MT INTERVIEW: Inchcape Retail CEO George Ashford

Inchcape Retail is growing its used car sales and planning a radical overhaul of its systems with a switch to the Tekion dealer management system (DMS) created by ex-Tesla IT boss Jay Vijayan

Online evangelists who have forecast the demise of physical dealerships in an increasingly digital world have clearly never visited places like the Oxford Motor Park in Kidlington. Its big. Its busy. And its chocker with stock.

Motor Trader is here to see George Ashford, CEO of Inchcape Retail. He has chosen the Mercedes-Benz dealership as the venue for the interview. Mercedes-Benz, which has just introduced agency for its UK network.

Ashford was appointed to head up Inchcape Retail in December 2021. He has spent 17 years with the group, working in a variety of roles, appointed CEO Inchcape Asia in October 2016. He joined Inchcape in March 2006 as director of implementation, Inchcape Advantage. In October 2006, he was appointed managing director, European Retail where he led the implementation of retail operation programmes across the European retail network. He has also worked in the past in the mass restaurant businesses in operational and quality roles.

Ashford refers to the two key “growth drivers” that Inchcape has as part of its accelerate programme in terms of “Distribution Excellence” and “Vehicle Lifecycle Services.” The latter being to make as much revenue from vehicles as they pass through its hands. Bravoauto, its used car programme is a part of that strategy.

In fact the big story for Inchcape in 2022 was the roll-out of bravoauto. There are now 17 outlets in the UK. Bravoauto lists around 1,000 cars, all with 12-months warranty, 12-month breakdown cover and 21-day money back guarantee. This digital-first multi-brand used car platform is now live in nine markets. The group is on track to double used volumes by 2026 as set out in November 2021

Looking at the used car market Ashford said margins continued to be strong but not as high as 2021 when used vehicles were doing what used vehicles never do, actually appreciating in value month by month, which went straight to the bottom line. “Margins are still good by any historical benchmark,” he said.

“A new growth pill is the departure into vehicle life cycle services, and that’s capturing more of the value of the car, beyond its first life. For us, used cars look like a very big opportunity. In every market we’re in, the used car market is somewhere between four and seven times the size of the new car market. Volume is less volatile than new cars and margin is, you know, pretty similar. We’ve got a set of core skills from having franchised used car businesses in the UK,” he said.

“So, it’s a very natural place for us to go. Those cars that didn’t meet the franchise standards, rather than send them to trade and make no money, we use them, build a strong customer proposition around choice, trust and put them close by our existing dealerships because most of the supply would be trade-ins.”

Bravoauto was piloted for almost two years in Burton and Derby. “And then last year, we rolled out to 17 sites across the UK, 30 sites globally. So far, so good. The customer really likes the offer. Our operations are pretty robust,” he said.

That said, Inchcape, like everyone is finding it more difficult to get the right stock in a shrunken used car parc caused by low new car sales in recent years.

“We are now butting up against a challenge in terms of getting enough cars to make sure that we’ve got sites well stocked but we’re working through different ways of solving that. We are pretty pleased with progress so far,” he said.

Ashford points out that operationally there is not much difference in bravoauto in the different countries but standards generally in these countries vary.

In the UK, for example, standards across the board, are generally high whereas in some markets abroad, standards are lower and this gives Inchcape an added edge over the competition.

“Our proposition is all about trust in some markets where there’s more let’s say interesting practises where trust is even more of a competitive advantage for us,” he said. Ashford said the group has “ambitions to go well beyond” the 17 sites but for this to happen it will have to beef up its stock buying.

Inchcape is on record that it wants to specialise more on distribution than retail. It continues to reshape its business model towards distribution, signing new agreements and making further disposals. The group is continuing to push hard in the Americas with the £1.3bn cash and share acquisition of Terco in 2022, which operates in Chile, Peru, Colombia and Bolivia. This is added to other deals in Chile and Barbados the same year.

Meanwhile its retail business is getting smaller and is now confined to dealerships in the UK and Poland. In 2021 it disposed of its Toyota and Audi retail business in St Petersburg and a year later disposed of the remaining business in Russia because of the war in Ukraine.

In Belgium, the Group disposed of three retail sites, generating disposal proceeds of £1.9m and two sites in the UK, generating disposal proceeds of £10.1m. The group also disposed of its retail business in Luxembourg in January 2021 for £4.5m. In 2020 it disposed of 13 retail sites in the UK and two retail sites in Australia for £64m and retail businesses in China for a deferred £8m. It also changed its classification on the London Stock Exchange to Business Support Services from Speciality Retail.

The position on retail is very clear. Inchcape wants to be the undisputed distributor of choice for carmakers.

“At the moment, we’re not looking to take on new dealerships in the UK. Our vision, for the UK, is to really become the absolute number one in terms of customer service and operating practises. To prove that franchise retail is the right place for the consumer to come and buy their car and the right outlet for OEMs to be able to sell those cars,” he said.

“That’s all about taking the existing estate to the next level. So, we don’t have any ambitions to grow significantly. Now, if an OEM comes along and says, well we want to reconfigure the network a little bit and we’d like you to come here, you know? Yes, we’ll certainly look at that.”

But what of the remaining retail business in the UK. There is a lot of interest in UK retail motor businesses from abroad. US group Lithia has just bought Jardine. Hedin bid for Pendragon before pulling out. It subsequently bought four Mercedes-Benz Retail Group dealerships.

