As the used market boom begins to die down, Ron Brooks’ group strategy and innovation manager, Tom Slack, speaks to the realities of the new market and the group’s strong performance.
Ron Brooks has been in top form, posting a pre-tax profit of £1.506 million for the year ended 30 June 2022, up 20.7% from £1.247 million the previous year. Group turnover also increased from £34.2 million to £47.79 million, up 39.7%. Overall sales increased 10.9% to 2,433 units (2021:2,202). However, despite the strong results, Ron Brooks expressed concern over supply in the used market, which will in turn affect his used car business.
Strategy and innovation group manager Tom Slack spoke with Motor Trader about the changing used car market, competing online and the challenges ahead.
The Group has been able to perform consistently after the COVID-19 pandemic, increasing its scrap business to capitalize on emerging markets. Slack said: “Last year was our fifth year of record profits. We generate around £1.5 million, which is around 3.2% return on sales with just £50 million in turnover for the group. The previous year we made £1.2m profit with a 3.6% return on sales, so we increased our profit but our profit on sale fell slightly. And turnover increased by 40%.
“There are half years of bad times and half years of good times. You’ve seen the results since 2020, everyone is making money on the used car phenomenon. But our base model is quite strong, and as a result we don’t see huge increases in profits in 2021. That’s consistent with what we did the previous year and what we’re doing now is incremental.
“We have a big focus on used cars, which means we are less reliant on new cars from the brand. We have doubled our used car business since 2018. Normally we produced around 1,000 cars per year as a group until 2018, and now we are up to around 2,000. And that’s all through existing assets.”
In the market over the past few years, Slack says it’s driven by supply dynamics. He added: “Supply has been an issue which, along with high demand, is pushing up high prices. We are now at a point where the stock of new cars for the last three years has been so low in volume that used cars are probably now even more scarce.
And this scarcity is made more difficult by competition from car-buying services that eat up dealer parts exchanges. On this, Slack said: “The industry needs to pay attention to what’s happening with the consumer market and what’s happening with brands. With the consumer market there has always been a love for We Buy Any Car and now there are even more choices. The dealer sells the car and they usually get parts exchanges seven out of 10 times, but now the customer comes to you saying this is what we would get somewhere else, or they have sold their car.
“These guys have very strong marketing; everyone knows about them. We see that about 30% of people don’t care, and they want to sell us the car because it’s part of a new and easy transaction. We may get the 10% that comes in with a quote from elsewhere, but that quote is subject to change. We now have a buy your car campaign, so we’re competing for that space with our customers, but we have an advantage. For example, I could call you as our customer, you’re three years into your PCP agreement and you’re due in one month, and I can say things like you’re going to spend £200 on your service, why not trade it with us and you can have a new car. We already have a relationship we can sell, so we can get creative with it.
“If you represent a brand, you have good supply traffic because the brand will try to push vehicles back through the network using a repatriation scheme, whereas before they would just be auctioning off and for anyone to buy.
“It’s a good thing when you work with brands, but we also sell non-franchised vehicles and have to compete with car supermarkets. So, the supply of non-franchised vehicles is going to be very limited as manufacturers protect their supply chains and want to manage their customer’s lifecycle. For example, we’re seeing an increase in the number of Toyota vehicles being sent back to the grid.
“Supply is generally challenging. We are now dealing with increasing customer choice, supply and demand dynamics, and also the influence of OEMs on the supply chain.”
Despite the challenges in the used market, Ron Brooks has been able to increase his volume of used cars over the past five years. Slack said: “Basically without growing the site, we’ve doubled our volume of used cars since 2018. And typically, within a year, we’ve done 30% growth. So even in the year for Q1, we’re up 37% over last year.”
Motor Trader spoke with Kevin Slack, MD of Ron Brooks in 2019. He said at the time, an online presence was very important to the group, and that “especially we are increasing sales of used cars over the internet”.
Five years later, Tom Slack says the internet is where it all started and began, and group policy over the last eight years has fueled it.
He added: “You have to drive traffic through the internet. It’s all about speed. Obviously there is an element of quality but a lot of it has to do with speed to get online. Since 2019, we’ve seen all the disruptors enter the marketplace, but they’re only online and we can compete with them, but we also have physical goals.
“We do 10-15% of our sales remotely now, where we never see a customer. But that has accelerated since everyone got remote selling. We were probably one of the first in lockdown to have an online reservation tool. We’re very early on with that. And that gave us the confidence and the experience to follow through.
“We are pioneering one of our brand’s end-to-end online buying journeys, which is live now and we have sold four cars for it. So, the volume is very low, but the service is there. It is a choice and some customers will choose it, and some will not. But for most people, they will look online first and then come see us. Online is important, even though we see about 10% of customers just logging in, but 80-90% of traffic is coming from online inquiries.”
Take on the challenge
Looking ahead, Slack remains confident about the group’s ability to address future challenges, highlighting market changes and recruitment as areas of focus. He said: “The new car market is a challenge and it is more influenced by people’s cost of living and personal situations. You used to be able to own a new car and it would cost the same per month as your old car. The big change now is that the finance rate is at eight to 12% on new cars, so that’s your biggest barrier.
“The challenge for the industry is that the used car boom that has occurred in recent years will not be repeated. It won’t be that easy. But I’d like to think we’ll see a repeat of last year in terms of results, but I can’t see us doing much more.
“Looking at the cost basis, there are new challenges such as rising energy costs. Our expenses are up 25% across the business. The problem is getting people to see reality and understand what the future will look like. Used car margins, for example, are declining rapidly.
“Another challenge is recruiting. Since the pandemic people have learned that there are other ways to work. We’re still adopting some of it like some of the work from home and it’s a great practice to get into.
“What we have to remember is this is a customer-facing business. We are not just online players. We have to talk to our customers and be there for them. So closing the showroom on the weekends to give staff the weekend off wasn’t very successful because our customers wanted to shop then.
“The challenge is to remain an attractive industry to work in when compared to other industries that have a new work/life balance or flexibility. For the industry, usually from the dealer side, it is always difficult to retain and attract talent
“We are growing and investing in our people, but it is more of a challenge because some of the perks that other industries can offer, such as more flexible working, are difficult to implement in auto retail.”
