Lead times lead to confusion

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The fact that many car makers are struggling to supply new cars within an acceptable time frame is causing real concern for many dealers and they are losing customers to rival brands as a result.

Even the ultra efficient Germans BMW, Audi and VW are being affected along with many others and sales personnel now have the unenviable task of trying to explain to potential buyers that they may not see their new car for half a year!

A problem facing sales managers and causing confusion for customers is the valuing of one or two year old trade-ins or a premium brand where the depreciation is much more difficult to predict but where a car is likely to lose larger chunks of money.

It is hard enough to value a car like this if its 2 or 3 months down the line but having to try and predict what a car might be worth in 6 months time and do it in a way which still enables the buyer to have confidence in the deal is almost impossible.

In this type of time frame and in an uncertain market, much like the one we have experienced over the last 2 years, certain cars could depreciate by as much as 15-20% and if the sales manager gets it wrong it could mean selling a new car for zero profit which of course is not very good for business.

On the other hand by being too cautious and trying to protect his margin he could scare the customer off and lose the sale. Many dealers when faced with an extended lead time will inform the customer that he will depreciate their current car by whatever the guide says over the period of time. This will generally be around 2% per month subject to certain parameters and if a customer has ordered a bespoke model he will often be happy to do that at least being fully aware of what the financial commitment will be.

But the current lead times are presenting significant issues, which could lead to buyers facing the threat of not being able to afford to proceed with a purchase they agreed 6 months prior due to the shortfall in the changeover figure on their new car.

Hopefully dealers and buyers can communicate effectively so as not to case any bad feeling and continue to do business, but unless the situation improves suddenly then it’s going to be a rocky few months.

With VAT set to increase next year there looks certain to be some delicate negations going on in the world of car retailing!