By Mike Edwards, Group Chief Sales and Marketing Officer
Inflation measured by the Consumer Prices Index is expected to keep rising and is now forecast to exceed 10% by the Autumn. You have to go back to 1981 to see higher levels. For this reason, it is fair to reflect we are facing the worst cost of living crisis in a generation and people are cutting their levels of expenditure as the UK economy shrunk in March.
Car retailing is not immune from the financial shock of escalating prices as consumers appraise how to cut costs and try to create financial certainty. Nor is this financial certainty restricted to people of low or modest incomes. According to a forecast published by investment company Hargreaves Lansdown and developed by Oxford Economics, a third of those in the highest income decile won’t have enough surplus income to deal with price rises.
In times of economic uncertainty, people look to insurance to give them peace of mind. With a car purchase typically second only in terms of costs to buying a house, de-risking the cost of car ownership is a natural decision for many. Making products accessible and affordable makes perfect sense. It provides customers peace of mind and enhances retailers’ retention and reputation.
- SMART insurance, with its high payout levels, helps to protect peoples’ NCBs, minimises end of contract repair bills and can even accentuate the value of a customer’s PX
- An extended warranty can help mitigate urgent repair bills’
- GAP/RTI can help to bridge write-off purchase/finance shortfalls which might be particularly variable in light of the dynamic nature of used car pricing right now
As someone who has worked in F&I on the retail side for most of my career, I recognise sales concerns about the purchase impact of added-value products and established product pricing mechanisms. At the same time, we should not ignore the potential for such products to add peace of mind and reassurance that can help bridge the buy/don’t buy gap. I can see the potential for added value services to be a valuable marketing tool in uncertain times. Longer warranties included within vehicle pricing, SMART priced to optimise penetration and more.
During lockdown, I saw how effectively dealers pivoted their operating approach. As inflation increases, a fresh approach to the role of certainty provided by value-added services could be invaluable. After all, it is a step towards the type of certainty that subscription models promise to deliver.