Peter Cooke looks at how the
industry can achieve moderate success next year.
Go deeper with GlobalData
Is the world totally made up of doom and gloom? We have the
BRIC countries (Brazil, Russia, India and China) developing at a
rate to take over the world economy within a generation; the EU in
Brussels is planning the grandest palace the world has seen outside
the Middle East from which to issue decrees; and the PIGS
(Portugal, Ireland, Greece and Spain) are collectively threatening
the very roots of the euro. Is nothing sacred?
Does the incoming Age of Austerity
herald long-term market restructuring, or will it be selective in
its impact?
After all, there are opportunities.
At the top of the food chain we may find executives, especially the
most senior, looking for a replacement vehicle and squeezing every
last option out of their allowances.
One might expect some to show
solidarity with less fortunate colleagues (and bonus bereft
bankers) – and taking a quality used car?
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By GlobalDataBCA has reported a surge in demand
for premium-badge brands. These are what I would call the ‘real
luxury products’ – the sort that ‘don’t age’. The challenge is: who
are the buyers for such luxury units?
Equally, among the less
stratospherically priced cars there is also a strong demand, with
some units outperforming CAP by significant margins.
One wonders if these units are
being snapped up by canny buyers seeking either a bargain within
their allowances or a ‘once in a lifetime’ prestige car. There are
good supplies of such units at this time, but demand is there and
demand, in turn, means profit opportunities.
Margins on those used units may be
good, but even better is the likelihood that they will be replaced
more rapidly than new cars straight out of the box, which carry a
higher depreciation rate. More turnover, more total margin – it
adds up.
Further down the food chain we may
find a similar down-trading as some buyers, particularly private
used car buyers, acquire a smaller unit, and others move to
low-mileage used cars.
The message from all this hyperbole
is that ‘markets are changing in the Age of Austerity’ – but it’s
possible to predict, in the round, what those changes might be. The
challenge is to take the exercise one step further and arrange
finance and credit lines for the most suitable prospects and
clients.
The car sale, whether a shiny new
model or one being fostered for the third time, needs to be treated
the same.
Remember, the used car buyer
probably has more emotional, if less monetary, capital tied up in
that product. Help those buyers by not letting them leave the
dealership until they have been offered every support possible –
finance, extended warranty, warranty protection, a service package
and insurance.
Even if the absolute margins made
on a used car are inferior to those on a new one, soft services
could be your saviour for the next couple of years.
The used car market is probably a
better bellwether than the new car market when it comes to demand,
in that new cars are either built against orders – with a long lead
time – or buyers will take what is available.
In the case of used cars, the
would-be buyer has a much wider choice of product, age and quality
and can balance funds available against model, age and
specification.
This could herald a subtle
realignment of the used car market as we work through the Age of
Austerity. It could be a new form of market sensitivity. Equally
important, for the fleet operators feeding the auctions and
planning new fleet acquisition, is the ability to watch those
changes and read the market for used cars and buyer
expectations.
I always have a concern in this
sort of situation that the vehicle manufacturers will return to
their previous practice of offloading large volumes of ‘nearly new’
cars of similar specification on the market because prices at
auction are doing well and they can boost volumes.
In a period like the present one,
with market forces subtly driving changes, it will be important
that those changes can be spotted rather than swamped by the
demands of short-term sales.
The Age of Austerity may be bleak,
but there is every opportunity to reposition the business subtly –
and turn it into a moderately successful age.
Happy – if Austere, New Year.
