How car dealers can cope with Europe's sales slump
The current economic downturn means that car dealers in Europe face many of the same issues confronting the region’s carmakers: the need to cut costs, consolidate and find new sources of revenue. It is a time for innovative thinking, because the old ways of doing business have become less effective.

Fortunately, there are alternatives

that can help dealers succeed in today’s challenging environment. Paolo Guidelli, an Automotive Practice Advisor with Ernst & Young, based in Milan, Italy, comments on the options.

What is the biggest issue facing car dealers in Europe today?

The key challenge is that dealers no longer make money selling new cars. Rebates, discounts and fleet sales all drain profits. In fleet sales today, for example, dealers are just moving metal. There is a lot of volume in that business, but in the end, no cash changes hands because fleets resell cars for virtually the same price they paid for the vehicles when new. In the U.K., the average dealer hasn’t made a profit on new cars for five years. Yet some dealers there are profitable because they keep their costs under control, and they “hyper-develop” other services around the car. This is something we strongly believe dealers in Europe should address. They have to become service givers, not just car people. They should be able to make money on insurance, retail financing services, roadside assistance coverage, spare parts and used cars. Each of these is a potential profit center, but achieving results in these areas requires dealers to expand their skills and develop a more effective way of running their business.

European dealers know this is true, but they are skeptical.

We help dealer principles overcome their resistance in part by benchmarking leading practices. When we visit a dealer, we have already prepared an analysis of their business situation. This isn’t a simple comparison of their sales against the manufacturer’s targets. We show specifically how the dealership’s activities in such areas as stock turns, profitability on spare parts and invoiced service hours compare with other dealers selling the same brand.

We can do the same with new-vehicle sales activities. Some dealers don’t set unit goals for their sales people and don’t even know how many cars per year each sales person is selling. Many don’t have customer files. We are not trying to make dealers feel guilty; we want them to recognize the opportunities.

Why not focus on new-car sales?

We certainly don’t suggest that dealers abandon new-car sales. Obviously the industry depends on a continuous flow of new vehicles into the regional car park.

Our point is that when you are solely dependent on new-car sales, you are totally reliant on the manufacturer of those vehicles. You are selling vehicles made by somebody else, so you are always dependent on that company’s ability to produce attractive cars. If they don’t, you become a victim of their product mistakes. But if you diversify your income source, you gain greater control over your income as conditions change.

Don’t dealers always shift to service and parts when new-car sales slow down?

Many of them do. But focusing on services only after times get bad is too late. We urge dealers to establish a more balanced business approach and pursue it regardless of the health of the new-car market.

Changing a dealer’s business model is a very concrete thing. It means organizing people differently, rewarding performance of a different type and promoting things in a different way.

Used cars are one example. This is a tricky niche business because there is no fixed pricing system. Many dealers consider used car sales a nuisance, and they try to keep it as small as possible. But when they do, they under-exploit entry-level sales to customers who may come back and buy a new car later. Dealers might consider aggressively promoting their used cars on the Web. Used-car buyers are much more rational than new-car buyers, and the Internet can be a much better place to sell used vehicles.

What should manufacturers do?

It’s tough to take the long-term view, especially when times are bad. Yet it is exactly these times when manufacturers should protect their sales networks. They want to have fewer dealers, but it is not easy to identify tomorrow’s best dealers. It isn’t necessarily the biggest or richest ones today. Often smaller dealerships have the best customer satisfaction scores.

For more about how Ernst & Young can help dealers thrive, please contact Paolo Guidelli at +439-335-716-4440 or or Kristen Michalik at +1 313 628 8326 or

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