Why Are New Car Margins Dwindling?

Dwindling new car margins are not new. In fact, they have been manifesting over time, and while some are able to buck the trend, the general view is one of a gradual and constant decline.

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The gradual decline is due to a number of reasons, and these include OEM target pressures, Diesel-gate, online B2C providers or introducers and, of course, Brexit. Individually, each one of these factors plays a role, and when combined their impact is even greater. They are out of the retailers’ control and in one way or another have all been around for awhile in one or another form. Now, however, these factors seem to be compounding, and margins are dwindling more than ever.

Calculating Margins

Some retailers have been able to retain around 2% of their front-end margin, while others have resorted to discounting to around 8% of their OEM target money. A vast number of new car offers are also OEM-led via retailer websites and the brands themselves, so the retailers may not be the ones causing much of an impact.

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It’s been interesting to note that those that are enjoying better profits are all designed to support and create a good customer experience – something they do have control over. The brands that are doing better are thus those that are building value, trust and relationships and, in turn, are making more profit. Customer engagement has become crucial, and with the auto industry struggling somewhat in several sectors, service has never been more important to both the potential buyer and the retailer.

Controlling the Sales Environment

While the margins on new cars pose a challenge, the onus is on the retailer to understand and enhance the customer journey. This can include offering advice on motor trade insurance, directing potential customers to sites that compare insurance costs such as https://www.quotemetoday.co.uk/motor-trade-insurance, assisting with information about the car or brand or any other similar service.

While margins may be dipping, the retailers with the brand that can boost the customer service are the ones that are faring better, and although conversation will inevitably turn to price, being able to shore up a customer’s confidence in a brand is also crucial. Management must therefore create the right environment for their teams to operate in and ensure they are engaged, confident and knowledgeable, as this will drive sales.

 

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