The UK might be bucking the trend with rising sales in Europe but that by no means leads to increased profits, as Peugeot UK's boss tells just-auto.
Car sales in Britain are running 10% ahead of last year and car companies are starting to load the market in attempt to shift metal they cannot move in other European markets which are falling or, at best, stagnating. That means greater competition in the UK and the fear of heavy discounting.
There is also the thorny issue of exchange rates. Tim Zimmerman, managing director of Peugeot UK, said: “Certainly the UK is a good place to be trading but everyone is realising this so the competition is getting tougher. While sales are good it remains difficult to be profitable because virtually every manufacturer is more or less dependent on the pound-euro exchange rate and a weak pound makes things difficult. We have a GBP2.2bn (US$3.5bn) turnover in the UK and a 1% variation in the exchange rate can make a GBP15m (US$24m) difference to our bottom line."
The UK is unique, he said, because the average period people keep their cars is under five years and quite often three which compares to between eight and 10 years in many parts of Europe. This has been fuelled by the availability of personal lease purchase schemes pioneered in the early years by Peugeot and Ford. These give UK buyers a unique opportunity to change their car every three years.
Under these Personal Contract Purchase schemes (PCPs), customers also have their vehicles serviced by their dealer regularly which provides the opportunity to stay in constant contact. Zimmerman said: "We can offer consistently evolving and improving products every two or three years. While people can hold on to their cars longer if they want, we can offer then a newer model with better performance in terms of fuel consumption, safety and the environment along with fairly stable monthly payments."
An offer that is also working well for the Peugeot brand is its 'Just Add Fuel' promotion which continues to be popular because it does what it says on the box, apart from fuel, tax, insurance and maintenance is all taken care of and this has brought a lot of new, younger customers to the brand
The UK is the only country where this operates but Zimmerman said that the head office in Paris is looking at how it may work elsewhere. He added: "It's not a cheap offer however, particularly the insurance element, but it is drawing younger people to the brand which is something of a holy grail."
Innovative offers are important as the competition increases. Zimmeran said: “Although other manufacturers followed us with PCPs, no one has yet taken up the Just Add Fuel idea. The fact is that we are now not only competing against traditional volume rivals but premium brands such as Audi and Mercedes are now selling in our sectors.”
Peugeot sold around 120,000 cars and commercial vehicles in the UK last year and expects to increase this by around 8% in 2013. What is important, said, Zimmerman, is the quality of sales. The mix has changed with the brand less reliant on low margin daily rental or large fleet sales, to retail and business user-choosers.
As for next year, Zimmerman said he expects the market to be around the same as 2013. "But then we were not expecting the growth experienced this year so I am quite prepared to be pleasantly surprised."
Next area to address is the change in the way cars are sold through dealers. Zimmerman said: "We have to have staff who are more switched on technically rather than straightforward sales people. Customers now visit dealers on average 1.2 times before buying, down from three times not too long ago. They are much more aware of what they want and what else is around but we still need people on hand to explain the technology in the cars and help customers fully understand them."
In the meantime, the UK is a priority market. It is Peugeot’s third largest market behind France and China but things are changing rapidly with emerging markets. Zimmerman said: "Algeria, for example, will be close to selling as many cars as we do in the UK and Argentina is also very strong for us."