Time to start preparing the post-Covid blueprint for dealer networks?

Whilst the most important question on business agendas at the moment is undoubtedly how business will develop in the coming months, it seems fairly certain that the recovery will not be immediate.  New car sales will see the greatest impact affected by both reduced consumer confidence and significantly lower business demand.  Used car performance will vary by segment, with stronger demand for small city commuting cars, and less demand in higher price segments.  Aftersales will be less affected, but more commuting miles are unlikely to compensate for a reduction in business travel.  This will affect both repair and maintenance, and to a greater extent crash repair.  Although it is impossible to quantify the outcome now, it is arguably the right time to plan for the shape of sales and aftersales networks, right-sized for the new normal, but also incorporating some of the processes that have found favour during the Covid restrictions.

Despite the support offered by governments, banks, manufacturers and other suppliers, businesses across the sector have been weakened by the crisis.  An extended recovery will exacerbate any weaknesses, and in the distribution area of the business will mainly affect car sales for franchised dealers and used car specialists, but also for other players such as leasing companies and brokers.  At this stage, we cannot be specific about which brands, models or segments will be most affected, and whether this will be positive or negative, but it looks likely that some new cars will be in short supply, whilst others will be pushed into the market.  The used car market will suffer a similar spread of over and under-supply, for example as young daily rental models come onto the market, whilst older city cars may rise in value as demand outstrips supply.  Anyone involved in the used car market will need to be agile, manage inventories tightly, and be willing to re-price regularly to maintain the stock velocity.  Lease companies will be exposed to this through their defleet actions, and it may make more sense for them to extend leases than face immediate losses.

In the case of franchised dealers, some were only marginally profitable before Covid, and faced with two to three months of business disruption and higher operating costs and lower volumes for potentially another one or two years, most will need to make at least some adjustments.  This will at least include staff numbers and other operating costs, but for groups could also include reviewing the brands represented and the role of specific sites.  Some individual dealers will also decide that they are unwilling or unable to wait for a recovery and will sell or close their business.  In combination, these will create a growing number of network open points for OEMs, which in normal times would trigger an automatic response to find a new investor.

In parallel, we have seen widespread adoption of online channels to conduct more car purchase research, and to place deposits or complete purchases where the functionality is available.  In a BBC interview this morning, Robert Forrester of Vertu reported that they sold 650 cars online last week.  He did not elaborate on the new:used mix or how many were fully completed online, but this volume equates to around 40% of their used car volume, so is clearly significant.  Any shift on this scale presents opportunities to reduce selling costs, through a lower investment in traditional sites and reduced headcount in those locations, whilst boosting investment and headcount in the online channel and central support staff.   Whilst there are some additional challenges around online sales of new cars – primarily competitive pricing and more significant distance selling risk on a new car, the same opportunities exist at the OEM level to strengthen their online presence, generating leads and sales for their networks.

Faced with the negative of likely dealer failures, closures and franchise resignations and the positive opportunity of added impetus to online channels potentially reducing network fixed costs, OEMs should not defer network planning as a short term cost cutting measure.  The risks of taking knee-jerk decisions to fill open points as they emerge on a like for like basis, or failing to make adjustments that reinforce and support new buying behaviours, are significant.  By not having the blueprint available providing the framework against which such decisions can be made, structural cost will be retained and a competitive disadvantage locked in.