Agents of change: how car buying is changing

Are the dealerships going the way of the combustion engine, or are "bricks and clicks" here to stay?

I’ve just bought a nearly new car. Well, Mrs Evans has. A couple of things struck us on our tour of dealers. 

The first was how, for all their claims regarding the quality of their cars and service, the reality at one dealer was a vehicle without a functioning sat-nav and media connection; at another, a car misdescribed to a shocking degree; and another, a warranty-claims limit of just £500. 

Second was sales people’s refusal to negotiate on price. It’s a free market, but I for one expect something for signing on the dotted line – plus, I suspect, the screen price always favours the seller. As it was, we did eventually get a £250 discount on a car by pointing to a better-equipped example, albeit in a less attractive colour, down the road. 

The experience reminded me that buying a car in 2021 is as stressful as it ever was. That said, it’s not stopping people shelling out. Dealer groups expect to make huge pre-tax profits this year: Lookers £81.4 million, Pendragon £70m, Vertu £65m and Marshall £50m. Motorpoint, a used car supermarket group, has reported profits up 30% to £13m in the first half of 2021. These are big increases on earlier forecasts and are a result of lengthening new car delivery delays, rising used car prices and buoyant consumer demand. 

It sounds like a perfect storm in the best sense, but clouds are gathering. Changes in the relationship between dealers and manufacturers, the removal of tariffs from Japanese and Korean cars and the evolution of online retail – all these and more are poised to change the future of car buying. It was ever thus. 

In recent decades, we’ve seen the arrival of approved used car schemes, personal contract purchase, used car supermarkets, online retailing… However, one thing has never changed: the car buyer. Transparency, fairness and respect are all we ask for. Whatever the future of car buying, if dealers can deliver these, they’ll sell cars. Here, four of them tell us what changes we can expect to see.

*Peter Waddell: CEO, Big Motoring World and co-founder, Carzam*

“If you look at the history of car buying, there has always been a surge in used car prices. Prices rise until they’re the same as new, so people start buying new cars with incentivised finance and used car prices fall. The big change as far as I’m concerned will be the increase in the number of leasing companies selling their cars at fixed prices with no buyer’s fee direct to buyers like us, who buy 2000 cars at a time. It means fewer cars will be bought at auction. These leasing companies are disrupting the market. 

“Our online Carzam business has exceeded our expectations, but buyers will always like to touch and try a car before they buy. It’s why our used car supermarket sites are having a fantastic year, and by the end of 2022, we will have 10 of them.”

*Robert Forrester: CEO, Vertu Motors*

“Our financial results show what happens when there isn’t oversupply in a market. I’ve always said manufacturers should produce one less car than the market demands. That said, it’s always tempting for a car maker with high fixed production costs to make just one more car and, with the removal of tariffs from Korean and Japanese cars, we could see oversupply return. 

“Regarding used cars, dealers will be more open to stocking older ones. Our average preparation cost has risen from £450 to £650, which shows you how much deeper we’re going into them. For younger used cars, we will face competition from retailers such as Cazoo. But if, thanks to the sales agency model, fewer quality used cars leave the network, we won’t suffer. 

“As for the threat from online retailers, we have a customer conversion rate at our showrooms of 30%, while a fully online, e-commerce retailer has one of just 0.8%. We have an online offering, but four out of five of our customers want to have test drives, and you can’t do that online.” 

*Daksh Gupta: Group CEO, Marshall Motor Holdings*

“For a lot of people, buying a car and negotiating the price is an uncomfortable process. The sales agency model will provide a level of transparency, because everyone will get the same deal. Dealers may offer different part-exchange valuations, but not by much, since customers will check prices and check they’re getting a good deal. 

“With new cars so hard to get hold of, our margins are going through the roof and residuals are strengthening. A number of car makers have now said they’re not going to push volume. I totally embrace online, but most customers will still want to feel, touch and smell their car at a dealership.

“We’ve just purchased the Motorline Group of 48 dealerships.” 

*Duncan McPhee: COO, Lookers*

“We have an agency model with Polestar that’s straightforward and works well. We look after the customer and Polestar looks after the purchase side. Customers are looking for fairness and transparency, which it provides. 

“Regarding used cars, the industry is seeing very strong margins. It’s why we’re being more transparent with our pricing by pricing our cars to the market. We will continue to do so. If a customer finds the same car for less, we will match the price. 

“The current market reminds me of the old saying ‘registrations for vanity but profit for sanity’. I think car makers will recognise they pushed registrations in the past and will be reluctant to do so again. ‘Bricks and clicks’ are here to stay, but the majority of customers will research online and come to us to try the car.”

*What is the sales agency model?*

The hot topic among car makers and dealers goes to the heart of their relationship with the customer. In this new world, the dealer becomes the product expert and the car maker the sales expert. The dealer presents the car, gives test drives, handles the part-exchange and hands over the new vehicle but the car maker takes care of the purchase. This arrangement applies to any business done online, too. 

Prices are fixed, the aim being to prevent discounting between dealers, which, depending on the franchise and before Covid-19, averaged 12%. Dealers, with the exception of those who are likely to lose their business in this new streamlined world or who prefer to control their margins, like the arrangement because it reduces their overheads, deepens their relationship with car makers and ensures a good supply of used cars. 

Mercedes-Benz, Polestar, Tesla and Volkswagen are implementing sales-agency approaches across most or all of their models already.

*Pros*

Consistent pricing across showrooms and online  

A more informed showroom experience  

Greater choice of quality used cars

*Cons*

No scope for negotiating 

Arm’s-length purchase experience

Dealer still values trade-in, leading to potential cost-to-change inconsistencies

The future of car buying at a glance

Car makers will sell new cars; main dealers will facilitate the process.  

Main dealers will have better access to nearly new cars and sell more older ones, too.  

New car supply will match demand more closely, at least until someone breaks ranks.  

New car discounts will become theoretically harder to achieve.  

Part-exchange valuations will tighten up, also theoretically.  

Having got a taste for it, dealers will try to retain more used car profit margin.  

Showroom and online will continue to co-exist but the former will always be much more popular.  

Dealers and car makers will hold even more of the cards, meaning car buyers will have to get smarter and work harder.