Are Manufacturers and Dealers Sleepwalking over the Edge?

Presented by Trevor Jones FCA FIMIASE Plc

Dealer profitability summary

Are Manufacturers and Dealers Sleepwalking over the Edge?

Agenda

Dealer Performance 2012

2010 2011 2012

Net Profit as a % of Turnover 1.2% 0.8% 1.2%

Overhead Absorption 63% 58% 57%

Used Vehicle Return on Investment 74% 74% 81%

Vehicle Expenses as a % of Gross 67% 69% 65%

Overall Labour Efficiency 79% 81% 81%

Hours Per Repair Order 1.7% 1.7% 1.7%

New Vehicle Registrations 2,030,846 1,941,253 2,044,609

Industry Profitability Statistics

Headline summary

2012 – the most profitable year in UK motor trade history

2013 – has started strongly

Both completely reliant on new vehicle sales performance

3 key dealership drivers

Average Dealer Profitability

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10Jul-1

0

Aug-10Sep

-10Oct-

10

Nov-10Dec-

10Jan

-11Feb

-11

Mar-11

Apr-11

May-11

Jun-11Jul-1

1

Aug-11Sep

-11Oct-

11

Nov-11Dec-

11Jan

-12Feb

-12

Mar-12

Apr-12

May-12

Jun-12Jul-1

2

Aug-12Sep

-12Oct-

12

Nov-12Dec-

12Jan

-13Feb

-13

Mar-13

-300,000

-200,000

-100,000

-

100,000

200,000

300,000

400,000

500,000

600,000

Rolling 12 month Profit

Top 10% National Average Bottom 10%

£

Overhead Absorption

2007 2008 2009 2010 2011 20120.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Top 10%National AverageBottom 10%

Vehicle Sales Expenses as a % Gross

2007 2008 2009 2010 2011 201240.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

110.00%

120.00%

Vehicle Sales Expenses as a % of Gross

Top 10% Average Bottom 10%

Used Vehicle Return on Investment

Feb-11

Mar-11

Apr-11

May-11

Jun-11Jul-1

1

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12Jul-1

2

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Rolling Used Car ROI

Prospects for 2013/2014

New Vehicle Volumes?

Used Vehicle Volumes?

Vehicle Margins?

Overhead Absorption?

Costs and Expenses?

Part Sales?

Parts Sales in the United Kingdom

Are Manufacturers and Dealers Sleepwalking over the Edge?

The Threat to Parts Sales in the United Kingdom

“ I would like to thank all the vehicle manufacturers and their franchise dealers – we don't sell your cars but we’ve got all your customers”

Sir Tom FarmerChairman Kwikfit

“Our aim is to repair cars without ever having the need to use OEM parts”.

RBS Keynote SpeakerInternational Bodyshop Symposium (2011)

“LKQ is the worlds largest distributor of alternative aftermarket collision and in the US, it has transformed the market from 80% vehicle manufacturer parts to 80% alternative.

S S AhluwaliaChairman Eurocar Parts

Parts Market Summary

C60% of all OEM’s parts sales are accident related

Minimal signs of recovery in the economy

Registrations sticking below 2 million despite optimistic predictions by the SMMT

The accident market is controlled by the insurance companies

A need to protect the after market business particularly accident repairs

The manufacturers view of bodyshops:

“Its too dirty, too specialised and there's not enough profit”

“We don't really care about body and paint, because we sell the parts anyway”

The LCV Market – Key Drivers

The Car Market – Key Drivers

The University of Buckinghamshire, Report on Parts Profitability – Author Professor Peter Cooke

Conclusions

NSC’s and franchised dealers profitability is under attack in terms of new vehicle sales through oversupply and aggressive pricing

The historically highly and profitable parts aftermarket is also under threat from low cost substitutes and aggressive tactics used by insurance companies tight controls of routes to accident repair and profitability

NSC’s franchised dealers have the opportunity to protect their parts sales and profitability, build customer loyalty and retention though the use of franchise insurance programmes.

The University of Buckinghamshire, The Broad View Report – Author Professor Peter Cooke

Average age of vehicles in the parc is now 7.44 years

The University of Buckinghamshire, The Broad View Report – Author Professor Peter Cooke

Fewer younger cars in the vehicle parc poses a serious threat to service and bodyshop sales

Overhead Absorption

Falling overhead absorption is having a significant effect on dealer profitability

2007 2008 2009 2010 2011 20120.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

National Average

The University of Buckinghamshire, Report on Parts Profitability – Author Professor Peter Cooke

SWOT Analysis

Strengths

Weakness

SWOT Analysis

Opportunities

Threats

The Pressure exerted by Insurers at an Accident

Incident takes place and driver informs insurance company

Insurer will arrange for the vehicle to be moved to an “appropriate” bodyshop after viewing it on Google earth

Components will be chosen by the bodyshop, usually a “cheaper” version, to bring down the cost of the repair

Courtesy car will / may be provided by the insurer

Vehicle returned to the user

The Pressure exerted by Insurers at an Accident

Effects on NSC’s and Dealers

Loss of component sales

Loss of courtesy car and no possibility of comparison cars

Car write off – no possibility of a replacement sale

Loss of contact – effect on retention

The Pressure exerted by Insurers at an Accident

Clauses inserted by Insurance Companies

Penalties on choice of repair facilities

With c 60% of NSC / Dealer Parts Sales at Risk there is a Desperate Need for an Accident Management

Programme

Benefits to NSC’s and Dealers of a Strong and Supported Accident Management Programme

Repairs undertaken by dealer improving sales of labour

Repair carried out using genuine parts

Provision of a courtesy car

Chance to sell a replacement car after major accident

Helps retention

Protects brand reputation

More emphasis required on the 7 day cover note

Motor Insurers are Committed to cut the cost of repair

The trend to independents must be reversed