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Used car sales saw a solid performance in the UK in Q1 of 2019, with sales down by just -0.6% year on year, highlighting the stability of the industry with more than 2 million transactions. We’ve seen a 30% growth in demand for hybrid, plug-in hybrid and pure electric cars and we remain confident that the industry will continue to grow.

There is a little more uncertainty in the new car arena however, with new car sales falling by -4.8% in the last year. New car sales hit a peak in 2016 when 2.7 million units were registered in a single year, but these numbers heave steadily dropped by -12.7% in the years past.

It’s clear that times are changing, with most OEMs seeing year on year drops as the sector faced headwinds caused by the value of the pound, supply issues associated with the introduction of WLTP (Worldwide Harmonised Light Vehicle Test Procedure) and uncertainty over Brexit.

SMMT might be forecasting a further -2.3% drop in new sales over the next year, but we can still find opportunity for success in this ever changing industry. What we’re seeing is the inevitable right-sizing of the market with volumes more closely in line with genuine demand from retail, fleet and business buyers.

OEM new car sales targets have been reined in over the last couple of years, but this has allowed the spotlight to shift from the new showroom to the used car forecourt; and that’s where real profit opportunities can be found.

With a shift in the franchised market, used cars are now an integral driver for profitability with the current round of interim statements showing the high level of confidence amongst the listed groups, all of whom are targeting growth in their used operations over the course of the year.

It’s easy to see why. Recent years have seen the used market consistently trend at around 7.7 million units, that’s just over three times the size of the new car market. The franchise sector has strategically started actively promoting itself as the place to buy a used car, have it serviced and eventually trade it in for another. Factor in good margins and the opportunity to sell finance, GAP, service plans and warranties and used presents more profit opportunities than new could ever hope to match.

To illustrate the point the most recent composite figures from ASE, the dealer profitability specialist, showed a barnstorming performance by used car sales departments with retailers producing an impressive return on investment of 86.6%.

The new car industry is by no means on the way out - and we can already start to feel shifts in the market that might change the way the industry functions as a whole - but many dealers and franchises have grown to enjoy the profit potential offered by used cars and will fight hard to stay at the forefront of this industry.

Why used car sales are driving dealer profitability

Change in dealer F&I lies ahead with the Financial Conduct Authority currently consulting with the industry following its review of motor finance. Ahead of this change, we’ve considered the key areas that may change and what they may mean for dealers – first up is commission structures.

As a business, MotoNovo has been consistent in our view that regulation has been good for motor retailing and motor finance. In short, doing the right thing by customers will always promote greater levels of trust and confidence, something that is increasingly important in an ever changing market.

We’ve recognised that regulation must be seen as a force for good in our industry, and we’re dedicated to helping our dealers address the challenge head-on.

We all know that the traditional showroom-based buying behaviour has changed significantly in recent years. Today, we live and work in an ‘omni-channel’ environment; dealers have multiple marketing platforms to manage and the expectations of a highly informed customer to meet.

The challenge with the traditional product ‘push’ approach is that aggregation platforms have focused the retail sector on the importance of offering the lowest prices in order to rank high on search pages.

There can only ever be one lowest cost provider at any given time, but it has to be recognised that this strategy has created a ‘race to the bottom’ in terms of metal pricing and that low cost car prices have been balanced against other revenue streams.

This type of cross-subsidisation model isn’t sustainable, especially in light of the FCA’s recent review and various changes that will happen off the back of it to make automotive finance fairer and more attractive for customers. Now is the time for dealers to look at their current commission disclosure approach and step out ahead of the market.

Under the current standards, dealers must make customers aware that they may earn commission for introducing a customer to a finance company and if asked they must disclose the value of that commission. For dealers looking to push the potential of GAP/RTI and other added value insurances, it’s worth noting that the mark-up approach being used for these services is also being looked at by the FCA, in a separate thematic review to motor finance.

The regulatory focus upon F&I commission is unlikely to mean an end to all commission, but it may well re-set the values of such commissions and this is something that will become clear in the months ahead as the regulator, finance industry and other stakeholders consult on the way forward.

