Are Tesco Cars here to stay?

There are strong rumours around that only into its second month of trading the Tesco car venture maybe having some “issues”.

Of course they wouldn’t be the first car dealer to find the going a little tough. But trying to get an ambitious new venture off the ground in perhaps the hardest trading conditions in the last 3 years is hard for anyone let alone a company which is completely green when it comes to the unique world of car sales.

‘Leave it to the experts’ was a popular reaction when seeking opinions on Tesco cars, and whilst most car dealers are never frightened of a bit of healthy competition it is true to say that many in the industry just can’t wait to see them fail.

The issue which perhaps troubles many people the most is that although Tesco are saying they source cars from a variety of outlets, it is assumed that this will mainly be motability who have the largest selection of 3 year old cars. As they are supported by car manufacturers and therefore have a policy of offering cars back to the dealer network first it seems to us that the best that Tesco can get are the cars that ‘miss the boat’. These are what they would normally put through an open auction because they are not of the right quality to go through the franchised network. So Tesco Cars customers are potentially being offered someone else’s cast offs. Why buy a car from Tesco when there are thousands of car retailers set up and committed to selling the best quality cars from vendors who they have spent many years building a business relationship with and have access to the cream of the crop and are quite willing to pay the correct market price?

Unlike the suppliers that Tesco generally deal with who have to basically dance to their tune, rental companies and other vendors need to achieve certain residuals in order for their business model to work, You can just imagine Tesco saying “OK car rental company you have 100 cars to sell we will pay you a fraction of the market price and pay you in 2 months time because we are Tesco”. You can imagine the car rental company response.

Tesco have claimed their first month of trading was a big success with their new website receiving over half a million visitors. Tesco also claim that the ‘positive response from consumers’ has been matched by ‘accelerated dialogue’ with fleets, manufacturers and dealer groups looking to harness the site as a sales channel. Chairman Sir Trevor Chinn said he doesn’t want to start a price war “We’re realistic about sales, how competitive our pricing is, and we’re honest in delivering for both the consumer and our motor industry partners.”

Sir Trevor also went on to say “We have a unique opportunity thanks to the very loyal 16m customers of the brand. That opportunity is not only recognised by our historic partners but the new ones joining us all the time,” and there they are right there, the words that should inform every established car dealer exactly what they are up against, “16m customers”. Not only that but add into the mix Tesco’s advanced customer data mining and intelligence and deep, deep pockets and you have quite a formidable opponent on your hands.

However there are already stories of allegedly disgruntled customers who have been promised cars which they have reserved only to be told that the car is no longer available and offered alternatives which are not what the customer wants. This is compounded by a lack of communication when trying to get the issues resolved.

Of course there will always be teething problems and they have got to be given a chance to iron the issues out, however unless they are prepared to flex their financial firepower and actually make a compelling case to sellers of the value of bulk buying equals big discounts, then they will be competing on an even playing field and they will probably find that they have neither the appetite nor the expertise or the contacts to enable this to happen.

As a buyer for a large dealer group told us; “there is not enough stock about in the long term and we are all chasing the same kind of models which keeps the prices steady and affords the vendors time to be able to sell steadily to the dealer network and to stabilise prices and if Tesco want to get involved they are the conditions which they will face and trying to do that and make a decent margin will present difficulties to say the least”.

Let’s not forget that Tesco Cars is essentially only the old Carsite operation re-badged as it were so any “issues” now being faced shouldn’t really have much to do with the name above the door.

Of course the popular opinion is that Tesco are only really in it to sell the add-ons but with many more customers opting for PCP’s and dealers having subsidised finance rates because they are predominantly car sellers it is really fascinating to see how Tesco can really make a go of this.

They might very well slowly distance themselves from the business as they find it tougher going than they anticipated or they might change the face of car sales all together. Time, as they say will tell.