United Kingdom
The New Normal? - Steve Le Bas
Motor retail industry sees turnover rise but profits fall
Trading conditions certainly remain difficult in the motor retail market against a background of general uncertainty in the UK economy. The UK new car market reduced by 4% to 1.9m units in 2011 and total registrations were at their lowest since 1994. However, recent figures released for 2012 show that the market is back on track and, perhaps unsurprisingly given the difficulties in the Eurozone, the UK is set to be the second largest new car market in Europe.
In the third annual Motor 150 report we reveal the aggregated performance of the top 150 motor retailers in UK. We look at the sector’s performance through 2011 into 2012 in light of the economic challenges and the future dynamics of the motor retailing industry.
The overall turnover for the top 150 UK motor manufacturers in the industry was up by 2%, increasing by £800m to £40.7bn, but reductions in gross margins resulted in a fall in operating profit of £96m to £549m. More than two thirds of the group produced lower profits than last year, with 25 making a loss compared to only 11 last year.
Companies reporting a strong year referred to their internet presence and investment in staff training and development as important differentiators.
The long-term issue for dealerships is that whilst costs have been cut, balance sheets strengthened and profits stabilised, it is questionable how much further this process can usefully go. The next round of cost cutting is going to be harder, will most likely impact profits and could prove difficult to implement at a time when manufacturers are again increasing their demands on standards and facilities required to operate their franchises. In addition, there is evidence of a gap opening up between those businesses who can adapt to the new market conditions and those that risk being stuck in a chase to the bottom as they fight over static demand and falling margins. The bigger companies in the Motor 150 are making more profit – this report shows the top ten contributed 52% of operating profit compared to 43% in the prior year. Given this outlook it is important that dealerships focus less on “getting back to normal” and more on adapting to the current economy – they need to accept that any material bounce back is unlikely and take appropriate actions for the “new normal”.
Key areas of focus for motor retailers should be to build longer term relationships with their customers, keep close to their manufacturers and their long-term UK strategies, build their own brand alongside that of the manufacturers and develop their e-commerce approach to be highly effective in attracting, converting and retaining customers. Attracting, rewarding and retaining the best people is also important.
Steve le Bas is part of the BDO Motor Retail Team. For more information contact him on 023 8088 1906 or steve.lebas@bdo.co.uk