Where would you put your own money?
As a little bit of fun before the holiday break I asked readers of this blog to consider where they would invest their own money if you were fortunate enough to win the euro millions and had the odd €200 million sitting in the bank. I provided a number of options, some more serious than others, and also gave respondents the opportunity to put forward their own ideas. The results are now in which I'm happy to share, and beyond that consider what the implications are in terms of a possible indicator of how industry insiders view our future.
The options I offered catered for a couple bets on electrification, something which might appeal to the enthusiast, and both traditional and disruptive options in retail. They seemed to cater for most choices as the responses suggesting other options redirected an enthusiast’s bid from Indianapolis to the Nurburgring and the disruptive option from used car retail to an online parts store. The three leading choices actually covered each of the three broad options with the favoured choice – capturing half the votes – being to buy the Pendragon dealer group in the UK. Behind this, the fact that most people in the industry are also car lovers is shown by a strong vote in favour of buying the Mercedes-Benz 300 SLR Uhlenhaut, with the final podium place taken by the purchase of an EV charging network such as Pod Point in the UK which met our target budget.
The strong support for Pendragon as a home for your lottery winnings reminded me of a comment made to me many years ago by a Spanish colleague who asked how you could make a small fortune in the motor industry, to which the response was start with a big fortune and buy a dealer group. Given all the pressures on automotive retail including the general economic outlook, the move to digitalisation of retail, restructuring of networks, transition to agency and longer-term questions around the impact of electrification on dealer profits, you might consider that buying a dealer group is a sure-fire way to end up losing your lottery winnings. However, I do not think that the choice is such a bad one.
If we consider the retail sector in general then it is the firm view of ICDP that most manufacturers will still want some form of physical representation managed by third party investors for years to come. This reflects both the opportunity to spread the capital investment requirements and the operational reality that manufacturers are not well equipped to manage many hundreds or thousands of individual sites dealing in micro transactions across Europe. We have yet to see how well the manufacturers will cope with their responsibilities under agency, where in principle they should at least be handling certain aspects of every individual retail sale but it is certainly possible that some of this responsibility if not the commercial risk will still end up with the operators of the retail sites as bought in services.
Looking at Pendragon specifically, then all the raw material to be a successful retailer in the future appears to be there, even if in the short term it has lost its way, now reflected in the current share price. The group is still firmly in the European Top 10 with turnover in excess of €4 billion, selling over 150,000 cars annually and holding 20 franchises with 149 franchise points. Beyond that they were early pioneers in omni-channel retail, partially helped by their ownership of the independently successful Pinewood dealer systems business. They have a significant fleet and leasing business, a parts business and tried but withdrew from international expansion in the Netherlands and the US. They also had a 300 strong central operations team supporting online sales and other activities at a time when most other groups were still strongly dealership based. If anything I would argue that strategically Pendragon have been ahead of the curve but implementation has been flawed in some areas.
It's not the place to invest €200 million, then sit back on the beach in the Caribbean waiting for the returns to flow in. It's a business that requires hands on management in order to restore positive momentum and improve relationships with customers, staff, and manufacturer partners. However given the options of taking on Pendragon and putting in some hard work versus finding a profitable business model for Cazoo or being able to look at the Mercedes Gullwing but not dare to drive it, then I would follow the Pendragon vote like the majority of the readers.
Next week we will return to business as usual looking at one of the many other interesting issues that face our industry, and have emerged over the last two or three including the future and the stock market valuation of Tesla, the prospects for disruptors, the path of agency implementations in Europe and whether the planned time scale for the full transition to electric cars in Europe can actually be maintained. See you then!