“Five over five” – used car strategic developments
My blog is a little late this week, as we had the great excitement of a face-to-face workshop open to our ICDP Research Programme members yesterday, our first physical meeting since January 2020. We were a little nervous about whether members would be able and willing to travel after so many months of restrictions, travel budget cuts and Zoom calls, but the outcome was in line with our hopes. We had a good range of companies represented ranging through OEMs, dealers, online disruptors, listing platforms and service providers, coming from five countries, and active across many more. This gave us a diverse range of experience and knowledge which facilitated a great discussion that you can never replicate in a Zoom call. In the words of one of the delegates, “the content was very insightful and it was useful to exchange views with other participants bringing different perspectives.” Putting it another way, given that we held the event at the Brooklands Motor Museum, the guest policy from the racing heyday of Brooklands would also apply – “the right crowd and no crowding.”
In the research – the details of which are exclusively for members of the research programme – we focused on the strategic changes in the used car sector, rather than the immediate challenges of finding stock and managing pricing. We looked at the size and structure of various European markets, the range of retail formats, including those launched by the likes of Autohero, Cazoo and cinch and what we described as the industrialisation of operational processes, largely as the result of better data availability and the digitalisation of processes. We concluded with what we described as “five over five” – five key developments that we expect to emerge over the next five years, but where current and prospective players in the market, need to take action now if they are going to win an increasingly competitive market.
The first of these is the likely emergence of both regional leaders and local heroes. The advantages of scale are increasing, and whilst the European market is highly fragmented with significant local differences, larger players in the main markets or operating across a cluster of smaller markets will be able to use their scale to achieve benefits in sourcing, preparation and marketing. However this will not eliminate the potential for smaller players to retain a position as local heroes if they up their game.
A key element of how they can up their game is reflected in the second point that a growing number of companies are providing services as an outsource or partnership option to those who are interested. This includes the application of data analytics to help steer active sourcing, valuations and pricing, operational services such as preparation and logistics and value added protects like finance and insurance. These all allow a smaller player to achieve ‘virtual scale’.
Because not everyone will follow these first two options, we expect the gap to open up between the leaders and the laggards. Looking back at our 2015 used car deep dive, many of the messages then still apply now, because there are still used car retailers who have not focused on used car business improvement or have done so less effectively than others. Unless used cars is adopted as a key focus of the business, the gap will continue to widen, threatening the continued survival of the laggards, particularly as pressures mount in other business areas.
As the used car business becomes more digitalised, drawing on the same or similar data sources, we expect this to drive a convergence across different players of buying and selling prices. Fewer people will be applying ‘experience and judgement’ without an underlying data-driven recommendation. The harmonisation will narrow the spread between average buying and selling prices, compressing margins and making it even more important to be operationally efficient in order to protect the bottom line.
Our fifth and final development relates to cultural change. The centralisation of decision-making and capabilities is necessary in order to have the appropriate scale and be able to invest in the people, facilities and tools. However, this runs counter to the typical dealer culture (franchised or independent) which is about empowerment of local management, and delegation of authority. When cars are sourced, valued, prepared, priced and marketed centrally, what is the role of the local team, and are they the same people as we have today?
In an environment where there are growing challenges in new cars because of electrification and changes in retail agreements and formats, and in aftersales because of structural decline in the market size, used cars offers an opportunity to push forward. Taking on board the “five over five” agenda will provide participants of all types the best chance of being a winner.