Margins under pressure this year say independent dealers

Independents in the second-hand car and van market face a triple challenge this year which will squeeze margins and make it difficult to grow profits this year compared to last.

In its annual ‘State of the Nation’ survey of both franchised and independent retailers, Cox Automotive says that used car dealers will battle three interlinked issues during 2020: competition for retail-ready used stock with the franchised sector, no room to get economies of scale, and increased third-party and aftermarket costs.

Although not new problems themselves, Cox says many dealers it spoke to expect them to become more significant as the year unfolds. Philip Nothard, Customer Insight and Strategy Director said:

“Dealer part exchanges are not making it to the auction halls quite so often and we’re seeing more consumers selling, rather than part exchanging, their old car before buying new – or even used because the wait times are often long. Overall, this is likely to push dealers, particularly independents, into a position later in the year where good quality used stock at reasonable prices becomes harder to acquire.”

One dealer, David Bilsborough, who owns and manages Cheshire Cars, backed this up, adding:

“Margin stability is dependent on the supply and demand of the used car market. The increasing age and mileage due to retention has a direct impact of reconditioning costs and therefore profitability. In a market of ‘price indicators’, retail competitiveness is ever increasing.”

Cost of servicing and individual components continues to increase

Although there is plenty of restructuring of networks in the franchised sector to squeeze greater efficiencies from the properties and staff, independents don’t have that flexibility or room to manoeuvre.  Phil said:

“It isn’t a new phenomenon, but the lack of shared resource and multi-site cost sharing will likely present even more of a challenge for independents in the coming 12 months, as other external pressures start to bite.”

Turning to third-party costs, Cox says that growing demand for out-of-business services and aftermarket repairs is forcing a rise in costs for independents. Mr Nothard said:

“With cars becoming increasingly complex and reliant on technology, the cost of servicing and individual components continues to increase. This is likely to disproportionately affect the independent sector, leading to higher pressure on margins, delays in securing ‘retail-ready’ stock and a reduction in ROI.”

There is a fourth challenge to come this year which will affect every dealership, franchised or independent, which is the FCA’s new rules on Discretionary Commission, which is due this spring. Cox said:

“Whatever the specific outcome, it is clear some dealers will need to rethink their finance model. Transparency in commission disclosure, the reduction in types of acceptable commission and the banning of commission linked to interest rates will all have an impact.”

If you’d like to find out more about how Click Dealer can support your business, then please get in touch with us on 01782 478 220 or by email using marketing@clickdealer.co.uk