In conversation with the Northern Ireland Motor Trade

Grant Thornton (NI) LLP has partnered with the IoD to host a series of roundtable discussions
exploring the opportunities and challenges faced by local businesses

In the second roundtable, Louise Kelly and Michelle Maginnis from Grant Thornton’s
Audit team were joined recently by IoD members and industry leaders at the firm’s
Belfast office to discuss activity within the Motor Trade.

Participants included Graham Morrow, joint owner of CR Morrows; Peter McDermott,
Managing Director of Pat Kirk; Damian Campbell, Sales Manager of Fleet Financial;
and Eddie Black, Site Director of the Donnelly Group, Mallusk.

LK: The latest figures show an increase in new car registrations in Northern Ireland - what is driving this and is it reflective of reality? GM: I personally don’t see it on the ground in terms of the public coming in and putting their hand in their pocket. It’s a difficult market. We do the bare minimum from the franchise point of view and concentrate on the used car business.

PM: To answer the question directly – no, the figures are not reflective of the market in Northern Ireland. The market in the UK mainland has been on the turn, driven by factors including a craving for new technology and extra production coming to the UK as retail sales in Europe were down. It’s not just as reflective in Northern Ireland as our recovery is a little slower. One interesting thing we are seeing this year in the UK mainland is that profitability has suffered across all franchises. Retailers are registering more cars, but they are selling less of them which means their stockholding is more and their profitability has reduced. Last year a sales executive on average was selling 201 cars whereas this year that figure is 186. So, where are all these cars? They are sitting on the ground across the UK network. There is only one winner and the winners are the manufacturers.

DC: What we have noticed definitively in Northern Ireland is that, if you talk to the retailers, it is a difficult period for them and margins are tight. However, on our side of the business (fleet), we are seeing increases. We are getting people who are actively coming in and wanting to engage. If you look at the real figures in Northern Ireland and compare them to the UK, the one similarity is that the commercial vehicle market is definitely up. It’s up 20% whether it be here or mainland UK and we’re seeing that driven by facilities management businesses and by construction. About 26% of our book at the minute is brand new customers who are coming to us. They want to talk to us about contract hire and that’s helped us a lot.

EB: Ownership has become less important, especially to the younger generation. How the manufacturers are defining a retail customer is that every person in the UK now can end up being defined as a fleet customer because someone who gets the usage of their car will be ticked as a fleet sale. However, that doesn’t mean to say there’s an additional amount of people out there buying vehicles. A number of franchises are now very heavily into affinity deals – indeed, it’s getting difficult to find someone who’s not on an affinity deal. Something else to bear in my mind is that manufacturers could be picking a certain sale because that sale is coming out of a retail target. If the manufacturers get into more holistic targeting then that’s good manufacturing. Some do that but a lot of other manufacturers have separate motability, fleet and retail targets to hit.

LK: It’s interesting you mentioned that ownership of a car doesn’t seem to be a major issue anymore. Obviously that is a major challenge for the motor retail sector in general and I’m interested to hear, along with other challenges, how you feel that’s going to impact the market and the motor retail piece of that in terms of how you’re going to sell cars.

PM: There are two great dangers. One is the manufacturers’ unrealistic expectations of the retailers as to the numbers they do.

Also, as we’ve come out of recession, we’re back into the cycle of brand standards being revisited - we want this, we want that and we want the other. On the technical side we are going to be going down the lines of iPads being used instead of printed brochures. I think that’s great but it’s a challenge because information technology is expensive. The second major challenge is training and retaining staff. Certainly in the Belfast territory, the merry-go-round has started again - we lose staff from one area and gain from another. Retaining profitability is also a major challenge – we’ve got to continually invest because 10 years is probably about the lifecycle you’ll get out of your showroom premises today due to the pace at which technology is moving.

DC: When I talk to the guys in our showroom they have a problem recruiting as well. We went through a recruiting exercise recently and it was tough to find somebody who knew the market place. I suppose the key, when we talk about challenges, is that the result of reduced profitability per car sale means that we have no money to reinvest back into our businesses again. This is a challenge for us as motor retailers - manufacturers have got to understand that for us to be able to service, maintain and retail all of this technology we need to be able to invest money in staff and pay better wages to attract more young people into the industry.

