I’ve thought long and hard about this and I have come to the conclusion that after 20 years in the business and having tried as many different ways to drive customer footfall and shift more metal than you can shake a stick at, here goes; Tesco will probably not be selling used cars this time next year.
A bold statement? Yes. Likely to happen? In my opinion, yes.
I don’t want to come across as some sort of car trade Luddite who believes traditional sales channels are the only way to go. Indeed I believe that the internet and how it’s used in the car business has greatly benefited both dealer and car buyer alike. I believe it has taken down many of the barriers that existed in the past and created a more transparent environment in which to conduct business and has empowered the customer like never before to educate themselves, both about the cars themselves and the car dealers who sell them. In fact one of the main reasons that MTI was born was out of the necessity to marry beautiful cars and advanced technology with happy engaged customers who clearly deserve great service and fair prices whilst allowing the dealers to maintain profitable businesses.
The problem I have with the Tesco model is that they have no real love or feel for selling cars. Selling cars is a unique business and so unlike any other form of retailing. The fact is that Tesco are trying to muscle in not to really sell cars in a more radical way which will improve the experience of the buyer and sell them cheaper cars but really to sell their financial products and use the brand loyalty created in their stores to increase their market share. But by using the emotiveness of a big ticket sale like a car they are forgetting that in their quest to sell financial products to car buyers the most important thing to those customers is in fact the car closely followed by the quality of the service.
As car dealers, whatever sales channel we use to retail cars, we all know we are competing on a fairly even platform in acquiring used stock and apart from the buying power of the larger retail groups and the supermarkets which can gain a small advantage we all know that it is in the interests of the industry that residual values are stable to protect customers investments. This is essential to continue the supply chain when all vendors are looking to maximise their investments when remarketing their cars on the wholesale market.
Other factors include new car sales numbers decreasing (see graphic below). In 2007 2,404,007 new cars were registered but in 2008 this declined by 11.3% to 2,131,795 and in 2009 by a further 6.4% to 1,994,999 units. Although figures picked up by 1.8% to 2,030,846 units in 2010 you can see why there is a problem sourcing decent 3 year old used car stock.
This obvious knock-on effect will also mean a lack of quality retailable cars to offer in the network far into the future. We have widely reported on the fact that dealers have had to adjust their buying criteria to continue attracting customers and even prestige suppliers who perhaps keep to 2 year old cars with 30k maximum mileage are expanding their criteria to include older higher mileage cars to help fill the void.
Ask any car dealer or trader and he will tell you that even in the darkest of trading conditions and when values are in freefall it is still very difficult to locate the “sure things” with the great spec, low mileage, desirable models and even when successful we still have to pay a premium to own them.
Why do Tesco think that they will be able to succeed in doing this when the rest of us are and have been doing this with mixed success for many years? Where will they be getting this stock cheaper and of better quality than the rest of us? How will they cope with the vital aftersales and customer care side of the transaction? Will customers be happy to be referred to a facility which may not be convenient for them to have their problems solved? And why would car makers and other vendors risk their relationship with the dealer network just for some short term gain derived from selling large volumes to Tesco for less than they can get from the rest of us?
There are of course those that believe with the deep pockets that Tesco has much like a Russian oligarch running a football club, they can just keep chucking money at it and eventually it will be a success. However there are companies which exist purely to retail new and used cars and repair them who find profitability increasingly hard to come by. On the other hand Tesco could hardly call investing a stake in a re-branded platform a serious foray into the market and is something that smacks more of a toe dipping exercise.
The Headline will read “Tesco withdraw gracefully from the used car market” and hopefully without burning through the £20m that Autoquake managed to.