MT Dealer Insight: Ron Brooks

As the used market boom starts to wind down, Ron Brooks group manager of strategy and innovation Tom Slack talks on a new market reality and the group’s strong performance.

Ron Brooks has been on a run of form, posting a profit before tax of £1.506m for the year ended 30 June 2022, up 20.7% from £1.247m the previous year. The Group’s turnover also saw an increase from £34.2m to £47.79m, up 39.7%. Overall sales increased 10.9% to 2,433 units (2021: 2,202). But, despite strong results, Ron Brooks did express concerns over supply in the used market, which in turn will affect its used car business.

Group manager of strategy and innovation, Tom Slack, spoke with Motor Trader on the changing used car market, competing online and the challenges ahead.

The group has been able to perform consistently following the COVID-19 pandemic, increasing its used business to make the most of the buoyant market. Slack said: “Last year was our fifth year of record profit. We made roughly £1.5m, which was about 3.2% return on sales on just shy of £50m turnover for the group. The previous year we did £1.2m in profit with 3.6% return on sales, so we improved profit but the return on sale fell a little bit. And turnover increased 40%.

“There was half a year of bad times and half a year of good times. You’ve seen the results since 2020, everyone has made money because of the used car phenomenon. But our underlying model is quite strong, and as a result we didn’t see a massive increase in profit in 2021. It was consistent with what we did the year before and what we’re doing now is incremental.

“We have a big focus on used cars, which means we are not as reliant on new cars from the brands. We’ve doubled our used car business since 2018. We were typically doing around 1,000 cars a year as a group through to 2018, and now we’re at around 2,000. And that is all through existing assets.”

On the market over the past few years, Slack said that it has been driven by supply dynamics. He added: “Supply has been the issue that has, along with high demand, driven high prices. We are now at a point where the new car stock over the last three years has been so low in volume that the used cars are probably now even more scarce.”

And this scarcity is made more difficult with competition from car buying services eating into dealer part-exchanges. On this, Slack said: “The industry needs to pay attention to what’s happening with the consumer market and what is happening with the brands. With the consumer market there’s always been the likes of We Buy Any Car and now there are many more options. Dealers are selling a car and they used to get the part-exchange seven out of 10 times, but now that customer is either coming to you saying this is what we’ll get elsewhere, or they’ve already sold their car.

“These guys have such powerful marketing; everyone knows about them. We see that around 30% of people don’t care, and they want to sell the car to us because it is part of a new transaction and it’s easy. We probably get 10% that are coming 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 do have an advantage. For example, I can call you up as a customer of ours, you’re three years into your PCP agreement and you are due your service in a month, and I can say things like you’re about to spend £200 on your service, why not trade it into us and you can have a new car. We’ve already got a relationship that we can sell through, so we can be creative with it.

“If you represent a brand, you’ve got a good traffic of supply because the brand will be trying to push vehicles back through the network using repatriation schemes, whereas before they would just put them in an auction and for anyone to buy.

“This is a good thing when you are working 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 become quite limited as manufacturers become protective of their supply chain and want to manage the life cycle of their customers. For example, we are seeing an increasing amount of Toyota vehicles repatriated back into the network.

“Supply in general is challenging. We are now dealing with increased customer choice, the supply and demand dynamics, and also OEM influence on the supply chain.”

Despite challenges in the used market, Ron Brooks has been able to grow its used car volume over the past five years. Slack said: “On a bottom-line basis without growing sites, we’ve doubled our used car volume since 2018. And typically, in a year, we’ve been doing 30% growth. So even in this year for Q1, we’re up 37% on last year.”

Motor Trader spoke with Kevin Slack, MD of Ron Brooks in 2019. He said at the time, that online presence was very important to the group, and that “in particular we are growing our used car sales through the internet.”

Five years later, Tom Slack said that the internet is where it all starts and begins, and group policy for the last eight years has been driving that.

He added: “You’ve got to drive the traffic through the internet. Everything is about speed. There’s obviously a quality element but a lot of it has to do with speed to get online. Since 2019, we’ve seen all the disruptors enter the market, but they are just online and we can compete with them, but we also have a physical destination.

“We do 10-15% of our sales at a distance now, where we never see the customer. But that has been accelerated since everyone got their head around distance sales. We were probably one of the first in lockdown to have an online reservation tool. We were very early with that. And that gave us some confidence and experience to follow up.

“We piloted one of our brands’ buy online end to end journey, which is live now and we’ve sold four cars on that. So, the volume is very low, but the service is there. It’s an option and some customers will choose it, and some won’t. But for most people, they will look online first and then come to see us. Online is important, although we see around 10% of customers just walking in, but 80-90% of the traffic is from an online inquiry.”

Taking on the challenge

Looking forward, Slack remains confident about the group’s ability to weather future challenges, highlighting the changing market and recruitment as areas to focus on. He said: “The new car market is a challenge and that’s more affected by people’s cost of living and personal situations. You used to be able to have a new car and it would cost the same per month as your old one. The big change now is that finance rates are at eight to 12% on a new car, so that’s your biggest barrier.

“The challenge for the industry is that the used car boom that has happened over the past few years is not going to be replicated. It’s not going to be as 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 base, there are new challenges such as the increased energy costs. Our expenses are up 25% across the business. The issue is going to be getting people to see the reality and understand what this is going to be like going forward. Used car margins, for example, are declining rapidly.

“Another challenge is recruitment. Since the pandemic people have learned that there are other ways to work. We still adopt some of these such as some working from home and they are nice practices to be able to do.

“What we must remember is this is a customer facing business. We are not an online only player. We must talk to our customers and be there for them. So, shutting the showroom at the weekend to give staff weekends off doesn’t really work because our customers want 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, typically from a dealer side, it has always been difficult to retain and attract talent

“We are growing and investing in our people but this is made more of a challenge because some of the perks that other industries can offer, such as more flexible working, are difficult to implement in automotive retail.”