‘Dealers not out of the woods – but there are reasons to be optimistic’

Time 3:55 pm, February 6, 2020

FOLLOWING a challenging period for the motor trade, the latest sentiment analysis from Cox Automotive reveals that dealers are not out of the woods yet.

Vehicle supply, consumer demand and efficiency issues were all cited as challenges to profitability, while the changing powertrain mix is also playing a role. 

Most respondents to the survey, which represents the views of independents, franchises and industry commentators, stated margins would remain the same or shrink further in 2020.

Fewer than one in five (18 per cent) expressed optimism that margins would increase in the coming 12 months. However, three fifths believe business confidence will improve, setting the scene for more positive conditions in the medium term.  

Philip Nothard, customer insight and strategy director at Cox Automotive, said: ‘With so many political and economic influences outside of dealers’ control, it is no wonder 2019 proved to be a year of fluctuation in both the new and used markets.

‘Supply constraints drove strong used prices and market conversion rates, but the increase in costs, reduction in efficiencies and challenge of falling consumer confidence saw margins come under increasing pressure. 

Three key areas

‘Over the coming year, we expect to see further merger and acquisition activity, as well as investment in technology and data insights to allow dealers to take greater control of their process efficiencies and potential for profitability.

‘However, despite bounce-backs following the recent election and political decision-making, the road ahead remains uncertain. It is no surprise that most of the dealers in our survey are wary about what 2020 has in store.’    

Nothard has singled out three key areas which he expects to impact upon franchised retailers in 2020: the push to significantly increase EV volumes in light of CAFE regulations; the outcome of the FCA consultation into DiC (difference in charges); and the network strategy from OEMs, leading to further consolidation and shrinkage in the market. 

For independents, Nothard has also identified three linked areas which are likely to have an impact in 2020: competition for retail-ready used stock with the franchised sector; the inability to benefit from economies of scale; and increased third party and aftermarket costs. 

Although sentiment is erring towards the negative end of the spectrum, Nothard argues there are signs of optimism.

He said: ‘Many of the dealers in our survey feel that business confidence is on the rise, while there is plenty of investment in new models and technologies coming to market. Plus, the government’s latest announcement about bringing forward the ban on petrol and diesel models, and the anticipated inclusion of hybrid within this scope, will certainly have an impact. 

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‘While challenges around supply, demand, finance and competition are always present, most dealers will already have risk mitigation strategies in place. We expect dealers will experience a challenging 2020, with ongoing pressure on margins, but there are plenty of opportunities for investment and even growth.’

MORE: 2019 was challenging – but there’s optimism now, says Cox Automotive

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Car Dealer has been covering the motor trade since 2008 as both a print and digital publication. In 2020 the title went fully digital and now provides daily motoring updates on this website for the car industry. A digital magazine is published once a month.

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