One potential outcome of the FCA’s review is that finance interest rates available to customers could fall when compared to the rates offered today. This is where a switch to using low rate finance as a marketing tool has real potential.

Look again at marketing costs – we all know that these have been escalating in recent years, so can you make your marketing spend more accountable?

The pressure on added value income areas makes a rise in car prices appear increasingly inevitable if dealers are to survive. This could be an opportunity to realign the dealer model back to its core structure of buying and selling right, and of providing customers with a high level of transparency. Link this to interest rates that are lower than those commonly seen today and customers’ monthly finance costs could be little changed from today.  


Change represents an opportunity for the industry to re-boot and here’s how;

Increase transparency and trust with consumers

Focus marketing activity on the monthly cost to meet the way most customers buy a car

Reduce marketing costs by focusing on results-based marketing platforms

Realign the model around the metal and customer experience

Compete/address the online broker challenge

And as always, MotoNovo will be ready to help and support dealers through the changes we see ahead.

The future of commission models

In August last year, retail entrepreneur Mike Ashley purchased the failing House of Fraser business with a promise to turn the business around by making the stores retailing ‘destinations.’ His mantra was very clear; the traditional retailing model was broken, unable to compete with the online competition with its lower overheads and ease of 24x7 access. House of Fraser stores have to become an exciting, experience, if they are to compete with online – they have to be different and distinctive.

In an increasingly digital car retailing environment, dealers could benefit from a similar ‘destination’ ethos.  The starting point is where the customer invariably starts their car buying journey and that is online.

Taking the lead from ‘destination retailing’ a destination dealer will be one that people are drawn to because it offers a superior, relaxed and distinctive buying experience. Taking the lead from High Street retailers developing this approach this will include:

Every step visually, physically and emotionally reinforces that this is a caring, enjoyable experience;

Customers trust the expertise and people; they will recommend it and travel a distance to reach it;

Offering good value - that does not mean being cheapest;

Staff are helpful, knowledgeable, friendly and professional;

All the services customers need to buy and run their car are there; as are some surprises – an on-site barber is one we liked;

Customers choose to buy rather than be sold to.

Many car retailers may feel that these factors are already in place; if so they should challenge themselves by checking out real destination retailers and having their own business mystery shopped.

Online is where the destination experience begins

Establishing a destination retail environment that customers want to visit is not just about the store; the experience starts online because this is where the promise of the experience is first made.

For the dealer, the first challenge is selecting their online channels; some channels will be competing with the dealer in promoting products and services, an approach that may not be compatible with the dealers. At the same time, as with the showroom experience, dealers should give very careful consideration to their online persona, this will include; images, tone and content. Success in marketing is not an accident, it requires careful thought and while it is easy to focus upon price, this should not be the only, or arguably even first thought.

If price were the only consideration to car buyers, then premium cars would not be selling in ever larger volumes. Many customers want a premium product and experience and will pay a premium to receive it. This is the central principle of destination retailing.

The reality is that customers typically value more than just the car. They want a range of outcomes; an easy, comfortable and enjoyable buying experience, caring knowledgeable people, fantastic aftersales, a sense of belonging and that they matter being some of them, please note these are all emotional cues, rather than pricing; albeit naturally, customers want a fair price.

By Barry McDermott

In an increasingly digital car retailing environment, dealers could benefit from a ‘destination’ ethos.  The starting point is where the customer invariably starts their car buying journey and that is online.

Creating a ‘Destination Dealership’ – it starts online

In their recent report on motor finance, the FCA made clear that they would be consulting with the industry on long term changes to the market - and that further scrutiny should expected. The report was also clear on the FCA’s expectation that action should be taken now to improve compliance with current requirements and ensure fair treatment of customers.

Karl Werner, MotoNovo Finance’s Deputy Chief Executive, sees many opportunities, both for growing finance in the used market and for improving overall customer outcomes.

Werner said: “While the FCA has yet to require any specific changes, there can be no question that dealers need to review their current approach to financial regulation and ensure that they are complying with current standards. This is in both their interests and those of their customers. MotoNovo will be working with its dealers to help them comply with the spirit, as well as the letter, of FCA regulation.”

