EAGERS Automotive’s recent briefing of investment analysts has been told that the company’s plans to disrupt the traditional used car business in Australia are based on discovering new ways to save on costs and a desire to drive sales by modest margins on the car with high penetration on finance and accessories.

The company revealed that its metal margin (the profit on the car) on vehicles sold through autoeasy123 was $1400 less than on the cars sold through its franchised dealership used car departments. The more modest margin is driving increased sales through the superstores where the lower cost base and higher F&I and aftermarket sales kick in to produce a positive result.

Eagers Automotive COO, Keith Thornton, said the economics of used cars “are pretty simple”.

“We need high volume, reasonable – and that is an important word – reasonable gross margin. We need to minimise our expenses and be the lowest-cost scale operator and that will maximise our net profit.

“But the key things that we need to leverage are; in the gross profit is the metal profit; so that is the margin you make on the vehicle. And that is not something that we are significantly focused on. This is not the highest gross model. That is very clear in a fixed price.”

“Finance is about penetration. Value-added upsell is about penetration on things like accessories that add to the customer experience. On the expenses, it’s people, property, marketing and inventory. They’re all key things that we believe we can fractionalize in a very unique way.”

The head of easyauto123, Craig Bigley outlined to the investor briefing the following performance numbers:

• Sales volume up 57 per cent over the past 12 months even taking into account the impacts of COVID through March, April and May.
• Gross margins improved 27 per cent on the same 12 months
• Rent cost per car sold down 34 per cent over the past 12 months
• Floor plan or inventory cost per car sold has reduced 62 per cent across the same period
• Stock turns were at nine pre-COVID and are now at 12-plus post-COVID
• Personnel cost per car sold has reduced 29 per cent
• Sales team member productivity metric had improved by 44 per cent year-on-year
• Marketing costs per car sold are down 32 per cent.

Sales efficiency

On sales efficiency, Mr Thornton said that a key driver is that the no-haggle environment was dramatically lowering the time to sale. This was both a win in customer experience and in reducing staff cost per sale.

He said that for years the Deloitte industry benchmark has been around 12 sales per consultant per month. Within Eagers franchise automotive businesses they are running around 16 units per consultant per month.

But in the easyauto123 stores, they are consistently achieving 25 sales per team member per month and have topped out at over 33 units per consultant per month.

“That is a massive, massive driver in terms of reducing the cost per unit. Because not only are you getting more productivity out of each individual consultant, because it is a fixed price model, you are not paying exceptional commissions for the ‘expertise’ of negotiation.

“So this is a really important side of our future and something that we’re going to be very focused on,” Mr Thornton said.

Marketing costs benefit from selective analysis 

Mr Bigley marketing costs per car sold were down 32 per cent.

“This is a really interesting one because this isn’t a cost that necessarily fractionalises with volume, it’s actually one you just have to work hard on.

“Firstly, we’ve used analytics to make smarter decisions on what stock to advertise and for how long.

“Our website now represents 15 per cent of total leads generated over an average of August, September and October compared with an average in January, February and March when five per cent of leads generated.

“easyauto123.com.au sales volume for August, September and October average 27 per cent of total sales compared with only five per cent in the same three months last year.”

An online reservation click and collect service reached a new high of 16 per cent of total sales, Mr Bigley said.

Source of cars

Mr Bigley said that easyauto123 purchased cars at auctions and in the private market.

He said that partner cars, sourced from fleet management organisations and sold for a fee through easyauto123 stores, make up between 30 per cent and 40 per cent of stock, sometimes higher.

“Then another 20 per cent to 30 per cent has been either traded into us or comes from within the group. And then the net would be what we’ve purchased either from auctions, or more often, hopefully, in the private market or the high grossing environments.”

Mr Bigley said the partner cars provided a wider choice but did not involve a buying fee nor floorplan costs.

Eagers Automotive sells approximately 65,000 used cars a year, 53,000 through its franchised dealers and about 12,000 to 13,000 through easyauto123.

By John Mellor