Are Manufacturers and Dealers Sleepwalking over the Edge?
Presented by Trevor Jones FCA FIMIASE Plc
Dealer profitability summary
Are Manufacturers and Dealers Sleepwalking over the Edge?
Agenda
Dealer Performance 2012
2010 2011 2012
Net Profit as a % of Turnover 1.2% 0.8% 1.2%
Overhead Absorption 63% 58% 57%
Used Vehicle Return on Investment 74% 74% 81%
Vehicle Expenses as a % of Gross 67% 69% 65%
Overall Labour Efficiency 79% 81% 81%
Hours Per Repair Order 1.7% 1.7% 1.7%
New Vehicle Registrations 2,030,846 1,941,253 2,044,609
Industry Profitability Statistics
Headline summary
2012 – the most profitable year in UK motor trade history
2013 – has started strongly
Both completely reliant on new vehicle sales performance
3 key dealership drivers
Average Dealer Profitability
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10Jul-1
0
Aug-10Sep
-10Oct-
10
Nov-10Dec-
10Jan
-11Feb
-11
Mar-11
Apr-11
May-11
Jun-11Jul-1
1
Aug-11Sep
-11Oct-
11
Nov-11Dec-
11Jan
-12Feb
-12
Mar-12
Apr-12
May-12
Jun-12Jul-1
2
Aug-12Sep
-12Oct-
12
Nov-12Dec-
12Jan
-13Feb
-13
Mar-13
-300,000
-200,000
-100,000
-
100,000
200,000
300,000
400,000
500,000
600,000
Rolling 12 month Profit
Top 10% National Average Bottom 10%
£
Overhead Absorption
2007 2008 2009 2010 2011 20120.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Top 10%National AverageBottom 10%
Vehicle Sales Expenses as a % Gross
2007 2008 2009 2010 2011 201240.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
110.00%
120.00%
Vehicle Sales Expenses as a % of Gross
Top 10% Average Bottom 10%
Used Vehicle Return on Investment
Feb-11
Mar-11
Apr-11
May-11
Jun-11Jul-1
1
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12Jul-1
2
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
Rolling Used Car ROI
Prospects for 2013/2014
New Vehicle Volumes?
Used Vehicle Volumes?
Vehicle Margins?
Overhead Absorption?
Costs and Expenses?
Part Sales?
Parts Sales in the United Kingdom
Are Manufacturers and Dealers Sleepwalking over the Edge?
The Threat to Parts Sales in the United Kingdom
“ I would like to thank all the vehicle manufacturers and their franchise dealers – we don't sell your cars but we’ve got all your customers”
Sir Tom FarmerChairman Kwikfit
“Our aim is to repair cars without ever having the need to use OEM parts”.
RBS Keynote SpeakerInternational Bodyshop Symposium (2011)
“LKQ is the worlds largest distributor of alternative aftermarket collision and in the US, it has transformed the market from 80% vehicle manufacturer parts to 80% alternative.
S S AhluwaliaChairman Eurocar Parts
Parts Market Summary
C60% of all OEM’s parts sales are accident related
Minimal signs of recovery in the economy
Registrations sticking below 2 million despite optimistic predictions by the SMMT
The accident market is controlled by the insurance companies
A need to protect the after market business particularly accident repairs
The manufacturers view of bodyshops:
“Its too dirty, too specialised and there's not enough profit”
“We don't really care about body and paint, because we sell the parts anyway”
The LCV Market – Key Drivers
The Car Market – Key Drivers
The University of Buckinghamshire, Report on Parts Profitability – Author Professor Peter Cooke
Conclusions
NSC’s and franchised dealers profitability is under attack in terms of new vehicle sales through oversupply and aggressive pricing
The historically highly and profitable parts aftermarket is also under threat from low cost substitutes and aggressive tactics used by insurance companies tight controls of routes to accident repair and profitability
NSC’s franchised dealers have the opportunity to protect their parts sales and profitability, build customer loyalty and retention though the use of franchise insurance programmes.
The University of Buckinghamshire, The Broad View Report – Author Professor Peter Cooke
Average age of vehicles in the parc is now 7.44 years
The University of Buckinghamshire, The Broad View Report – Author Professor Peter Cooke
Fewer younger cars in the vehicle parc poses a serious threat to service and bodyshop sales
Overhead Absorption
Falling overhead absorption is having a significant effect on dealer profitability
2007 2008 2009 2010 2011 20120.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
National Average
The University of Buckinghamshire, Report on Parts Profitability – Author Professor Peter Cooke
SWOT Analysis
Strengths
Weakness
SWOT Analysis
Opportunities
Threats
The Pressure exerted by Insurers at an Accident
Incident takes place and driver informs insurance company
Insurer will arrange for the vehicle to be moved to an “appropriate” bodyshop after viewing it on Google earth
Components will be chosen by the bodyshop, usually a “cheaper” version, to bring down the cost of the repair
Courtesy car will / may be provided by the insurer
Vehicle returned to the user
The Pressure exerted by Insurers at an Accident
Effects on NSC’s and Dealers
Loss of component sales
Loss of courtesy car and no possibility of comparison cars
Car write off – no possibility of a replacement sale
Loss of contact – effect on retention
The Pressure exerted by Insurers at an Accident
Clauses inserted by Insurance Companies
Penalties on choice of repair facilities
With c 60% of NSC / Dealer Parts Sales at Risk there is a Desperate Need for an Accident Management
Programme
Benefits to NSC’s and Dealers of a Strong and Supported Accident Management Programme
Repairs undertaken by dealer improving sales of labour
Repair carried out using genuine parts
Provision of a courtesy car
Chance to sell a replacement car after major accident
Helps retention
Protects brand reputation
More emphasis required on the 7 day cover note
Motor Insurers are Committed to cut the cost of repair
The trend to independents must be reversed