I was quoted quite a few years ago as saying that the retail motor industry was founded on a lie. And they were right, the quote was down to me. When was I quoted?
Well, you would probably have missed it, because even my Mum did – it was about 15 years ago on a live interview for the long, long lamented but never ever watched Automotive channel for Sky. And I explained that what I meant – the lie was the way that cars were sold to consumers.
Most buyers assume that dealers make money is on the original sale and aftersales prices are so high because they reflect the cost of the technology and training required to service today’s hi-tech products.
But anybody who works within the industry knows this is not exactly the case – wafer thin margins of 2-4% on sales are matched by mind-boggling 65-80% margins on aftersales, or at least on the labour part.
But there are serious long-term problems with this approach. Any part of your business model that generates unusual profits is open to attack from outside. The independent sector will get better if the rewards are so high for servicing vehicles. And they will do with the blessing of the authorities if our charges are seen as excessive.
In addition, the rise of Electric Vehicles means that we are likely to perpetuate the low margin culture on sales, but then have to forego the profits on aftersales, broadly speaking because there won’t be any.
So that will be our conundrum over the next 5 years, how do we wean ourselves off a reliance on aftersales, especially if it going to disappear?
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