Optimism on the rise for retailers but concerns still remain for the future

Sentiment might have risen slightly among retailers, but many still expect tough times ahead

The latest Auto Retail Network Barometer survey shows the UK’s automotive retailers are expecting 2020 to be another challenging year, with one saying that he expects only the very best, and those with the deepest pockets, to survive.

Another pointed, somewhat ironically, to his business’s best ever market share – double that of 2018 and double the national average – compared with the company’s financial result which didn’t make attractive reading. Indicative, he said, of “the appalling state of the market”.

The scale of the challenge was summed up by one retailer who pointed to a combination of “economic uncertainty, poor retail product supply, PHEV/BEV confusion, global warming concerns, PCP renewals failure due to negative equity, over-contracting, entry of disruptors, low footfall, increasing staff turnover and lack of profitability”.

These concerns were echoed by many others, with some saying that 2019 had felt like the financial crash of 2007/2008 while others expect the economy to be in recession in 2020.

Despite the General Election result and the likelihood of Brexit being pushed through at the end of January, retailers feel there are still high levels of uncertainty among consumers.

Increasing regulation is also presenting challenges, forcing a major shift in the way businesses transact. One result is a big increase in paperwork, which retailers are concerned itself increases the risk of non-compliance.

Then, of course, there are changing consumer demands, with falling appetite for diesel and growing demand for electric vehicles. Retailers worry that the product mix they are being offered will leave them unable to satisfy customer requirements. At the same time, the OEMs are still pushing for high volumes.

Indeed, 31% of retailers in the December Barometer expected targets for 2020 to be increased, while 41% expected targets to remain the same as in 2019. Despite the new car market being expected to be down again this year, only 28% of retailers expect targets to be reduced. Given the lack of profitability, this is not sitting well with retailers, and one told us that the manufacturers can expect their retail networks to push back harder in 2020.

Uplift in confidence

Despite these concerns, a number of retailers were optimistic that there were still opportunities. One told us: “Those with the benefits of scale, but also the ability to adapt and move quickly, will prosper. And cash will again be king.”

With all that said, sentiment among retailers for their own businesses in the next six months has actually improved somewhat. Some 52% believe the economy will be up in the first half of 2020, and 20% expect to see an uplift in new car registrations in the first six months of the year, with 43% anticipating that, at worst, the market will be flat.

That is a significant improvement from six months ago when 90% of retailers were expecting the market to decline. In addition, fewer retailers are expecting forced registrations to be up in the first half of 2020, another big improvement in expectations compared with six months ago, albeit 66% still represents a large proportion.

While only 25% of retailers anticipate their profitability will be up over the next six months, this represents a large swing in opinion from the previous year. Last year, only 15% of retailers were anticipating an uplift in profitability, and by the middle of the year this had reduced to zero.

We see almost the exact same picture when it comes to expectations for showroom visits, with 23% of retailers anticipating an increase compared with 8% in December 2018 and zero in the summer. This is surely indicative of the anticipation of improved consumer confidence through 2020.

This comes hand-in-hand with a rise in expectations for website visits, with 53% of retailers expecting online activity to increase in the first six months of 2020. Only 7% of retailers believe website visits will be down. If consumer interest is there, the challenge for retailers will be in converting this interest into purchase.

New car concern

Looking at the pressing issues within the business, sentiment over new car sales has improved slightly, although 93% of retailers still feel it is a pressing issue. And there is a pattern emerging here, with an improvement in sentiment as we head into the new year followed by a deterioration as we reach the summer.

So, is it simply a case of the turn of the new year generating its own optimism, which degenerates as the reality of the trading environment hits home? It will be interesting to see if the same pattern plays out through 2020, or whether the opportunities that retailers have identified – combined with the anticipated lift in consumer confidence following an orderly Brexit – will bear fruit.

Used car sales now represents the most pressing concern among retailers, with 96% saying that this is a key issue for their business. That represents a significant change in sentiment among retailers, with concerns having reduced over the summer.

Another area where retailers see opportunities for their business is within aftersales, but again concerns over this area of the business have increased since the summer, and are now back at the same levels as a year ago. While 84% of retailers identified aftersales as a pressing issue within the business in the summer survey, this is up to 89% this time around.

Some of this can again be attributed to consumer confidence, with consumers reluctant to spend on their vehicles in a time of economic uncertainty. Brexit plays a part here, and perhaps if the issue is put to bed (for now at least) in January, some of that confidence will return. And with a growing vehicle parc, there is no doubt that opportunities exist.

Of course, concerns over aftersales are not just about the volume of business but also about the cost of business. Equipment and staffing costs are increasing: a shortage of skilled technicians means wages are going up, retention is getting harder and just filling available openings is a challenge. And franchised retailers still have to compete with the independents for business, who are often more local to customers and seen as offering better value – irrespective of whether or not that perception is accurate.

Customer satisfaction key

Related to all of these areas of the business is customer satisfaction, and here again concerns among retailers are increasing. They report that customers are becoming more demanding across all areas of the business, and with customer satisfaction scores increasingly being tied to bonus payments from the OEMs, this is having a critical impact on profitability.

Auto Retail Bulletin has seen instances of retailers emailing customers to request that, following aftersales work on their vehicle, the retailer be given a mark of ‘outstanding’ should customers receive a communication from the OEM asking them to rate the customer service.

It is, then, perhaps no surprise that 82% of retailers cite customer satisfaction as a pressing concern on their business. Indeed, last June’s 76% was the only occasion in the last four surveys when customer satisfaction had not scored in the low 80s as a pressing concern.

Tied to aftersales, and to the availability of technicians, staffing concerns have also increased, with 89% of retailers now citing it as a pressing concern. It extends across all areas of the business, with the churn of sales staff being as acute a problem as the lack of skilled technicians.

The summer Barometer found that existing staff were leaving not to go to a competitor but to find employment outside of the motor sector.

Auto retailers have been looking to address this issue by changing remuneration packages, and have been looking beyond the traditional pool of the motor trade to the wider retail sector for recruitment. But in the current economic climate, potential candidates are often unwilling to leave their current employment and the safety of tenure it provides.