Interview – James Brearley, CEO at Inchcape UK

Inchcape CEO James Brearley re-joined the company in 2017, 26 years after he left Inchcape to join Pendragon PLC shortly after its initial flotation in 1991. He rose through numerous acquisitions to become managing director of Stratstone and Chatfields Trucks for Pendragon from 2008-2015.

Today he has responsibility for Inchcape’s £1.6bn turnover business, which represents a wide range of premium brands across 90 sites, including Jaguar Land Rover, BMW, Mercedes-Benz, Toyota and Volkswagen and employing 4500 people.

Talk us through the build-up to lockdown?

“The warning signs were there even at the start of the year, and whether you call it lucky or well-planned, we took on the intelligence from across the company’s global footprint and made some early decisions: for instance, we stopped people who travelled internationally in affected countries from coming back to work in February for two weeks quarantine, and I’m so pleased we did, as we had no instances of anyone contracting the virus on our sites.

“That decision then put us on higher alert for three or four weeks prior to the UK’s lockdown. So we got our heads down, especially from an IT point of view, in checking our systems and trialling working from home. By the time lockdown was enforced we were up and running. There was an element of luck there, but we also prepared well.”

Give us a retailer’s eye-view of how it then unfolded?

“Really, we were just talking – hourly, daily – and trying to ensure that all the information we had was shared across all the teams. Every question we had, we tried to formulate an answer for: ‘What’s going to happen with the cars we have in stock? What’s going to happen with cashflow? What’s going to happen with the car manufacturers? Where are we with production? What’s going to happen with all these customers that we’ve got cars for, ready to be delivered?’

“At first, we were watching everything hour by hour, mainly with an eye on two things: our cash position and the well-being of our people. But in a short space of time we became very adept at dealing with problems we could solve and looking for solutions for ones we couldn’t.”

How many bought but undelivered cars did you have ready?

“Between 4500 and 5000 ready to go over the remaining two weeks of March. Just communicating with all those customers, reassuring them and letting them know what was going on was hard. And we had to reassure them: from the customer’s point of view, they had paid a deposit on a car they now couldn’t have. They deserved brilliant service and I hope they will agree that is what they got.”

When did you start to manage the longer-term impacts?

“There was about two weeks of battening down the hatches and then we had to really focus on the next impacts that could have hit us. To that end, I have to give a massive endorsement to the National Franchised Dealers Association (NFDA) who really pulled all of the retailers together and co-ordinated our thinking and efforts.

“Throughout, they have got the senior heads of retail businesses together and helped us understand the challenges and present a united front. With their work with the Society of Motor Manufacturers and Traders (SMMT) they have done a fantastic job in keeping our industry at the forefront of Government thinking.”

How did you and your team cope with the moving target dates for re-opening?

“You have to take the long-term view, don’t you? Whether it was Covid-related or impending financial crisis related, the issues from this are going to be with us for the long-term. You can’t predict the outcome and you’ve just got to work on your instinct based on past experience and come up with a plan. That’s called leadership, isn’t it?

“Within ten days of lockdown, we started planning for reopening. When I arrived here three years ago it was more a collection of businesses, not a co-ordinated group, and that’s where we’ve made progress. When I started we had four different trading names and 11 different websites, for starters.

“We’ve spent a lot of time digitalising the business and that puts us in a great position. We were able to turn on our online reservation system, which basically meant customers could buy a car from us remotely. We turned that on within a week of lockdown, and I have to say, for us, that was hugely successful. We took several thousand orders without anybody speaking to anyone else physically. We’ve got full HD video, multiple photos on any car, and so on and so forth of all our used stock cars and full visibility of new stock and pipeline. That has been a massive benefit: people were ordering from us throughout the whole period, even when the sites were shut.”

How many sites did you keep open for servicing work during lockdown?

“All of them. I know not everyone did the same, but we wanted to have our sites open for emergency vehicles and for supporting frontline workers. It meant we could keep every head of business on rather than putting some on furlough, which I have to say is now paying dividends as they were of course incredibly motivated by that.”

“The hunch was we would probably just about invoice enough to cover the costs of that head of business and three technicians being in. I’m pleased to say we did, and that underlines to me that it was the right decision: we didn’t lose money against that labour cost and we kept the teams motivated, talking to customers and ready for re-opening.”

You did use furlough; how did you keep your teams motivated?

“Having the heads of business there was the first consideration, to talk to customers and to talk to staff. We never shut our doors to our communities. Then it was communication: every single week I sent an email to all staff via personal email addresses explaining our situation, from business conditions to pay considerations and thoughts on reopening dates. Our Franchise Directors spent all day, every day talking to their teams.

“It was unknown territory, but my best instinct was to keep talking to everyone, customers and staff, and be level on what we did and didn’t know.”

What cars were you selling online during this period?

“New and used, actually. Used was stronger and we took a lot of deposits, promising to return them if a customer found a car wasn’t as described.

“But we did sell a surprising number of new cars – usually ones that were in reasonably short supply. Every single one of our stock and pipeline cars now goes online and is there for customers to see and reserve.

“The ratio was roughly five to one used to new, over a normal ratio of 2:1. That is balancing now, but the online changes we have made are still reaping dividends.”

You went on the front foot for re-opening too?

“We brought back 50% of our sales teams and 65% of our technicians back the week before we were allowed to open as we had seen signs that there would be an initial burst of demand. They were able to go through everything and ensure the customer experience was spot on.

“It was a big investment to take them off furlough but our hunch was they would be busy for at least a few weeks. It has turned out to be more than that. We had a good June and a better July. I’m positive about our short-term prospects.”

What predictions would you make?

