motoring special: BDO motor 150 report 33
Key performance indicators of the Motor 150 group
If the Motor 150 study group was a single company, it would have posted some encouraging figures in the past three years.
The Motor 150 study group managed to keep their gross margins at an average of 11.6%, leading to a £212 million increase in gross profit to £4.9b. But, net profit rose only slightly to £331m from £317m due to higher dealer operating expenses and a 52% increase in tax.
Arnold Clark Automobiles reported the highest profit before tax, for the second year running, and beat its 2011 profit by £9m to achieve £61m in total. The largest loss before tax (£18m) was reported by Robins & Day, a group owned by Peugeot, for the fourth consecutive year.
Key performance indicators
The balance sheet of the Motor 150 increased in aggregate, although gearing increased from 31% to 43% – almost as high as in 2009. However, this change did not come from any significant increase in loans or other finance, but rather a fall in cash balances held from £831m to £364m, as business sought to invest.
Over the year, the Motor 150 employed an additional 2,280 people, bringing the total workforce to 102,582. This resulted in a rise in staff costs (up £1.6%) to almost £3b. Directors’ remunerations dropped for the third consecutive year – a 2% drop bringing the total down to £89m, the lowest since 2008.
BDO forecasts for 2014
So what are the keys to sustained recovery? BDO advises motor dealers to maintain close relationships with manufacturers, banks and stock funders, while striving for high levels of customer interaction. Naturally, robust cost controls and operational processes need to be in place.
BDO’s motor retail team forecasts:
• A sustained stronger retail market • Increased use of all marketplace channels
• Greater harvesting of customer data (possibly via loyalty cards) to provide more personalised services
• Upmarket quality will still matter, but consumers will trend towards value retailers
• Supply chains, from end to end, will become more efficient and cost-effective
• Despite economic recovery, there will still be high-profile failures in 2014.
Challenges on the road ahead ...
Second-hand market slump?
Booming new car sales have headlined the UK motor sector recovery, yet they could carry a sting in the tail.
Although increased consumer confidence in the economy, allied to attractive motor sector credit deals, has encouraged new car purchasing, there is now a risk of a slump in the second-hand market in the next few years.
Many more people today buy new cars on short-term finance deals; typically three-year personal car plans (PCP), requiring a final large payment at the end of the loan period. Often consumers choose to buy another new car on another PCP rather than pay the final sum, which could lead to an excess of second-hand cars in years to come.
Worryingly, UK vehicle parc (the census of all the UK’s vehicles) already reveals a steadily ageing profile, with the average age of vehicles now approaching eight years – the highest seen for 30 years.
Fresh scrutiny of industry financing
Those motor industry finance plans are also set to come under increasing regulation and scrutiny from the new Financial Conduct Authority (FCA) from April 1 this year.
THE BUSINESS MAGAZINE – THAMES VALLEY – MARCH 2014
Retail sales involving finance deals will need to be carefully documented, and reported to ensure FCA compliance. New procedures involving affordability checks and greater transparency are being introduced. A 400-page ‘rule-book’ has been issued.
The FCA will require dealers to show they are ‘fit and proper’ to offer finance plans. It will also have greater enforcement powers than its predecessor, the Financial Services Authority.
... but opportunities too
The tough get going
The BDO Motor 150 Report highlights healthy activity in the field of mergers and acquisitions.
“The fittest companies have survived the tough times, and these are now in good shape to benefit from the recovery. We certainly saw concrete signs of this in the surge of acquisitions and disposals during 2012, which has continued into 2013,” it states.
This is actually good news for buyers and sellers, many of whom have been hanging on, waiting for the right time to enter the M&A market. Those challenges mentioned above might even be the spur to prompt a few more ‘For Sale’ signs to go up – noted with interest by several cash- rich and ambitious potential buyers.
In addition to M&A activity, strategic investments to improve facilties and customer offerings are also well underway as we enter 2014.
Virtual shopping? Get real
One surprising piece of news to come out of the Motor 150 Report is the revelation that ‘virtual shopping’ – including product comparisons and social media consumer critiquing – is having less impact on the final purchase than was previously predicted.
“The dealer, a test drive, physical examination of the car and the dealer’s own website are far more influential in the purchasing process,” states BDO’s Motor 150 Report. It’s an interesting comment bearing in mind more than 90% of customers carry out online research on vehicles they are considering purchasing.
And it flags up the important opportunity that dealers have if they can develop a user-friendly and attractive website for mobile or home-based customers to access on whatever Internet-linked device they choose to use. Apparently, 75% of customers use their mobile device to go online while actually in the car showroom.
Details: Malcolm Thixton Head of motor retail 023-8088-1700
malcolm.thixton@
bdo.co.uk www.bdo.co.uk
www.businessmag.co.uk
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