MotoNovo is urging dealers to act now, suggesting that initially they pay particular attention to three key points, which research by MotoNovo suggests are common areas of risk:

Advising customers about all sources of remuneration, including introducer commission from lenders

Making sure that all product claims (terms like ‘guaranteed acceptance’ or ‘rate guarantee’) are valid.

Ensuring that all financial promotions are fully compliant.

Werner observed: “There is definitely scope for improvement and our research suggests that is true for franchised and independent dealerships alike – business size proves no barrier to mistakes.

“We will work to equip our dealers with knowledge and tools to help them comply with current and future regulations, positively benefiting both their businesses and their customers.

“In the meantime, we urge every dealer offering finance to familiarise themselves with the three key risk areas we have identified.  They should also look carefully at the documentation and processes they have in place for treating customers fairly, disclosing commission, handling complaints, and training staff.”

The FCA Motor Finance Review: what should dealers be doing now?

The need to address environmental issues such as congestion and pollution will have a rising impact on the UK’s car market during 2019, affecting the type of cars consumers buy and the conditions under which they are used. The trends noted last year, including the sizeable 30% reduction in diesel car sales and robust 21% rise in demand for alternative-fuelled vehicles (AFVs), are set to continue and maybe intensify. Figures for January indicate a further 20% decline for diesels compared with the same month last year along with a 26% increase for AFVs. If the momentum of these trends continue, unit sales of AFVs will exceed those of diesels within the next four years.

Prompted by legislation to develop more eco-friendly products, car manufacturers are at the forefront of these changes. The present line-up of AFVs in the marketplace is quite limited compared with conventionally-powered cars, but this will change with a blizzard of new model unveilings over the next couple of years. Around 14 will make their UK market debut during 2019, including Tesla’s Model 3 and Volkswagen’s I.D. electric hatchback, while no fewer than 24 are scheduled for launch in 2020. Many of these will be pure electric vehicles (EVs) and some will be making their world debut at the Geneva Motor Show in March. Meanwhile, several manufacturers including Subaru and Volvo have announced that they will be ceasing the production of diesel cars within the next couple of years. Fiat, Nissan, Porsche and Toyota, among others, have signalled a winding down of their involvement in the diesel sector. 

So far, consumers have postponed ‘going electric’ on a grand scale for a variety of valid reasons, of which three are paramount – range anxiety, lack of public charging points and the substantial up-front cost of acquiring the vehicle. Developments during 2019 will go a long way towards allaying the first two concerns. Battery technology is advancing rapidly to provide considerably higher mileage between top-ups. Nissan’s new Leaf offers a claimed 40% increase in range versus the previous version, while other manufacturers are achieving similar improvements with much more to come.

Public charging points are proliferating throughout the country, albeit from a low base. Major oil groups such as BP (polar) and Shell (Shell Recharge) are installing facilities at their service stations with 2019 likely to see a significant ramp-up in roll-out rates. Interesting innovations will extend the availability of charging points in towns and city centres. A possible breakthrough for the 43% of vehicle users without a driveway arises over the recent ‘Connected Kerb’ initiative, described as a low-cost residential street system whereby chargers are embedded in the kerb.

Less positively, the showroom prices of AFVs represent a continuing deterrent for potential consumers, although 18% are minded to buy an EV in 2019 according to a survey by the joint government/car industry ‘Go Ultra Low’ campaign. Under these circumstance it is all the more baffling that last October the government removed grants for buyers of plug-in hybrids (PHEVs) and reduced grants for EVs, thereby running the risk of stifling the fastest growing segment of the new car market.  



The trends noted last year, including the sizeable 30% reduction in diesel car sales and robust 21% rise in demand for alternative-fuelled vehicles (AFVs), are set to continue and maybe intensify. Read about how this might affect you and your dealership.

News - July 2019

Why used car sales are driving dealer profitability

The future of commission models

Creating a ‘Destination Dealership’ – it starts online

The FCA Motor Finance Review: what should dealers be doing now?

Environmental changes and their impact in 2019

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