Relatively easy to find a new product
niche?

Peter Cooke argues that it is time that lenders devised a
credit arrangement for all the family
 
 
 

The world is changing quickly. So is the automotive industry –
but are dealers, finance houses, insurance providers and used car
providers?

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The UK motor trade is currently oversupplied with product of
every type. There are more new and used cars in the mature market
than we have seen for some time, hence there are steady discounts,
either on the new cars or on finance packages to make them
move.

Social changes need addressing

Markets have evolved and, given changes in the demographic
structure of the country, there is a new phenomenon developing in
the UK – ‘the stay at home family’. Our Italian friends have had
the situation for several generations whereby sons in particular do
not leave home until they get married – or later. No wonder – free
food, a cleaned room, the washing done if mama is treated
properly.

Something parallel is happening in the UK but, allegedly for
different reasons. The growth in higher and further education, now
moving towards half the post A-level generation, problems of
getting on the housing ladder, as well as mother’s laundry and
culinary skills mean there is a new generation of stay-at-homes
into their early twenties and beyond. Add that generation to a
growing number of 17-year olds passing their driving tests and
having either their own, or their parents’ financial support to buy
a car – and, one might argue, there is a new developing market –
the ‘family fleet’.

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Sharing is uncool

Look around the area where you live. How many of those
properties have two, three, four or more cars parked in the drive
or on the road outside, belonging to members of a single
household?

Make a quick analysis: commonly there may be the ‘principal car’
in the family – quite often a company car. The second member of the
household may also receive a company car, otherwise they might buy
a useful runabout to reflect interests or lifestyle. In some
households that may be a new car, otherwise a used vehicle.

If there are older children then each of them may well have a
car of their own.  If they are going to college or university
– or have a job – college or an employment location may be some way
away. The fortunate few may have direct rail, bus or coach links,
but it is the exception rather than the rule. Personal mobility may
take precedence over road congestion or green credentials, and car
sharing is so ‘uncool’.

While one car in the household may be provided by a company,
generally the other vehicles are provided by the household itself,
commonly bought individually, financed separately and individually
insured. Insurance is now starting to be shared within a single
family umbrella policy, with each member having their own no claims
bonus. 

The family fleet

There is an opportunity for the entrepreneurial dealer to create
a new type of consolidated business – ‘the family fleet’. Do the
parents really want their children to buy the cheapest old welded
banger to take them to and from college – or pay extortionate rates
for finance or insurance because they do not have a credit
record?

Enter the entrepreneurial, lateral thinking dealer with the
‘family fleet’ – perhaps using a parent’s credit rating for a loan
for the family cars. Chances are that mum or dad’s credit rating is
better than members of the family so why not create an ‘envelope
deal’ and allow him/her to act as the family debt collector to
gather the necessary sums from the kids, then pass that money on to
the dealer? Exactly the same argument could be put forward for
insurance and other purchased services.

The options

While there may be an emerging market in terms of the family
fleet, the dealer still has to work to generate the market. There
are several elements to be considered:

  • Exactly who is the target market?  There could be an
    identifiable sector for the second car in the household but the
    user may become more ‘car savvy’ and look to change more often than
    previously.
  • Maybe for the children, smaller, fashionable, yet older,
    affordable and reliable cars will be in demand. This is a segment
    with a real opportunity for regular repeat business. That takes us
    to a second issue – for the younger members of the family at
    university there are three vacations a year; could each of those
    vacations represent a peak sales period with the junior members
    seeking to upgrade? Maybe there will be a need to establish a new
    supply chain to stock the most appropriate cars – an auction link
    perhaps?
  •  The dealer also needs to put in place the requisite
    financial package for multiple purchases and with the option to
    change those vehicles. Not as difficult as it might sound but some
    research may be necessary.
  •  The dealer will also need to determine a strict policy on
    the use of the finance package – and the associated audit trail and
    the issues associated with change and authorisation. Essentially
    this is a fleet funding package.
  •  It will be necessary for dealers to market their ‘family
    fleet packages’ – that may require a focused marketing programme,
    perhaps directed at the main guarantor, perhaps at the
    children.
  • It might also be beneficial to have a member of the sales team
    with responsibility for developing the sector.

 

The strategic message is clear. Take the commodity product, in
this case the used car; create a new market segment, in this case
the multiple buyer family; target these families with a specific
product and the wherewithal, i.e. umbrella finance, to enable them
to buy what they require, and the market will be boosted by
encouraging regular change. The market is not there for every
dealer but it exists for many – if you identify it. 

 

Peter Cooke is KPMG Professor of Automotive Management,
University of Buckingham