EB: One challenge which probably affects both sides of the business – retail and fleet - is that the manufacturer is becoming the full cycle. They want to build the vehicle, talk to you about the distribution, fund it and they want to recover the vehicle at the end so that they can control their used car market. Now, that in itself leads to problems because we see manufacturers coming to us with what they call good deals on stock - that’s stock they have coming through from a factory that has to be sold - and if we can’t take that stock they will go out into the large leasing companies or into their own retail channels and they’ll sell those cars to simply remove them. So for fleet and retail, our ultimate supplier is probably our biggest competitor moving forward.

GM: The fear is that as margins keep coming under more and more pressure, the only way to keep getting us to keep investing is to give us a bigger area - which means that somebody else has to disappear. That will mean less dealers. You have to make a profit and you’re representing your own company but you’re working more and more for the manufacturer all the time.

MM: Moving on, what are your views on electric cars and do you think the government can do anything else to help promote electric cars?

PM: With the 100% electric car which we have in the Nissan range, there is growing awareness of it in terms of the new technology, but I wouldn’t say that there is a massive awareness of it just yet. The government want to be leaders in this technology and want the UK to be leading the way in terms of electric and PHEV. They are supporting it in terms of a grant of up to £8,000 on a commercial vehicle which is a subsidy on the purchase of it. That’s going to need to continue from the point of view of education. The electric car is not a profit centre within our dealership today, absolutely not, it’s a cost within our brand that we have.

GM: Currently in my location, there’s no demand for it so I just see it as a cost for the network. When customers come enquiring about electric cars, I’ll get interested in them but until that time, I won’t be promoting them in my showroom.

DC: You can spend all this money on infrastructure, but first you need to educate drivers and consumers. They need to be informed that it’s getting better, encouraged to work with it and that there will be deals to try and make it attractive. You also have to think about usage - where are those vehicles stopping?

Are they going to car parks and do we have the infrastructure in car parks to get these vehicles charged? The answer at the moment is no. We may have a number of points in Belfast city centre but do we have enough if more people buy these cars and work in Belfast. Where do they go to charge these cars?

EB: The majority of people coming into showrooms today are doing 30 miles a day and could have an electric car. The fear factor for them is the new technology - they have been used to pulling into a filling station to get fuel. It’s difficult getting that customer confident to adopt because within their own local territory they know where every fuel station is, it’s second nature to pull in and put petrol in a car whereas this is new technology. The sales executive has to actually explain to them how they fit that car into their life.

MM: Finally, how important are corporate customers to your business? Also do you think the changes in the tax and everything between the benefit in kind and the actual road tax will have any effect on your corporate customers?

DC: I don’t think road tax is going to have a big impact upon the businesses we deal with. Corporate customers are the lifeblood of our business. The stronger the economy is, the stronger our business is. The more people who grow their businesses the more they will need employees - those employees will need vehicles, whether it be cars or vans. Our growth expectations over the next three to five years are very strong - it’s just about trying to get the right people to understand where the market is going.

GM: Corporate customers are very rare for us. We do a lot of servicing on fleet cars, but actually selling them is much more of a challenge for us. Location is everything so we look after small businesses around the area and that works for us.

PM: Our fleet business is very minimum. However, we’re a motor retailer so it’s very important that we provide a service for a fleet car the same way we provide for any of our retail customers. We don’t differentiate them because there are other members of the family that that car has come from and they are not all going to buy cars from a contract hire company. We’ve got to look at that as there being a positive spin-off for us.

EB: We obviously do both – fleet is important for us. I do think that fleet, corporate customers and hybrids will become a massive, massive part of the business. Up to 70% of all hybrids that go on the road at the moment go on the road for their residual value, but it doesn’t belong to the person who’s driving it. On the other side, I don’t think the road tax will make any difference at all - I think we’re almost going back to the old system which we had.