Short-term chaos – long-term strategy?
Is the United Kingdom in a period of serious, planned economic
change, or simply in the middle of a period of loss of political
credibility and economic chaos? Politicians, luckily for them, have
attractive pensions and even more attractive allowances on which to
rely while corporate Britain scratches its fevered brow searching
for a profitable way ahead.
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The issue for dealers and their finance providers is that the
economy may have been hit by ‘the perfect storm’. Once it would
have been called ‘economic incompetence’, but apparently in the
post spin-doctorial era such a slur is unacceptable, in case the
government is blamed. However, we are not playing blame
management.
First, one might consider the credit crunch – a virtual shutdown
of the usual sources of institutional borrowing as a result of
overenthusiastic, bonus-linked sub-prime lending. As a result of
their lending fecundity, financial institutions are now seeking
über-risk management on borrowings and saying ‘no’ to anything with
less than ‘belts and braces’ security status until they have
rebuilt their balance sheets.
The upshot is a shortage of bank-sourced funds for prospects to
buy new or used cars, meaning that would-be car buyers are finding
it much harder to borrow from a bank to acquire a car. Captive
OEMs’ finance houses will lend very attractively on new cars – but
used cars can be a different matter.
US Tariffs are shifting - will you react or anticipate?
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By GlobalDataMaybe the challenge for dealers and used car specialists is to
rebuild point of sale (PoS) finance programmes. Such sources could
enable dealers to introduce prospects to PoS providers which, in
turn, would give a rapid response if the credit risk is
acceptable.
Once PoS arrangements are in place, no prospect should even be
given a cup of tea or brochure without it being accompanied by a
quote for point of sale funding. Point of sale finance works for
used cars as well as new and can be critical to win a deal. How
strong is your point of sale finance programme?
Play to your strengths
Fuel prices have gone through the roof. At the time of writing
there is little or no sign of government alleviating the situation
– it only has money for smaller embarrassments – but the
incremental fuel tax revenue is worth the poor PR. Given a high
fuel price, perhaps the dealer should focus on small cars, offer
economical driving lessons with every new car, or some similar
activity to turn a negative into a benefit.
Residual values too are suffering because of short term business
instability, escalating fuel price and apparently poorly
thought-through retrospective VED changes. Dealer focus may be to
offer lowest possible residuals. Poor residual offerings, like
falling house prices, may discourage owners from changing. The
forward-thinking dealer may look further down the vehicle sales
chain and plan an integrated residual value/used car stocking
policy. That, in turn, may mean a strict ‘appraise and out’ policy
of putting units which don’t fit the dealer’s strict used car
stocking needs straight to auction.
Short term chaos or instability in the used car sector means the
dealer needs to plan target markets and be ruthless about anything
that does not fit those criteria.
Perhaps the biggest strategic concern arising from short term
chaos is inflation. Will we have it? How might it reflect in the
automotive marketplace?
A classical definition of inflation has been too much money
chasing too few goods. This time around, inflation is more likely
to be externally cost-driven, in which input costs – oil, energy,
raw materials and food – are pushed up, either by speculators
looking to make a short term profit or exogenous demand, as our
former chancellor might have it. Either way, goods and services are
becoming significantly more expensive.
Dealer implications? Aggressive review of business practices and
processes to squeeze cost and inefficiencies out of the dealership
– what processes can be abolished.
Motor Finance Issue: 44 – June 08
Published for the web: June 26 08 10:32
Last Updated: June 26 08 15:23
