UK: Car Industry Review 3 - Goodbye Arthur Daley as vauxhall launches Network q.

UK: Car Industry Review 3 - Goodbye Arthur Daley as vauxhall launches Network q. - Vauxhall is making used car dealers change habits of a lifetime. Accurate mileage and the option to change the car if not satisfied. These are the new minimum standards. B

Last Updated: 31 Aug 2010

Vauxhall is making used car dealers change habits of a lifetime. Accurate mileage and the option to change the car if not satisfied. These are the new minimum standards. By Jack Semple.

Arthur Daley was alive and well in the used car industry at the end of the '80s, according to research carried out by Vauxhall. To combat this widespread public perception of the used car business, Vauxhall is leading a trend among car manufacturers to raise their involvement in franchised dealers' second-hand car sales operations.

Its high-profile Network Q is much the best-known of manufacturers' used car brands, just a year after its launch while, behind the scenes, Vauxhall is supporting dealers with new training and business management programmes to improve the profitability of their second-hand sales.

"We are breaking the mould in the retailing of used cars," says John Butterfield, Vauxhall's marketing services director. Around 45,000 used cars were sold under the Network Q banner in the first 12 months and that figure should rise to at least 80,000, he adds. He has 210 of Vauxhall's 360 dealers in the scheme now, and another 40 joining soon. By identifying itself strongly with Network Q dealers, Vauxhall aims to make the "peace of mind" factor, which is present when customers buy new, work in the used car market. The scheme applies to cars up to five years/60,000 miles and includes all makes of car, although Vauxhall's predominate. Minimum standards are guaranteed, such as accurate mileage and an option to change the car for a similar model within 14 days.

Vauxhall says it spent £5 million on the scheme, up to and including the national launch on 1 March, 1991. Some went on one year's test-marketing in the Midlands, and another £1.5 million was spent on a launch campaign on national television. It has followed through with more television advertising last autumn, and again in recent weeks. Participating dealers contribute £20 towards the advertising costs, for each used car sold.

Vauxhall has still to evaluate the effect of the national promotions but they are starting, it seems, to change the expectations of used car buyers. For example, BMW's long-established used car scheme has been little advertised over the past 18 months, yet MD Tom Purves says his franchised dealers are finding more used car buyers asking for Network Q-style manufacturer's back-up since the Vauxhall launch. Women have responded most positively to Network Q, but dealers have strong hopes that executives will come to them for good, low-mileage models following the Budget, which moved the focus of tax levels away from engine size towards the value of the car.

While Network Q is working for the customers, dealer profits are going up, too. Analysing dealers' performance in the early part of 1992, Butterfield found that those within the Network Q system had 13% higher gross margins, overall, than those selling used cars independently. "Network Q is part of our overall quest for leadership in the 1990s," he says. The emphasis is on improving the quality of service, both perceived and actual, because Vauxhall believes the public will demand higher standards from car dealers generally.

Manufacturers have, however, other good reasons for getting involved in the car market. Strategically, they need to maintain the profitability of their dealers, so that they can go on selling cars at reasonable prices. Volume manufacturers' priority has been to "ram new products down dealers' throats, whether they want them or not", to quote one dealer. That approach is no longer seen as adequate.

Dealers face a long-term "double whammy" on profit margins in new car sales. As the market becomes more competitive, manufacturers are reducing dealers' wholesale discount on list prices and customers are pressing for heavy discounts. Workshop and parts profits are being hit, as cars become more reliable, service intervals are longer and chains, such as Kwik-Fit, steal customers.

With around two-thirds of new car sales involving a trade-in, a good used car operation is a useful aid to new car retailing. But a pre-occupation with new cars has often led to the second-hand sections of franchised garages getting "second-class resources, premises and management", says industry consultant Tony Alpin. By helping to improve the quality of franchised dealers' used car operations, manufacturers can also improve resale values and therefore the attractiveness of their new cars. The higher the resale value, the more customers will pay for the car new. This applies, crucially, to leasing and rental fleets, which seek short-term ownership with a heavy discount and guaranteed buy-back price. The recent Monopolies and Mergers Commission report, finds that 12% of all new car sales in 1990 had discounts of 36% or more - more than double the typical wholesale discount given to dealers. Manufacturers offering that level of discount must take advantage of the "second sale" opportunity of the nearly-new to make a reasonable profit.

Butterfield describes Network Q's launch as "fortuitous" but stresses: "It's not a short-term programme for bad times." Joining Network Q often represents a significant investment by dealers in property development, signage and people." And it is changing some dealers' habits of a lifetime. For example, it is common practice to wait until a car is sold, before incurring the expense of giving it a thorough check and service; Network Q cars are supposed to be prepared before they go on display (though a brief spot-check found that this doesn't always happen). These demands are initially more expensive for dealers, but they impose a good management discipline, says Chris Barry, MD of Stoke dealer Greenhous Hanley. "Network Q has prompted us to look carefully at what we are buying and has raised the professionalism of the used car operation."

Network Q standards are monitored by Vauxhall's 32 district managers. Car Care Plan, the warranty underwriter, carries out spot-checks on the condition of vehicles, though at a current rate of fewer than one car per dealer per year, this hardly seems high cost. The frequency is to be increased, says Butterfield, a little awkwardly.

Network Q has five area managers as consultants to the dealers on how to improve quality and profitability. Vauxhall also starts a new dealer training programme this year on used cars for sales staff and management. It will be mandatory, and dealers will pay part of the cost.

Another 40 dealers are set to join the network, but some, including several large, multi-franchise groups, continue to resist it. They have invested in their own used car brands, such as Lex's Charter, and want to retain a greater degree of independence from the manufacturer than Network Q allows. But pressure is mounting, both from Vauxhall, and from the effectiveness of the television advertisements.

Most car makers are understood to be planning greater involvement in the used car market, including the development of added-value services, such as contract hire. "What we are now seeing", says Neil Marshall, at the Motor Industry Federation, "is the franchised community becoming the dominant retailer of used cars."

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