So is the Inchcape UK business for sale? Ashford argues that the UK is important for Inchcape. It is a mature and highly sophisticated market. Inchcape learns from it, and it helps develop relations with carmakers. A sale of the UK retail business is not necessarily the logical outcome of a focus on divestment.

“I think it’s more nuanced than that, so we are now happy with our stand alone, retail footprint. We are in retail in the UK for two strategic reasons. One is because of the importance of the UK market, how we perform for our area and partners in the UK really has a disproportionate effect on the perception of Inchcape as a partner in their global business. So doing a good job here is really important for our global relationship.

“Secondly, the UK market is really developed from a retail perspective. So, it’s a great place for us to learn and get a sense of what might be coming down. Agency is the most obvious example of that.”

Ashford also pointed out that in many of its distribution businesses are independent, with 30% of the network owned by Inchcape.

“So, we’re still actively involved in retail in those markets. But we’re typically the distributor with 70% of the network being independent, 30% owned by us. So, you know, at first glance your conclusion is the right one that we are growing in the distribution chain but within that you’ve got to be good at retail to be a good independent distributor,” he said.

The ‘A’ word has been mentioned. So, how’s it going? And what’s the experience been like going through agency with Mercedes-Benz who is well advanced on the route in the UK, with lots of preparation before launch in January.

“In the run-up to launch in our view Mercedes have done an amazing job of consulting with the network, working through the operational challenges, having the right network configuration. So, laying the foundations for agency, the Mercedes team deserve an enormous amount of credit.

“How has it gone? Operationally, really smoothly. Now that doesn’t mean there haven’t been teething problems. But you know, with a change of that scale there are always going to be teething problems. So operationally, the processes broadly worked. We’ve not had any sort of, you know, significant downtime due to the particular system or process not working.

“The third thing, you know, ultimately, this is about giving the consumer a better experience.

“It’s just too early to tell for that six weeks in and that will take longer to determine.”

When pressed about the teething issues, Ashford said: “There was some issues around speed of payment, so it’s really, really minor.”

This interview was done weeks before Inchcape delivered its annual results for 2022. This included the group view on agency saying that agency would deduct £200m annually from Inchcape’s UK turnover but the impact on profitability would be “negligible”.

As for the group’s results themselves, they were good. Inchcape,globally, turned in a strong performance in 2022 with adjusted pre-tax profits up 50% to £373m on turnover ahead 15% to £8.1bn. UK revenues were £2.029bn.

During the year it secured first-time relationships with Porsche, Volvo, BYD and ORA, pulled out of retail in Russia. Inchcape said while it was mindful of the ‘changeable’ economy, its diversified model would stand it in good stead. It said it expected vehicle supply to continue to improve in 2023.

I ask Ashford is agency taking up much of his management time? “We’re actively engaged. So all of the OEMs seem to be doing a good job consulting. We’re pretty big partners with most of them. We’re on those steering committees, so we’re actively involved. It doesn’t feel intrusive in terms of stopping us running the business. But you know our senior guys are on those panels to make sure we work through the operational issues,” he said.

Inchcape has made a big play on using digital and technology to improve performance. The most audacious move planned is a switch of DMS to Tekion. Unplugging a DMS systems is like a surgeon doing complex surgery. It’s a big operation and needs a lot of long term planning.

Inchcape is carrying out due diligence and testing of the Tekion cloud-based dealer management system that it plans to install across its UK dealer network.

Tekion is a relative newcomer to DMS market. It was founded in 2016 by Jay Vijayan, chief information officer of Tesla for four years. Vijayan led the IT team which built and scaled Tesla’s digital and information platform from ground-up.

Tekion has been making waves in the US where it has attracted serious investment for its customer-centric software. It is now said to be operating in 39 States, attracting dealer groups of varying sizes.

“We’ve been talking to them, testing, doing our due diligence for the last year. We’ve now signed up to roll out Tekion across our estate over the next three years, and we’re in the design phase of that at the moment. We’re very excited about what Tekion will bring,” he said.

“We’ve all been in situations where, you know, what you think software can deliver doesn’t always materialise. But so far, so good, each iteration we’ve seen gives us more confidence, rather than less,” he said.

On the technology side the company has partnered with 8×8 to deliver a telephony system to stay connected with customers in the way they want to communicate.

“In every site we’ve implemented a new telephone system, eight by eight. We need to become more effective at contacting existing customers and ensuring that we offer them, the right package to come back to us. 8×8 gives us multimedia contact facilities. So, we can use WhatsApp and Instagram, so it’s not just telephone contact.”

And Inchcape Group, as a whole is setting up a Digital Parts Platform, which it will launch in 2023 following a pilot in Australia last year.

Is Inchcape doing anything particular on the EV side of things? Ashford said: “Just like we do for technician training, we rely on OEMs to give us the right answer, we are very focused on the health and safety implications around EV and we are looking at that from a global perspective.”

I asked Ashford what did he think was the biggest challenge dealer group CEOs? The answer: “Omnichannel retailing.”

This for Ashford involves end-to-end retailing, re-engineering the customer journey and automating sales and aftersales with reduced contact points. Hence, the partnership with Tekion and the ambition to drive change within the group.