IQ

Insight

Quarterly

Q4/2024

Life as a dealer is never easy, but 2025 looks like it may be one of the toughest years since at least the financial crisis. The pandemic was challenging, but thanks to widespread Government support and flexibility on the part of manufacturers (OEMs), it actually turned out to be the start of a more profitable period for most dealers. There will be no such help now, as Governments and OEMs are all under pressure.

That pressure is coming on multiple fronts. Electrification is now being forced through by regulation both in the UK and more widely across the EU from 2025. Potential retail customers who are currently in combustion engine cars are nervous about switching and a lot of fleet business is done through non-dealer channels. Cost pressures remain high due to wage costs, utilities and general inflation. The economic conditions in most markets remain quite weak, with low to moderate growth and some potential global shocks from the conflicts in Ukraine and the Middle East. Manufacturers are trying to address the twin needs of improving the omni-channel customer experience and cutting the cost of distribution through modifying the franchise model or launching agencies; either route putting more pressure on dealer margins. It’s not unreasonable to describe this as a minefield, given the multiple hazards and the uncertainty around precisely how and when they will impact your business as a dealer.

There is no way to avoid these challenges completely, with some solutions more evident in certain segments, brands and markets than others. Therefore, the smart thing to do is to prepare your business in a way that mitigates the risks so that the downside is more limited and there are some potential upsides. How successfully you address this in your business will determine whether you emerge on the winning side or risk becoming a casualty.

Over the last decade, ICDP has been tracking the top 50 European dealer groups, and there have been some dramatic changes as a result of both acquisition activity and organic growth. Greater scale has not necessarily generated a higher profit margin, but it has resulted in the average top 50 dealer group having grown revenue by almost twice the rate of new car price inflation, adding 50% more brands (including at least one Chinese brand in a third of the cases), more than doubling the number of franchise points, deepening their relationship with their OEM partners in terms of greater representation and at least in continental Europe, and branching out internationally. On a smaller scale, these trends are reflected in mid-size groups. Still, the effect for all is that due to the market and brand differences mentioned earlier, risk is mitigated, as not all will be affected equally and there will be both winners and losers. We, therefore, see placing multiple bets as a better option than leaving all your chips on a single number, as long as each position has scale (market or brand) and the post-acquisition integration captures all the savings potential that exists.

Operationally, with fewer opportunities in sales or aftersales, competition will be more intense. To the extent that OEMs restrict the opportunity to compete on price for new cars through squeezed margins or commissions, customers will be influenced by how dealers handle their enquiries, as price differences will be marginal. Data analytics are reducing the divergence in used car valuations when buying and in pricing when selling. Price (or more accurately, perceived value for money) has always been critical for aftersales decisions, but convenience and trust are also critical for most customers.

Across all these factors, the tough market in 2025 will demand process excellence. A faster, more personal response to a sales lead, providing customers with the guidance and support they want in their purchase decisions, more focused used car stock purchases and ensuring pricing is aligned with the market, and finding ways to improve the aftersales experience will all help win and retain business. Average process delivery will deliver average results, and in 2025 average might be a loss. Attention to detail – in processes and data – will win.