This year has been marked by a transition in the automotive industry, including the growing prominence of EVs and zero emission targets, along with the introduction of a low emission zone in the UK's capital. These changes have brought the future of the motor retail business to a crossroad.
The most interesting aspect of working with the UHY portfolio of motor retailers is often the opportunity to listen to and advise clients on the life cycle of their business.
In a year, where agency transitioned from a concept to a reality, an EV / Zero emission target started to grow legs and move and the UK's capital saw the introduction of a much-detested low emission zone, one must sit and consider what could be next for the industry.
From an advisory capacity, we have assisted owners with the exit from their businesses, by outright sale or Management Buy Out (or In) and where possible we have suggested legitimate tax planning strategies to facilitate this.
The life cycle of a motor retail business is, however, not all about the grow & sell approach, although money from overseas investors does make this an attractive option at the moment, as a number of the listed dealer group can no doubt attest to.
So, what are the strategic trends we are seeing with clients in the here and now?
Brand diversification & stakeholder management
For many owner drivers, the efforts put into developing a business, and implementing initiatives to stay ahead of the competition can become all too futile where a manufacturer starts to restructure their dealer network. We are all hopeful that dealers who support the brand they represent, will reap the benefits if a network alignment is necessary, however, in recent times, we have seen several owner managers having the 'rug pulled' from under their feet. Sometimes, the loyalty to one brand can also be a dealers' weakness, and we are seeing more and more dealers reinforce their businesses by widening their commercial relationships, whether that be by approaching a new brand partner, or by placing more emphasis on the aspects of their business that they control (e.g. focus on used car specialism, all makes servicing etc).
Presently though, I feel this self-appraisal needs to go further and would encourage all dealers to be very mindful of their financing partner's relationship and interdependence with the brand captive funders to avoid any unpleasant shocks.
Ringfencing business property
As the fortunes of the franchise's shifts, so too does the security that the owner manager has within their own premises.
Many operators have taken steps to introduce a "Hold co" or "Prop co" and "Op Co" structure, to allow more security over the key asset of their businesses.
This step also allows for additional flexibility should a step in that life cycle need to be consideration of a sale, or an MBO / MBI.
Maximising capital allowances / necessary CAPEX
After the uncertainty of Covid, supply of new vehicles has
picked up, although the recent UK car production statistics for
August illustrate that the 'navigation to normality' will
not be without its challenges.
As the market reawakens (and despite the suggested reduced
influence that a brand partner should have with the dealers'
facility under an Agency agreement) the requirement for visual
identity and corporate identity spend is, once again, inching its
way up many board meeting agendas.
Whilst the industry accepts that the CI/VI spend is often a
necessary evil, for a dealer to enter into a 6 or 7 figure CAPEX
commitment, the exact merits of that decision do need some careful
consideration.
No longer can it be accepted that the spend will have a significant
impact on the underlying value of the premises, and indeed with
Agency around the corner for some brands, we are keen to challenge
dealers on the "why" as much as the "how" when
it comes to planning CAPEX.
In light of the increase in mainstream Corporate Tax to 25%, we are see a significant increase in the level of planning before committing to a CAPEX project, to maximise the availability of the allowances that can be claimed, and where the cost of borrowing is increasing and is combined with the cost of materials being prone to inflation, one can appreciate why saving some funds by planning the spend carefully can reap significant benefits in cashflow terms.
I find the sector fascinating, as do my automotive colleagues in the Manchester Office, and we are always hoping that a new week brings a new opportunity to help a dealer or dealer group with a challenge.
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