Used car disruptors – including Cazoo and Cinch – bring ‘nothing, if anything’ new to the market, claims Vertu Motors boss Robert Forrester.
In a strong rebuke of the new entrants to the used car market, Forrester said the only thing they’ve caused the industry to do is focus more on their own businesses.
In his report on the group’s financial performance for the last year – which reveals the group made profit of £24.6m – Forrester dismissed the new entrants to the market.
He wrote: ‘Disrupters who have recently entered the used car market have very little, if anything, to add to the sector in terms of customer proposition or experience, and they do not sell new cars or in some cases, support customers thereafter with their servicing needs.
‘The best in class in the sector, and Vertu in particular, have a fully established bricks and clicks platform and sell far more used vehicles than these new entrants.’
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Speaking to Car Dealer Live in an exclusive interview this morning, Forrester said the likes of Cazoo have actually helped his business.
In a video interview you can watch above, he said: ‘I wouldn’t say they don’t worry me. I would say they have been very, very helpful to everybody in the industry in a number of ways.
‘One, it has shot a full beam on the used car market and its potential in the United Kingdom and for a quoted plc standpoint that is not unhelpful.
‘I think it’s a tough gig actually to come into the UK and start disrupting it.
‘Is it something we should be complacent on? No. It has forced everyone to be very clinically pure as to what they are trying to do, their capability and are they as good as they think.
‘What are [the disruptors] doing that we can’t? Very little, if anything, as it happens.’
In its results, Vertu revealed it received £27.8m in furlough support from the government during the financial year, which ended on February 28.
In March and April this year the group received £400,000 in furlough cash.
Other industries that saw stores shut by lockdowns but continued to enjoy success online have seen some firms decide to repay furlough cash. The latest, this week, was Hotel Chocolat that returned £3.1m of furlough cash after strong Easter sales.
Forrester is adamant that the group will not be repaying any, though, and the discussion in the board lasted ‘45 seconds’ as to whether they should.
He said: ‘The government closed down our businesses by diktat with very little warning, causing considerable disruption and dislocation and they provided financial support to offset that.
‘That was what the support was there for – to make sure we didn’t come out of it in a much weaker position than we went in.
‘We are doing exactly what the government want us to do and that’s to use that money to reinvest and create jobs and be powerful as the economy grows.’
Forrester added he had no intention of repaying the £400k of support used so far this financial year and wouldn’t change his mind even if another dealer group decided to repay the money.
He added: ‘The economy has gone through a massive shock.
‘Some people have made a loss, despite all the government money, and I have never quite got my mind around, because our business has performed, that I have to pay it back. It’s not something that enters my mind very often.’
In the video interview, a full transcript of which you can read below, he also talks about his plans for acquisitions, why he thinks profitability will grow again this year and the pressure in his used car departments.
The full interview
What surprised you the most about your results?
That we made a profit.
We did a forecast this time last year when we were in the depths of lockdown one and we were nowhere near a profit. April was not in any way optimistic.
The way the business, and the industry actually, has played the cards it had been given and gone through quite a period of adaptation and change and the upshot is that between 1 January and 1 March, despite the fact we were absolutely locked down and closed in terms of no showrooms or test drives we sold 38,000 cars and vans.
Well, dear me, you wouldn’t have put money on that this time last year.
So, I think that is the biggest surprise, that we managed to create value and keep the business with some degree of momentum despite being buffeted by successive swipes at the government locking us down.
You allude to some confusion around online sales – what do you think an online sale looks like?
Well, my new way of looking at it is an online sale comes from the web in its general view and there is a degree of interaction with a dealership, and there’s a large amount of online interaction – could be video chat, video sent or deal shared or offered.
We need to be pragmatic that when we talk about online retailing that is what we’re talking about.
Now, if you’d asked me three months ago I’d have given you a very intellectual purists response that an online sale is a customer who is engaging in pure e-commerce and never talks to anybody.
I think there is pure online e-com, omni channel, and traditional. Well, I’m fighting a losing battle here so I’ve just given up.
What are your thoughts on the used car disruptors?
I wouldn’t say they don’t worry me. I would say they have been very, very helpful to everybody in the industry in a number of ways.
One, it has shot a full beam on the used car market and its potential in the United Kingdom and for a quoted plc standpoint that is not unhelpful.
It has thrown up some very interesting comparisons about how big the UK groups are.
I think if I was going to leave Vertu and go and set up an online used car retailer I wouldn’t start here – I’d go to Europe, because they’re rubbish actually at used cars, in my opinion.
Whereas actually if you look at the mega groups we’ve got in the UK with strong digital offerings, strong brands and strong capability and from the 70s onwards it has been the most sophisticated used car market in the world.
You’ve had the likes of Sir Peter Vardy, people who have really professionalised used cars. You can’t mention used cars without mentioning Arnold Clark.
I think it’s a tough gig actually to come into the UK and start disrupting it.
Is it something we should be complacent on? No.
It has forced everyone to be very clinically pure as to what they are trying to do, their capability and are they as good as they think.
What are [the disruptors] doing that we can’t? Very little, if anything, as it happens.
In fact the only thing the competitors do that we don’t is have branded lorries going up and down the country giving a branded customer experience.
That is the only potential gap. But what we do do is sell new cars, we have the manufacturers behind us pumping in millions in marketing, we’ve got an aftersales business which is heavily linked to the sales business, we have massive databases, our customers visit us every 12 months for a service and we see them. So I don’t feel complacent.
