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The new driving force behind used car sales; How the supermarket approach of Car Group has revolutionised the way we buy cars.

Britain may be a nation of tyre-kickers, but buying a used car is generally reckoned to be up there with visits to the dentist and bills from the taxman as necessary evils of late 20th century life.

Most people have horror stories about the car-buying process, be it the one about how their trade-in was deemed to be worth a negligible percentage of the value of their new car, or the one about the two-year old "one careful owner" model that turned out to have been clocked, crashed and stuck together with little more than Airfix glue.

So it is hardly surprising that a company which can take much of the hassle and unpleasantness out of the process should find it easy to move in and collar a sizeable chunk of the second hand car market.

Car Group, which floated on the stock exchange just 18 months ago, will eventually have 12 sites across the country, each selling up to 1,000 cars. The shares, floated at 138p, are currently worth 180p and trade at a hefty premium to other car distributo rs.

But many in the City feel that this high rating is justified. Car Group's claim to fame is that it has changed the way people buy cars. And it has.

Founded by Mr Richard Farr, formerly of Western Motor Holdings, and Mr Peter King, ex-UK sales director at Rover and the man who set up Proton Cars in the UK, the company has gone for a different approach to the selling of cars - it is literally runlike a supermarket. The Car Group's view is that no one negotiates the price of groceries when they go to Tesco, neither should they have to do so when they buy a car.

Some people do like haggling the salesman down and driving away witha "bargain", but others hate it - Car Group's done away with it and anyone trying to trade in their jalopy will always deal with a different department to the sales team.

This stops people being bumped into buying a particular marque or model, just because there's a surplus of stock lying around.

Rivals have started offering the no haggle deal too, but they are coy about why.

Perry's chairman, Mr Richard Allan, said they offer fixed price sales on all second hand cars "because that's what customers want".

More likely it's because of the success of the supermarket approach to selling cars.

Car Group is not the only company to sell nearly new cars on retail supermarket lines, but it has been doing so for about as long as anybody else in the UK.

Its original Cannock car supermarket, started after the pounds 31 million management buy-in at Motorhouse in early 1996, has been running for four years, mainly selling Fords but also Vauxhall, Renault and other mass produced brands.

Northampton, which opened in May last year, sells more Vauxhalls - mainly because of its proximity to General Motors' plant at Luton - but also luxury marques such as Mercedes, BMWs and even the odd Alfa Romeo.

The Car Group approach is undoubtedly less stressful than the conventional dealer's attitude. For a start, trade-in prices are determined by computer. My trusty family estate, a Peugeot 405, was deemed worth only pounds 1,800 - a price that promptedderi sory snorts from the City analysts present.

But it was a sight more than I was quoted a week later by a Ford main dealer, and that was adjusted up and down depending on whether I wanted to trade it in for an Escort or a Scorpio. At Car Group the price is fixed, whatever you choose to buy.

Finance director Mr Peter Floyd says this is an important distinction. "People mustn't feel that we are pushing them in a particular direction. Many dealers will say you can have x if you go for a particular model. This is fairer for the customer and tak es the heat out of the whole process."

Having launched Car Group on the stock market, the management's view was to stick to what it wanted. The City's perception of the used car market was, it seems, bad enough without the company getting involved in even older models - those aged between fiv e and ten years rather than the two-to-three years it currently specialises in.

All that changed with last year's acquisition of Empress. The company was one of the biggest used car retailers in the south-west of England and South Wales, accounting for more than 30,000 units a year.

The venture has allowed Car Group to extend its operations into another area - that of slightly older vehicles.

The margins here are, potentially, much better. Although prices are lower, so too are customer expectations and it doesn't take much cleaning up to make a slightly older model sell.

Finding a company that's as good as Empress might be deemed lucky, but making one's own luck is a pre-requisite.

The deal, funded by a pounds 12 million placing and open offer at 175p a share, doubled annual sales and brought expansion plans racing ahead.

This year has seen similar rapid growth for Car Group. Three weeks ago the company announced it was speeding up its rolut programme with three ten-acre sites set to open in the coming year.

The first site, likely to display up to 1,000 cars, opens in May, three months ahead of schedule. A second outlet will open on the M1 between Nottingham and Sheffield this winter, while another is due to see Car Group selling within the M25 around London before the end of the year.

It's not been success all the way, however. With margins on used cars better than new cars, they're still a long way off the earnings potential of insurance, warranties and other add-on services that can be provided on the back of any used car sale.

Car Group has a deal with Lex Service, which will open autocentres at its retail sites, so that it can sell customers a combined servicing and MOT package. But it has had much less joy with its White Knight joint venture, a scheme that provided car warra nties. That venture is likely to be put firmly on the backburner after incurring substantial costs in the fist half of the year.

Analysts see Car Group as a "good idea", but with an optimum size of 12 outlets, several question how the business can grow after it has reached this number. They also highlight the low barriers to entry as a potential problem - anyone, after all, can re nt a strip of land and start selling cars on it.

The verdict within the motor trade is also somewhat mixed albeit for different reasons. Established dealer networks are being revamped to meet the challenge and while rivals may acknowledge the supermarkets' existence, they won't thank you for pointing t hem out. That, arguably, is the ultimate accolade.
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Publication:The Birmingham Post (England)
Geographic Code:4EUUK
Date:Apr 10, 1998
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