Scrappage - Papering over the cracks - Part II

">

Jerry Maguire has to be one of my favourite films of all time. The context is sport which I love, I am not afraid to admit to a man-crush on Tom Cruise and I have huge empathy for the business and human themes which are central to the plot.

'Less is more' should have been the mantra for the motor trade for the last twenty years but sadly corporate big wigs getting fat on the bonus culture have meant a chronic issue of over production.

Unfortunately for the people of motoring towns like Birmingham, Antwerp, Trollhatten and Luton (not to mention Detroit) this issue is now being addressed in a more violent way than anyone could have predicted with job culls in the thousands.

The glutenous nature of the business then manifests itself in retailers. Targets, stretch targets and ad-hoc incentives mean that the primary concern for any dealer is volume. Forget profit retention, forget customer service and quality of business, it is all about the numbers.

Please do not think this is purely a car sales issue. Parts and hours are as important as the very things that start it all off.

As a result the need for space is huge. Bigger showrooms and used car display areas, bigger car parks, more parts storage and administration space and a number of workshop and valeting bays. This leviathon cannot be in any old location, it needs to be in a retail viable space and most importantly, the site needs to be corporate. Manufacturers (most of the time) dictate the architect, builders, design and even the type of chairs you sit on.

To pay for this you need some serious money. The most extreme case is West London Audi which is owned by the Sytner group, no change from £45 million pounds. The majority of retailers are debt funded so are precariously placed when times are hard (as in 2008).

So with scrappage about to end, the question being floated about the trade is 'what are you doing post scrappage?' as though the trade will cease to exist. For some weak dealers this maybe the case.

Like the macro-economic issue of over production, I believe there are many core micro-economic issues that overshadow many franchised dealers ability to perform profitably.

I will deal with these issues on an individual basis in later blog postings.