Trader Tales: Playing devil's advocate

Following on from my previous column, I would like to take the opportunity to don my horns and pitchfork and play devils advocate to those considering the benefits of retailing older cars.

There are two routes you can follow to this perceived pot of plenty. You could utilise existing display space thus adding no additional operational costs, or, as both of my previous employers did, open a stand-alone used car centre.

The major reason that my last employer chose the latter of those two options was primarily due to the significant restrictions enforced upon them by the brands that they represented.

One German manufacturer particularly would be less than impressed if all of a sudden 10-year-old miley beasts started appearing next to former management cars.

This is unless of course they adhered to their strict preparation standards but having seen some of the reconditioning bills for five-year-old cars with sensible mileage, the margin soon disappears faster than a plate of doughnuts at Vanessa Feltz’s house.

There is also the issue of customer perception to consider. No car buyer likes to think of themselves as a second class citizen when they are quickly ushered to the ‘bargain basement’ section round the corner. Similarly if the 10-year-old swapper starts to give some trouble, there is the question of reputation to consider when the toilet paper third party warranty policy covers little but engine and drivetrain.

So with these points to ponder, you may decide to visit the FD and beg for some funds for a used car centre. You can operate with an independent name, change many stocking and display processes but naturally there are the large additional overheads and operational costs to consider.

PROBLEMS

In my experience of franchise-owned used car centres, one of the biggest problems lies in the labour rate and the potential resentment it can cause. In order to be competitive with the likes of me, and many like me, a discounted labour rate is essential to effective pricing and profit retention.

However, no aftersales manager in the land will be prioritising work at £50 an hour which can be sold for £120 and no franchised sales manager is happy when they know service work is being carried out in the group at half the price.

The other major factor which affects both retailing methods is the issue of stock. Sure, we all remember the low mileage seven-year-old Clio which Mrs Miggins had from new and on it spent all her pension money in the service department every year but these cars are in as short supply!

With a retail future in mind, many sales managers are guilty of taking a gamble and giving blood money for a swapper which should be traded and due to funding restrictions Mrs Miggins’ car is sacrificed.

In my opinion, the best route for older cars from a franchise is to the trade. ‘Scared of the competition’ I hear you cry. Far from it.

It’s like me opening a bodyshop. I work in the same trade but would struggle because I know nothing of the business. It has taken me three years to really get a handle on what I am trying to achieve.

I am regularly hearing stories of four figure trade profits due to the reduced supply of cars and if I could do that without putting up with the earache a retail operation brings I know what I would be doing…

By James Litton, The Internet Car Lot