Is it scrappage time for the traditional car dealer?
The recession that has bedevilled us since 2008 has cut a brutal swathe through Main St, Ireland, taking with it the likes of HMV, Blockbuster, Habitat and Birthdays. While the retail sector has been bloody, it has equally been a bloodbath in the car world, with dealers closing up and shutting down in packs.
Yet, five years into a game-changing global recession, we still buy cars the same way. We still – the few of us buying a new car at any rate – make the trek to the palace of plate glass, with the branded coffee cups and the nice sofas. We test drive, we haggle and we finally sign on the dotted line. Out of that signature comes the money from which the dealer must pay their staff, overheads and make some profit, before passing the bulk of the money back up the chain to the carmaker and the Revenue Commissioners in the form of Vat and Vehicle Registration Tax. There must, surely, be a better way in this day and age to buy a car?
One man who thinks so is James Ruppert. Ruppert will be familiar to the readers of Autocar and Car magazines: a used car expert who cut his teeth back in the 1980s selling BMWs to yuppies, Ruppert is now firmly convinced that car retailing is going to have to follow the likes of HMV and Habitat and move more and more online.
“I think it’s one of those things that, if people had to invent how to sell cars now, I don’t think they would think that it’s a very good idea to build a massive piece of real estate that costs a lot of money in staff and time. I think manufacturers would want to take a lot more control of the whole situation, because what they’re doing is trusting dealer groups and individual garages to represent their brand, and they spend millions of pounds building their brand, and it’s all down to how everything is perceived. I think if manufacturers had the choice they would probably wipe the whole dealer system away and I think a lot of it would now be internet-based.”
Getting costs down
The point is well made. For a start, car dealers must all be thinking of how to get their overheads and costs down. A decade or more ago, all you needed to sell cars was a spacious forecourt and a shed for servicing, but once the block exemption rules were removed in October 2003, everything changed. All the major car makers began insisting that to be a franchised dealer, you had to represent the brand. The logos had to be right, the sofas had to be the corporate colour and the glass most certainly had to be plate. Dealers across the country made massive investments to bring their premises up to code. And then, just as they were settling into making the repayments on those investments, 2008 hit and everything changed again.
“I knew a garage a few years ago who had a visit from the manufacturer, one of these secret shopping things, and they were actually fined for having a lack of atmosphere,” says Ruppert. “So they had to pay a couple of grand for the fact that it wasn’t seen as being a fantastic experience. Maybe that was right, but I think it’s a sign of just how daft things have got. When you look at how much they have to spend on tiles, and plate glass, I think it’s wrong. You don’t need all that.”
But could that really happen here in traditional old Ireland? Could the big main dealer really go the way of the record shop, and convert to online sales, with a local hub for delivering test cars and collecting cars for servicing? Alan Nolan, director general of the Society of the Irish Motor Industry, is sceptical.
“Of course the industry is going to move more and more into the online environment, but to be honest, it’s been said for at least 15 years that the internet has ‘been coming’ to car sales, and it’s not truly here yet,” says Nolan. “The likes of Tesco and Carrefour (a major French supermarket chain) have tried retailing cars, but they just put their toes in the water and very quickly took them back out again. While the current system of selling cars is old, it works and it makes sense. Yes, you can say that a new car is just a commodity and can therefore be sold online like any other, but the issue is centred around the fact that a new car is, for many of us, an enormous investment. You are still most definitely going to want to kick the tyres.
“Then there’s the fact that 90 per cent of people are trading in an old car when they buy a new one, which does make a car purchase quite different from any other purchase that you might make online. You don’t, for instance, trade in an old holiday when you book a new one. Yes, you could sell your old car yourself and go to a dealer with cash in hand, but that presupposes that you will be able to do a better deal than the person buying your car. A dealer, by contrast, is a one-stop-shop for all the things you need to do to buy a car, and that’s very difficult to replicate in an online environment.”
All of which is very true, but the simple fact is that we are now looking into a fifth straight year when car sales in this country are going to be hovering at around the 70,000 mark. The dealers all invested in their big new premises when car sales were running at a level at least twice that number. So surely there is no choice? We simply have to change the way cars are bought and sold out of good old economic necessity.
In for the long run
“There are lots of issues at work” says Nolan. “But the fact is that most people in this industry are in it for the long run. If you asked do they still want to be selling cars in five or even ten years’ time, then I think most would put their hands up and say yes. So it’s a matter of seeing what investment is required, what’s the required dealership model for the Irish market, and working from there. Yes, much of the investment in the ‘glass palaces’ as you call them was made at a time when everyone assumed you couldn’t lose money investing in property, and indeed a lot of the dealerships that have closed did so not just because of the fall in car sales but because they lost money in other, property-based investments.
“There are many who are still investing in their premises, and they’re doing so looking at the potential return. With a national car park of two million, the natural replacement level is around 130,000 to 150,000 sales a year, and you need a footprint on the ground to take advantage of that.”
But just as the Main St has irrevocably changed since the likes of Amazon and iTunes started selling us what we wanted cheaper and more conveniently online, so the world of car retailing must surely be overdue a major change. It was once the case that cars were so different and so variable in their quality that a test drive, even of a brand new car, was absolutely necessary just to make sure you weren’t going to hate it.
But we now live in a world where cars are built almost to a standard template, from a box of standard parts. When Ford, Peugeot, Citroen and Volvo or Volkswagen, Seat, Skoda and Audi can all sell you a car with, essentially, the same familiar 1.6-litre diesel engine, is there any point in shopping around other than to look on the laptop to see who’s offering the best deal this week?
Big local hubs
“I think we are going to end up with big local hubs,” says James Ruppert. “We used to have car dealers on almost every high street and that doesn’t happen any more, but you still need your car to be serviced and things like that, so there is always going to be a need for local garages etc, but it really should be a situation where you can go to one place and look at all cars. Why should we go to six or seven dealers to look at six or seven different cars? So I think we’ll end up with big hubs where people can go and do that.
“For the posh cars, we’re probably always going to want to feel special and be buttered up by the salesman, but if we’re just buying a basic car for the family, and we’re going to be able to buy it cheaper, then why not do it at the supermarket or online? Sign up for a car with the corn flakes.”