The next 12 months could be the perfect time for dealers to really improve their profit margins. Why? Because used cars are outselling new ones. And despite some estimates the new car market could operate at satisfactory levels in 2012, it’s the used car market where the sales are really going to be made.
However, making profit in this sector can be done believes Car Care Plan – and some easy tips can pay real dividends.
‘While the focus among consumers has moved away from new cars, it has shifted to used cars. Here is a huge opportunity; consequently the value of aftersales is great,’ said Tim Heavisides, Car Care Plan’s CEO at the Car Dealer Profit Clinic.
Working together with aftersales in consumers’ minds is the notion of unexpected costs. Consumers want – and often need – to keep their cars for longer, and they are all too well aware of the costs they didn’t expect. They are interested in lifetime costs, too.
And the subject that should be at the forefront of dealers’ minds is how to encourage the customer to come back, believes Heavisides.
He said: ‘The challenge is to find the ways and the mechanisms of providing products customers want to buy. Customers are focusing more on lifetime costs, which creates an opportunity to sell aftersales products to maximise customer retention.’
But that shift in attention isn’t the only change concerning dealers and the aftersales market. New good practice guidelines introduced by the Association of British Insurers aim to make the selling of aftersales products more transparent.
It’s this change, believes Heavisides, that dealers need to be aware of. ‘The ABI’s voluntary code is in force today, and partial refunds will apply to warranty and GAP insurance products.
Customers are entitled to refunds if they cancel a warranty or a GAP insurance product mid-term – and they will ask for refunds if they cancel mid-term. ‘In light of this, dealers will have to change their approach to these products. I would encourage dealers to make sure their commissions are fully protected from mid-term cancellations and to make sure their sales people understand.’
The changes will see increased transparency of products and sales processes, and improved awareness of consumer rights. ‘It will mean more administration by us all, but it is needed,’ added Heavisides.
Along with changing consumer attitudes and new ABI guidelines, the market as a whole is changing too.
Cars which are available with a balance of a manufacturer’s warranty on them are few and far between, and with the added factor of consumers keeping their cars for longer, market dynamics are shifting. In turn, upselling dynamics are changing too with more of a focus on long-term products.
‘A number of dealers are reinventing themselves when it comes to selling used cars, and are making a good profit,’ added Car Care Plan’s head of product Mike Cowling.
‘But 80 per cent of warranties are still given away at the point of sale. Now a customer expects a warranty to be given when they buy; dealers have forgotten how to sell. Crucially a warranty just given away is no guarantee of that customer returning.’
One way dealers can reinvent themselves is taking a broader, more measured look at how they generate profit.
‘If dealers do the basics right, 2012 will be successful for them’
‘Dealers should be selling products that bring back the customer, not the products that have the highest commissions – this is something dealers need to inform their staff of. While fixing prices might be at the expense of retail work now, the customer is tied-in for the next three years. Mark up does not equal profit – to optimise profit, dealers may need to reduce prices, and thereby selling more and getting used to customers coming back.’
Car Care Plan do know what they are talking about here. Making the most of warranty penetration improved one large dealer group’s profits dramatically. Using a real example of how it can be done, Cowling showed that by improving penetration by 50 per cent on a retail sales level of 7,000 cars a year, total sales commission jumped by £1.4m.
‘It’s great in theory and even better in practice, but there is no overnight fix,’ he explained. ‘Incentive plans and pay structures need to be longer-term. Dealers’ aftersales profit begin with sales targets.’
To conclude Car Care Plan’s presentation, Heavisides said: ‘Every year we hear a large number of dealers will be going into administration. While it is true some have unfortunately closed, we have not seen the large numbers predicted.
‘If dealers do the basics right, 2012 will be successful for them.’