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In the UK we have seen a major shift from ownership to ‘usage’ by consumers. The driving force behind this has been PCP finance (Personal Contract Purchase) and more recently also personal leasing. According to the Finance & Leasing Association (FLA), the percentage of private new car sales financed by FLA members through the dealership reached 86.4% in the twelve months preceding October, up from 86.2% in the twelve months to September. The UK new car finance market is dominated by PCP finance. PCP finance is now gaining momentum too in the used car market. It has the potential to make some very significant changes to the wider market.

New car PCP finance has been popular with manufacturers (OEMs), dealers and consumers. The affordability dynamic has helped customers to acquire a better car than they had ever expected and dealers and OEMS have been able to shift more metal. Arguably, this has been just as important for the supply chain; PCPs have an in-built propensity to drive retention and lifetime value.

Lifetime value is being supported because new car customers are increasingly well-disposed to use dealer aftersales. Research suggests that this is largely linked to continuing perceptions centered upon the need to support the warranty. While this is no longer entirely true following European regulation a few years previously (they simply have to ensure servicing is OEM standard) the perception clearly continues. Another lifetime value driver has been the increasing availability of service plans, which are frequently subsidized by dealer or OEM.

Retention is being driven by the ‘balloon’ Guaranteed Minimum Future Value (GMFV), which means the consumer needs to return to the dealer at the end of their finance agreement to discuss their options - keep the car or trade it in.

The same lifetime value and retention options are available to the used PCP buyer. To realize them, dealers need to develop a structured approach and recognize that the used car buyer’s expectations are likely to be different to the new car buyer.

Creating the Used Car PCP Lifetime Experience

The success of new car PCP finance has commonly seen nearly new buyers moved up into a new car. Used car PCP buyers will typically have been a buyer of an older car and it is likely that to many buying their car from a franchised dealer the whole experience will be different. Dealers need to recognize this to develop an appropriate ‘trade-up’ customer experience, ensuring it is welcoming and well explained.

Over recent years OEM standards have seen a whole new generation of car showrooms emerge. Certainly, these are designed to echo the premium retail experience of high-end or technology stores, but we must also recognize that many consumers use what has been the fastest growing part of High St retail, the ‘bargain’ stores. This is a challenge for dealers to potentially welcome a new segment of buyers to their dealership ensuring that the offers available fit the customers’ buying preferences and that they feel comfortable and believe the value is right for them for both the purchase and ownership experience of the vehicle.

A starting point for dealer success is packaging and delivering an appropriate value proposition and process that recognizes that a used car PCP buyer may be subtly different. Looking at innovation from other industries including the fast-moving consumer goods (FMCG) sector could help to disrupt the dealership experience.

In lifetime value terms, used car PCP customers should have an extended warranty built-in to their agreement that covers at least the duration of the agreement. Similarly, and arguably more importantly, they should be offered a service plan. Data from the UK’s largest service plan provider suggests that where new car penetration of such plans can exceed 70%, the position for used cars is under half of this figure. Yet, a service plan means extra income and customer contact; it also means pulling the customer away from the independent repair sector. All of this will help that GMFV end of contract discussion when the retention opportunity arises.

To help retention, dealers need to plan further in advance for used car PCP customers. With three months to go, they should be initiating dialogue; if they don't, the customer will invariably start looking at their options online themselves. By making contact early, the dealer can engage with the customer and start lining up an appropriate next car. It is a perfect way of managing used stock and minimizing stocking days.

In conclusion, dealers need to encourage customers to ‘use’ their services throughout their car ownership. Using the dealer’s full service portfolio works for both parties; retention and quality PX stock for the dealer; a reliable, enhanced value car and great customer experience for the customer.


By James Powell at 8 Feb 2017, 15:07 PM

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