In addition to my role as Chairman of ICDP, I get the opportunity to put theory into practice as Managing Director of Auto West London, a dealer group currently representing Omoda and Jaecoo, with further expansion planned.
We have just had a great September, breaking various records, and coming out as one of the Top 5 dealerships for the brands in the UK for the last quarter. That’s all good, but it is how we got there that I thought would be interesting to readers of Insight Quarterly, as the lessons are generic across all businesses, not just automotive, not just dealerships.
In most businesses we are used to hockey shape curves reflecting achievement of objectives over time – whether it is production or sales, weekly, monthly, quarterly, annual. It seems to be an unwritten rule that there is always a last minute dash for the finishing line. That is particularly true of car sales at the end of key periods, and March and September in the UK represent around one third of annual registrations. Consumers seem to be less motivated by having the new registration format than they once did, but the industry is obsessed with it, with the best deals such as interest free credit and deposit contributions typically being at their most generous in these two months. There is huge rivalry amongst manufacturers to top the charts in these months in particular.
It will not surprise anyone familiar with the industry that this leads to some crazy practices with big fleet deals and pushes for self-registrations in the last few days of the months. Apparently 30% of the total UK registrations in September happened in the last three days of the month, with a rush of activity right up to the last available minutes that vehicles could be registered on the Government system on the 30th. This concentration of business into two months, and within those months into the last few days, drives huge inefficiencies and waste into the whole supply chain. Those cars registered right at the end of the month will be coming back into the market as zero or low mile used cars within days and weeks, damaging the residual values, which in turn makes it tougher to come up with attractive finance deals in the months and years ahead. A glut of discounted nearly new cars becomes an attractive option for retail buyers in the following months so the pressure to hit October and November new car sales targets is greater.
The operational challenges of satisfying this distorted demand are also huge. Capacity at ports, storage compounds, physical transport, dealer storage, pre-delivery inspection and every other part of the eco-system that supports the process comes under strain. Systems outages in the finance companies and in the Government registration system become nightmare scenarios towards the end of the month. Temporary capacity has to be brought into play, overtime premiums paid, and inevitably the quality of process execution comes under strain. None of this adds any value to the customer so in Toyota Production System terms is ‘muda’ or waste.
Zooming out from the peculiarities of the UK twin peak registration months, the industry as a whole suffers from similar waste through chasing sales registration targets – almost at any cost. This is what drives the whole ‘stock push’ system, with supply being optimised around a set (usually optimistic) volume, and the effect of this being passed downstream to the sales system – national sales companies, distributors and dealers. This is what drives most of the 30% cost of distribution that is widely recognised as typical and is certainly exceeded by some manufacturers on a consistent basis.
It is why I am so proud of what our team achieved at Auto West London in September. Although it helps that there is strong retail demand for the Omoda and Jaecoo products (the Jaecoo J7 ended up as the best seller in the UK market in September), not all dealers for the brand escaped the ‘hockey stick’ last minute rush. We achieved the amazingly consistent daily registration rate shown in the chart through planning and a team effort. This included our manufacturer partner, their chosen logistics and finance partners, and our own team in sales and aftersales. We had built a strong order bank at the start of the month and had around half the required stock on the ground. We tracked every car through the logistics and funding process to ensure that every car required was funded by the start of the second week, and every car was physically delivered to us with a week to spare. The whole process was driven by a target daily registration rate which actually slowed towards the end of the month whilst others in the industry were hitting the panic button.
I am not so naive as to believe that we can repeat this every month or across every brand, but it does show that with realistic targets, strong collaboration along the supply chain, and good planning flows can be stabilised. This will deliver better outcomes for customers, staff, shareholders and manufacturer partners. That is a message that we have been trying to communicate as ICDP for over thirty years, but the imperative of hitting period end targets at any cost has too often taken precedence. The industry trades off short term targets against long term business excellence – how long can that continue to be a viable option?
