, Kia is going from strength to strength, they sold over 100,000 units last year for the second time. And I’m sure they’ll just keep growing with the order bank that they’ve got amazing products, they are a very forward-thinking business.”

“MG seems to have just come from nowhere. I joined partners with them three and a half years ago. Now we’ve got four MG sites and Suzuki as well, we just have good relationships with our brand partners. Suzuki have been through a tough time, but they’re just amazing people to deal with.”

So, three brands. Does Clay have any plans to take on another franchise? Chinese brands are attracting attention. Who’s in the frame? The short answer is Chery with its Omoda and Jaecoo brands.

“I talked to quite a few of the new Chinese brands that were coming over and for me it was important to get a brand that was aligned with our business. The brand that stood out for me was Chery. Most of the Chinese brands coming over are full EV and at this moment in time I don’t think the infrastructure is quite where it needs to be. Chery is bringing over ICE vehicles initially and hybrid vehicles, and they’re bringing over a full battery EV. So yes, I’ve agreed to do two locations. They are well priced, good quality products that I think will do well in the UK,” said Clay.

Used car performance

On the used car front Clay, like all dealer group bosses, has had to contend with falling used car values in 2023, clearing stock from its books to reduce the hit to the bottom line. On average it makes £1,400 gross profit from used cars.

“We were carrying round about £8m worth of used car stock at the time. So, we reacted very, quickly to the turn in the market. I guess part of being a part of our success is to read the headwinds, react, and make sure that you’re covered and that’s what we did.”

“So yes, we got affected the same as everybody else. However, we saw it coming, we reacted as quick as we possibly could. So, we got through the quarter in the best shape we could. January was still a quiet month, but the quarter started to pick up and now my order take is back to what it was if not a little bit higher than this time last year,” he said. I ask Clay whether what stage of play the three brands are in terms of push marketing. Have things returned to pre-pandemic normality?

“The order bank for Kia is incredible. So, I think they opened the calendar year with over 40,000 forward orders. So that’s still a pull market with that brand. But in terms of Suzuki and MG it’s back to a push market now,” he said.

 

Motor finance & GAP

Motor finance is in the headlines now with the Financial Conduct Authority running the rule over historical cases of motor finance commission. What does Clay think about the review and where and how has the review impacted Chapelhouse’s business so far?

“To date, we have received 113 customer enquiries which we believe may be in relation to discretionary commission arrangements (DCA). The vast majority of these are customers simply asking for information on who their lender was. We are also seeing an increasing volume of requests from lenders for copies of historic sales documentation in relation to complaints they have received directly.

“As a business, we sell 6,000 cars per year, so as a percentage of the sales during the period being investigated, it is less than 1% of customers so the impact to date hasn’t been too onerous for the compliance team to manage. We have a fully documented and well controlled complaints management process at Chapelhouse and I am confident these complaints and requests are being dealt with in line with the relevant DISP rules as are all other complaints into the business,” he said.

The FCA is also looking at GAP and has put the sale of GAP on hold while it decides that to do.

“We see GAP as a value adding product to bridge the difference between and insurance payout for a total loss claim and the payout required to ensure our customers can replace their valuable asset. It provides a level of comfort that our customers tell us important to them.

“That said, as a business, we do not mass-market GAP and a good number of our GAP sales are to customers that have had the product historically and tell us they want it again. A number of our customers have asked for the product during the pause and whilst we have advised we cannot discuss it at this time due to the pause, they have indicated a desire to discuss it again once the pause is lifted.

“Undoubtedly, the loss of this product has an impact on the bottom line and as such, we are looking to other value adding products to fill that space” he said.

 

Clay on agency

It’s time to go. I put it to Clay he is selling three brands that are not taking the agency route. Does he feel lucky?

“I’m very, very lucky with that, absolutely. I’m sure you’ve spoken to Dale Wyatt at Suzuki, you know he’s very vocal on the fact that agency doesn’t work from his side of things. All three of our brands, value the relationship with their dealer partners and they put that before agency. So yes, I’m in a very, very privileged position.”