“The reality is that we’re all in the dark to a degree, aren’t we? We can all look back and adjust, but nobody has a crystal ball to look forward.

“So far, our daily order banks have been consistently strong. I keep looking for it to drop off, but so far it hasn’t. It’s stable for new and used cars.

“As a result, my biggest concern is not demand, but the availability of used cars to sell and the stock cars coming down the pipeline from manufacturers. The manufacturers have obviously had their own challenges with shutting and re-opening factories, but one of my concerns as we get back to selling is the spec of cars they will send; they obviously make more money the higher the spec of the car, but that’s not the same for retailers, and it’s not necessarily the type of stock we’re selling. I hope none of the manufacturers get drawn into the short-term economics of banking some extra profit, out of line with customer demand, to the detriment of the supply chain.”

You sound bullish?

“I might be in a club of one here, but I really don’t think in the short-term we’ll have an issue with demand. I think it’s a number of reasons for that, led by the PCP boom after the last recession. Today, around 90% of our customers are on leases and we have renewal lists that we can contact. I can’t see them pulling out their savings and buying outright, and I can’t see them rushing to public transport, so I think the suitability of PCPs remains strong.

“Now some people will trade up and some people will trade down – we are already seeing that. But we represent mainly premium brands, and we make more or less the same money whether they buy a Mercedes C-Class or E-Class, so we’re happy so long as the constant demand, topped up now by some pent-up demand, is there.

“On used cars, every group I talk to is short of stock right now. Values have held up because demand has outstripped supply. Interest in the £3-7,000 sector is booming due to the reluctance to use public transport generally and that gives us further opportunity. It may not last forever, and we have to manage stock, but for now it is strong.

“Then there’s aftersales. The demand for service slots at the moment is huge. I can’t see that dropping any time soon either. In fact, I can see us trying to fit eight months’ work in a six-month period. That longtail of work will keep extending.”

It’s still a challenged market, though, and fleet sales are notably down, which in itself impacts used stock?

“That’s true and it does have a broad impact. Possibly in a year’s time it could cause consistent used car shortages if the fleets don’t start buying again soon. But for now, we’re in a strong position: you have to factor in that there were a huge number of self-registered, zero-miles, ex-manufacturer cars mucking about in the networks just prior to lockdown. The market was awash with them.

“Today, none of us are prepared to pre-register cars. So we are able to soak them all out of the network over the next five to six months. People have never been more prepared to buy a car off the shelf to reduce waiting times. After that, yes, we’ll want more stock of true ex-fleet or ex-rental cars. But there are signs of some areas of that industry moving, and Motability is especially strong. They have a huge fleet.”

That outlook makes it hard to justify the industry getting Government purchase incentives, though?

“I think the government needs to look very long and hard at this industry. It’s all very well some retailers saying, “Actually, things are buoyant in June and July, and look okay for the next three or four months.” What we’re not talking about is the millions that we’ve lost over the last three to six months. We can’t forget that, and much more importantly the pain that the car manufacturers are going through and have gone through is enormous.

“If you look at the contribution that automotive makes to this country’s economy, and the number of people it employs directly and indirectly, you’ll soon get an idea of what’s at risk.

“So far I think the government has acted extremely responsibly. The chancellor’s done a fantastic job in what he’s done so far in terms of bounce back loans, in terms of looking after the self employed, in terms of looking after people who potentially would have lost their job through furlough.

But if you’re asking if it should support the automotive industry and manufacturing industry going forward, I think you’d struggle to find an argument against it. For the government not to support the industry in my opinion would be crazy.”

What are your main concerns if there’s a second lockdown?

“The team here has proven its strengths; if we have to do that again we will. Nobody wants it, but we’re in as good shape as we can be.

“Perhaps my main concern is whether the manufacturers can be as supportive to retailers as they have been. The schemes they introduced to support us were terrific around the financing of stock and so on. It is nagging at the back of my mind whether they can afford to do it again, but a period of positive sales will help.

“Then there are local lockdowns. They do worry me, as they have so far been announced suddenly and that has caused some confusion for our staff and customers. I hope there can be some better co-ordination between Government and local councils.”

What have you learned about online sales in this time?

“That it works for us and our customers, and that it can be a very efficient way to sell from our point-of-view.

“But the digital gains aren’t just about sales; our online after-sales bookings are also surging. More and more customers are happy using our systems, and we will always follow what customers want.

“Today, there aren’t any queues in our service departments. Nobody is frustrated and waiting – and in turn that means less use of courtesy cars and so on. It works for us and the customers.”

Does that raise questions about the long-term future of dealership premises?

“You have to remember that, even on a lease, a car is still most people’s second biggest expense. People want to see and understand what they are buying and look an expert in the eye. We’ve seen it before and recently, where an operator comes in claiming to do online sales – and every time they seem to make a quick move to buy physical premises.

“What I do think is that we’ll see the end to some of the more outlandish investments. It’s highly unlikely to me that we’ll be building car dealerships with multiple floors and escalators between them, and 150 used cars on the third floor. They’ve never worked and they probably never will.”

Will all your competitors survive?

“Consolidation is nothing new. There’s always opportunity to buy dealerships.

“If a business compliments what we already have, then we would be interested. But it has to match our geographical spread and enhance what we already have.

“You don’t want to buy at the peak, and at the moment it’s clear that there are some interesting opportunities. But buying retail outlets now isn’t without risks. It won’t automatically mean more profit.

“I’m actually more focused on retaining my best staff – paying them well, giving them great opportunities and giving them autonomy – and digitalisation because retail has changed a lot and until three years ago it’s probably fair to say we hadn’t. For me, those two things are our biggest opportunities.”

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