Unlocking ‘the promise of information technology’ is a key factor in improving dealer group profitability over the next five years as macro-economic factors and market competition look set to constrain growth in return on sales.
Yet while technological developments are promising to bring efficiencies it is vital for dealer groups to first review their processes and people before buying into new solutions, so that it is clear how technology will make them more efficient.
Auto Trader commissioned renowned US automotive researcher Glenn Mercer to conduct an in-depth study of more than 80 franchised dealers in the UK – one key finding was a general consensus that RoS will remain flat at 1.5-2% in the years ahead.
Unlocking ‘the promise of information technology’ is a key factor in improving dealer group profitability over the next five years as macro-economic factors and market competition look set to constrain growth in return on sales.
Yet while technological developments are promising to bring efficiencies it is vital for dealer groups to first review their processes and people before buying into new solutions, so that it is clear how technology will make them more efficient.
Auto Trader commissioned renowned US automotive researcher Glenn Mercer to conduct an in-depth study of more than 80 franchised dealers in the UK – one key finding was a general consensus that RoS will remain flat at 1.5-2% in the years ahead.
At Auto Trader’s recent Road Ahead For Automotive Retail conference in London, Mercer showed that he had determined that, due to low growth in sales volumes and intense competition for well-informed customers, UK dealers have limited opportunity to grow profits by selling more, and that means they must ‘out-retail’ their competition, through developing operational excellence, to strengthen the bottom line.
That’s clearly a better option than to ‘out-deal’ rivals and drive industry profitability downwards, he said.
Dealer groups must improve their productivity, and Mercer’s research identified five areas of focus for time- and resource-constrained motor retailers.
Retention – as the number of new car brands grows in the UK all dealerships must hone their processes to ensure they keep their customers for longer, through the service experience, early finance renewals, optimised stock management and excellent sales practices.
Cost reduction – standardising processes and automating elements where possible can help to combat the rising payroll bill, which is one of the biggest costs for the business, through reductions in headcount or replacing leavers with more junior staff that are supported by technology.
OEM encroachment – franchised dealerships are finding it increasingly difficult to innovate as the car brands have stronger input in all aspects of the business, plus there is the challenge of identifying which brands will succeed in the years ahead.
Scale – growing in scale does allow the group generate cash to afford the investments in assets and people required to combat the rising cost base, such as through centralised stock preparation, pooled back-office facilities and multi-franchising.
IT – it has huge potential but few are getting the most from it, and to make it work well groups must look at how they re-engineer their workflows and integrate it better.
Mercer’s study identified that the dealer groups achieving operational excellence could turn that ROS to almost 4%.
“Where we go from here, across these five themes, is how we operationalise them through key performance indicators. KPIs help you understand how your business works.
“I don’t know of any other retail business more complex than automotive retailing. You’re doing all these businesses under one roof. They’re very hard to manage. So digging into how it’s actually working is crucial of course, and it helps time-starved managers to keep on top of this complex business.”
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