It’s been well reported over recent months that there’s been a rise in used car prices – something we have seen across our network of customers, with sales values steadily increasing throughout the year, peaking in December 2021.
In line with this, we have also seen gross profit increase, as retailers have been using REALinsights to regularly and accurately update used car values to reflect the market demand – creating a boom in used car costs and overall revenue for retailers in 2021.
This is, of course, fantastic news for the retail network, who have been handling some of the toughest markets during the pandemic, so it’s an upturn that we are glad to see.
But is this increase in used car sales and revenue covering an underlying issue across the retail network?
Analysis completed by the REALtime Communications Insights Data Science team shows a potential issue on the horizon for the retail network aftersales teams.
John Law – Insights and Data Director – commented:
“Looking at our data, we have seen an increase in operating profits across the board, as used car sales continue to increase. But when we looked at the same data, removing the revenue generated from used car sales, it paints a different picture.
“We are seeing many groups experiencing a flat line in aftersales revenues as the number of new cars traditionally seen in the franchise network have fallen during the pandemic.”
Research conducted by REALtime Communications, using their REALinsights solution, shows that new car registrations in 2020 stood at 1,631,064 and in 2021 at 1,647,181 (source SMMT). Against pre-pandemic levels of new car sales, this equals a shortfall of approximately 1.3 million fewer new cars in the network.
REALtime Communications estimated that this will continue into 2022 as new car stock shortages continue to bite, leading to a total by the end of 2022 of approximately 1.8 million fewer one to three-year-old vehicles in circulation.
So, what is the impact of this on Aftersales departments in the franchise network?
While an ageing car parc may create aftersales opportunities for independents, it leaves franchised retailers – where most vehicles would be taken for servicing while under the warranty period – looking to make up an ‘aftersales gap’ of around £650 per car over three years (with an average service value of £150 in the first year, £350 in the second year and £150 in the third year). In addition, they lose out on upselling opportunities and the chance to place a customer back in a new car, creating the need to ‘re-acquire’ customers who may have gone elsewhere to buy their next car – at additional cost.
Overall, this accounts for £1.3 billion potential revenue falling out of the franchise network over four years.
John continued:
“There’s no doubt that franchised retailers are enjoying something of a retail revolution with prices for new and used vehicles higher than they have been for a very long time. However, while a shortage of new vehicles is increasing used values, it is also masking a major aftersales shortfall that will affect servicing departments.
“The true impact is yet to be realised, but we are now at a crossroads where higher volume service revenue from third services of new cars sold in 2019 start to wash through (at the higher pre-pandemic sales volumes), and the lower volumes of first and second services of cars sold during 2020 and 2021 start to be seen in service departments.
“The numbers clearly show a potential big loss in aftersales revenues for the next few years as approximately 1.8 million vehicles between one and three years old are lost to the franchise network.
“The good news is that the uptick in used car sales and subsequent servicing will counteract some of the lost revenues, but with used car warranties being traditionally one year vs three years for new cars, there will be a drop off.”
The question is, how can the network prepare for this potential issue as it hangs on the horizon?
It’s a topic REALtime Communications will be tracking closely, along with other topics such as the impact of electric vehicles on the Service department.
Digital solutions have been cited as key to preventing or overcoming this potential aftersales gap. REALtime Communications said it is currently working with retailers on creating and implementing strategies to improve customer retention and aftersales revenue, using existing REALtime Communications solutions as well as new additions to its portfolio.
Richard Robinson – COO RTC – commented on the analysis completed:
“It’s more important than ever for retailers to look at new ways to increase efficiency, productivity and customer retention for new and used car sales and all-important servicing work.
“We are working with retailers to implement solutions that deliver real-time results and help them maximise the lifetime value of their customers. Our aftersales product suite is helping our customers to identify and follow up work quickly while optimising technician efficiency, and our REALinsights solution is helping retailers anticipate potential shortfalls before they occur.
“We are also developing new solutions that will help retailers identify opportunities from their existing customer data, mining DMS data to find new opportunities and helping them create and maximise joined-up customer touchpoints – constantly encouraging motorists to return to the retailers rather than go elsewhere.
“Our team are looking forward to sharing more about that development in the coming weeks.”
We’d be keen to learn more about your experience in your Service departments and what you are doing to win and retain more customers – be that innovative older vehicle services, extending your used car warranty, focusing on service plans sales, or creating new promotional campaigns.
Contact us to see how we can help you deliver these goals.
About REALinsights
REALinsights is a cost-effective data and analytics platform launched in 2021 by Real Time Communications. With over 80 out-of-the-box reports and integration into Auto Trader, Keyloop, Enquiry Max, RTC and other solutions, it has the power to combine all of a retailer’s data sources and offer a complete overview of key business metrics.
In addition to reporting on stock pricing in real time, REALinsights can offer market forecasts and bottom-line predictions based on a wide range of factors, offering instant and powerful decision support in high-impact areas.
About Real Time Communications
Real Time Communications (RTC) is a digitalisation specialist, working with UK retailers to deliver complete, seamlessly integrated solutions for sales and aftersales. With 20 years’ experience developing and deploying software, RTC is proven as an expert in digital transformation and a growth partner for retailers in a fast-changing industry. More than 700 franchised retailers now use RTC tools.
RTC’s technologies allow systems, processes and communication channels to integrate and share data in real time, leading to revenue opportunities, efficiency savings and sustainable benefits. With a full-service approach, RTC is committed to helping retailers adopt a customer-centric model, meeting motorists’ demands with a personalised experience.