Before the crisis, dealerships in the UK were already under pressure, with net margins declining ~0.6%pp since 2014. This has been driven by a combination of OEM network restructuring, the emergence of new digital players and the resulting increase in price transparency and competition.
In addition, dealers faced the difficult prospect of adapting to the future trends of electrification, automation and shared mobility, which threaten existing business models and margins unless significant investments are made.
The result has been historic consolidation, restructuring and bankruptcies, ultimately resulting in a smaller number of larger groups today.
COVID-19 may now represent the final blow for some. Although many dealerships have worked hard to establish or maintain an online presence, the reality is almost zero sales for as long as restrictions continue.
Despite the Government’s extensive support package for workers and businesses, dealerships face significant rental costs, depreciating value of stock vehicles and the prospect of continued revenue loss due to volume incentives, finance commissions and vehicle margins. Those with precarious finances – particularly mid-market/smaller dealers – may also struggle to access essential sources of finance in this period.
COVID-19 therefore represents an economic shock of unprecedented scale, and once restrictions are lifted, we do not expect to see a return to business as usual. At the same time, the shock will also help accelerate pre-existing trends – both the threats and opportunities that dealerships face:
- Consolidation will accelerate: Many dealers face administration and being acquired by larger competitors.
- The number of UK dealer sites will decline, as franchised networks restructure and some businesses do not reopen.
- Profitability challenges will continue, particularly in the face of an uncertain economic recovery.
- Used and aftermarket segments will become increasingly important to offset revenue losses in new cars.
- There will be increased pressure to invest in new retail formats, such as online sales and marketing, as consumer habits change.