Death of the sales­man looks a done deal as new ve­hi­cle sales plum­met

The rise of on­line re­tail­ers like Ca­zoo and the im­pact of the pan­demic has been a body blow, writes Tim Kiek

The Daily Telegraph - Business - - Business -

The Covid-19 cri­sis has driven the UK’s 4,500-strong fran­chised car dealer net­work to a Dar­winian junc­tion: adapt to sur­vive or risk ex­tinc­tion. Car deal­er­ships have been open to process sales since early June but de­mand to splash out on big-ticket pur­chases has plum­meted as the UK en­ters a huge re­ces­sion.

The So­ci­ety of Mo­tor Man­u­fac­tur­ers and Traders has pre­dicted a 27pc fall in new car sales this year, mak­ing it the worst year since 1993.

Mean­while deal­ers are look­ing to save costs where pos­si­ble.

Look­ers, one of the UK’s big­gest listed deal­er­ships, has an­nounced plans to shed 1,500 staff – al­most a fifth of its work­force – and close 12 sites as sales crash due to coro­n­avirus.

Even be­fore Covid, the sec­tor was grap­pling with the chal­lenge posed by the shift to on­line.

If car deal­ers need to adapt to sur­vive, what will the dealer of the fu­ture look like?

A clue lies in the form of Ca­zoo – an on­line re­tailer of used ve­hi­cles that only launched six months ago. Dur­ing this pe­riod it has clocked up an im­pres­sive £50m in rev­enue and reached a “uni­corn” $1bn (£790m) val­u­a­tion last month.

Its boss is Zoopla founder Alex Ch­ester­man, no stranger to spy­ing op­por­tu­ni­ties to shift ana­logue in­dus­tries on­line.

“[Au­to­mo­tive] is the big­gest re­tail mar­ket in the coun­try,” Ch­ester­man says. “Used cars alone are worth over £50bn a year, and yet the in­dus­try hadn’t tran­si­tioned at all to on­line.”

He puts this down to the as­sump­tion that hefty price points would act as a bar­rier but ar­gues that other in­dus­tries have shown such think­ing to be mis­placed.

“Peo­ple said it about fash­ion 10 years ago; it was said about fur­ni­ture. But a pro­por­tion of cus­tomers will want to trans­act in a dig­i­tal, con­ve­nient and trans­par­ent way. That’s why we started Ca­zoo.”

The com­pany dis­penses with test drives and in­stead of­fers a seven-day, full money-back guar­an­tee. It also prom­ises that the ad­ver­tised fixed price is the very best pos­si­ble, thus ob­vi­at­ing the need to hag­gle.

Ch­ester­man is scathing of the ar­bi­trage model that is the bedrock of dealer car sales: “On the same day, in the same ge­o­graph­i­cal area, the price for the same car can be worse for a cus­tomer de­pend­ing on their ne­go­ti­a­tion abil­ity.

“So if you and I go to a dealer to­day to get the same car, we may not get the same deal.”

He notes also that “it’s very coun­ter­in­tu­itive that the be­gin­ning of that re­la­tion­ship [be­tween buyer and seller] would ef­fec­tively be an ar­gu­ment”.

The on­line co­nun­drum

This bel­li­cose talk doesn’t mean Ch­ester­man is pre­sag­ing the end of the dealer, how­ever. He be­lieves the tra­di­tional and on­line ap­proaches can co-ex­ist “in­cred­i­bly well”, and sees Ca­zoo less as an ad­ver­sary and more just an­other com­peti­tor.

“Will car sales tran­si­tion from 100pc off­line to 100pc on­line? Not a chance.”

Ch­ester­man is pre­dict­ing a 10-15pc mar­ket share for on­line sales in the next five years if au­to­mo­tive fol­lows the tra­jec­tory of other in­dus­tries.

An­drew Burn, head of au­to­mo­tive at KPMG, is also pre­dict­ing a “step change” to on­line.

“A num­ber of deal­er­ship groups have been try­ing to tran­si­tion to in­ter­net sales mod­els … the de­vel­op­ment of the likes of Ca­zoo, and the in­vest­ment it has had, shows there is a clear ap­petite in this area.”

Burn is san­guine about dealer prospects in an era of greater e-com­merce, point­ing out that on­line “in­creases the mar­ket of who you sell to”. He does ac­knowl­edge, though, that the trend to con­sol­i­da­tion and broad­ened sales mar­kets will lead to a “thin­ning out of deal­er­ships” and fewer jobs.

Ex­panded hori­zons are also a dou­ble-edged sword, ac­cord­ing to Burn, as “you lose the con­nec­tion with the cus­tomer and abil­ity to get the af­ter­sales”.

This par­a­digm al­ready ex­ists, most no­tably in the car buying com­par­i­son site Car­wow, where mo­torists en­ter de­tails of the car they are look­ing for and par­tic­i­pat­ing deal­ers bid for their cus­tom.

The Car­wow model can be viewed as a bridge be­tween the old and new; Ca­zoo’s model, how­ever, com­pletely cir­cum­vents the dealer. Ch­ester­man says he is con­tent to re­main in the used car mar­ket but his firm’s re­mark­able per­for­mance will not be go­ing un­no­ticed by ve­hi­cle man­u­fac­tur­ers.

Justin O’Brien, chair­man of Sur­rey Busi­ness School, sees on­line sales as a clear and present dan­ger to bricks and mor­tar re­tail. “Deal­ers sell­ing new cars are very quickly go­ing to be a done deal,” he says. O’Brien points to

Volk­swa­gen, which in May an­nounced it was tran­si­tion­ing sales of its all-elec­tric ID mar­que to a di­rect-to-cus­tomer agency model. Cus­tomers will choose their pre­ferred dealer/agent at the out­set, which will or­gan­ise the test drives, process the trans­ac­tion and arrange the han­dover.

The dealer does not sell the ve­hi­cle, how­ever, as the price is set by Volk­swa­gen. The agent re­ceives a com­mis­sion from Volk­swa­gen for fa­cil­i­tat­ing this ser­vice.

With­out con­trol of price ne­go­ti­a­tion, and with the pri­mary cus­tomer re­la­tion­ship cen­tralised, deal­ers are left with­out agency.

The model also leaves deal­ers lum­bered with ex­pen­sive re­tail space

‘On the same day the price for the same car can be worse de­pend­ing on a per­son’s ne­go­ti­a­tion abil­ity’

‘Buying on­line you lose the con­nec­tion with the cus­tomer and the abil­ity to get the af­ter­sales’

in­trin­si­cally tied to new car sales – yet no longer sell­ing the cars. In ef­fect they will be­come de facto ser­vic­ing hubs, ar­gues O’Brien, whose im­por­tance (and abil­ity to make a profit) will only kick in af­ter three years when the an­nual MOT cy­cle be­gins.

Even then, a hun­gry in­de­pen­dent garage net­work will be wait­ing to bat­tle deal­ers for cus­tom at every turn – usu­ally at sig­nif­i­cantly cheaper rates.

KPMG’s Burn be­lieves dealer chiefs would be wise to fol­low a “hub and spoke” model, with just a few main sites cen­tred strate­gi­cally around tran­sit hubs and a large net­work of smaller branches to ful­fil ser­vic­ing needs.

“Large deal­ers will in­creas­ingly try and mimic dig­i­tal dis­rupters,” O’Brien sug­gests.

“The in­crease in peo­ple us­ing Zoom for ex­am­ple means that sell­ing can be­come in­creas­ingly tech­nol­o­gised.”

The age of agency

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