The concern is the budgets – and I think the battle is in marketing. We’ve got strategies around that. We’ve now gone down to three brands.
We announced this morning that the Farnell Jaguar Land Rover business will be rebranded Vertu.
We have a goal to make Vertu the leading premium brand in the UK from a brand awareness perspective, which it isn’t today.
Bristol Street Motors is already the second biggest in terms of franchised automotive with regards to promoted brand awareness. It’s double that of the leading disruptor – double.
Now that in my opinion will close because it’s like an arms race – and that’s because, let’s be fair, they’ve got a lot more money than we have.
There’s going to be a real battle for brand awareness. I don’t think it’s a battle for technology.
What about used car supply?
The biggest advantage is we have this big database of new car customers who like to change their car every two to three years and then we bring the part exchanges in.
It’s not to say that other people can’t find cars – they can do deals with leasing companies or whatever – but one of the challenges is there is a shortage of used cars when the market is absolutely on fire, as it was this time last year.
I think one of the great challenges in the next nine months will be procuring the right number of used cars at the right price to help fulfil demand.
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Do you think we’ll see super groups emerge?
I think there will be a general move towards consolidation. I think some of the larger groups will get larger. We’ll grow in three, probably four ways.
One will be that our marketing will give us additional market share. We have to be very good at that and I think we’re getting better at it.
Secondly, multi franchising. So putting an extra franchise in a single dealership format, giving us extra aftersales absorption and greater new car market share is important.
Then we have our ancillary businesses. We do have quite a lot that aren’t dealerships that have sort of been hidden away for a while. Vans Direct is a good example.
We also have one of the largest retailers of taxis in the United Kingdom which has been a real shocker, as you’d expect in the last 12 months, but is now starting to come back.
It’s really interesting there as we have everyone back from furlough and we’re starting to see a big rise in the number of taxis we’re selling.
I would expect us to be able to undertake acquisitions over the next 12 months.
Are there going to be mega super groups? Well, I think the direction of travel is probably there. There are some much bigger groups in Europe interestingly than the UK groups and the manufacturers will have a say in that.
We don’t operate in a field where we are completely independent. We have to work with the manufacturers because we operate their franchises.
But I think there is more of a mood among the manufacturers that they’d like to have larger groups. We have some manufacturers where we are 8, 10, 12 per cent of their volume. As long as we perform on customer satisfaction and volume and we operate in the spirit of partnership then that’s ok.
You don’t want to be too exposed either way. You don’t want to be too exposed to one manufacturer and they don’t want to be too exposed to one group.
But I do think there is scope for much larger groups in the UK. The bottom line is we have 4.1 per cent of the new car market in the UK…
Government support – was there a board discussion about paying back?
I think it lasted about 45 seconds. The government closed down our businesses by diktat with very little warning causing considerable disruption and dislocation and they [provided financial support to offset that.
That was what the support was there for – to make sure we didn’t come out of it in a much weaker position than we went in.
We are doing exactly what the government want us to do and that’s to use that money to reinvest and create jobs and be powerful as the economy grows.
In this financial year you have claimed £400k, at the same time as record profits, will you pay that back?
No. This isn’t a thing for me – if we were in a different sector. In March, which was the biggest financial month of the year, not a single person could come into a showroom or do a test drive.
Not because we decided to close but because the government shut us down.
I think the numbers are very small in the context to the overall profitability so we don’t feel we are hamstrung in terms of the normal things a capitalist company would like to do like pay dividends or do share buy backs and things like that.
We don’t intend, unless the government pulls another one and locks us down again, that we anticipate using any furlough money or anything like that.
The economy has gone through a massive shock. There was absolutely no doubt about that.
Some people have made a loss, despite all the government money, and I have never quite got my mind around, because our business has performed, that I have to pay it back. It’s not something that enters my mind very often.
What if other car businesses decide to do it? Would you change your mind?
Will you now be able to take a breather after a tough year?
We didn’t have a tough year, we had a tough week actually.
We had a very, very tough week when Boris came on the tele at 9pm and closed our businesses down. That was the worst week. It was incredibly difficult for everyone in the sector.
One thing I would say is the sector as a whole worked together brilliantly. The NFDA did a cracking job, but the way the CEOs got together and compared notes on what to do with this completely unprecedented situation, almost friends actually.
I think we got a lot closer as an industry and I think that worked really well because it’s a fairly lonely job at times.
Profitability will grow again his year, you say, what will that be driven by?
There are some uncertainties around Covid and government action which we have to be mindful of as we can’t plan for that. Second element is clearly the new car dislocation around semi conductors and that feeding into used cars.
So, there are some interesting clouds. But the bottom line is the business has got momentum, marketing is going well, colleagues are working hard and satisfaction is at an all time record so there’s a lot of positives so given the fact we have taken the cost base down by £10m, we are actually in a very good position notwithstanding Chinese satellites landing on dealerships or what have you, so we should be ok.
The opportunities are to run the businesses very tightly and at each point look at things like used car prices, are we going volume or price, just running it as best we can.
Then we have a lot of acquisitions and it’s about moving them to produce the returns they can.
We are on a journey with that and I am pleased with where we have got to do with that but there’s still a long way to go with that.
I think the management and the colleagues have done a really good job.