- Process requires sensible risk management and careful financial modeling
- But can make vehicle distribution more efficient
The pre-registration of vehicles is not indicative of the formation of a “bubble” at risk of “bursting”, according to our research in conjunction with Knight Frank, the leading independent global property consultancy.
Together, we found that despite recent media attention suggesting the practice is having a negative effect, pre-registering vehicles has long been common practice in the motor industry.
We explain that when executed properly, pre-registration makes the distribution of vehicles more efficient and increases income for car dealerships.
Knight Frank explains that pre-registering a vehicle occurs when a vehicle dealership effectively buys the car from the manufacturer, before an “end customer” has been identified. It is then stored until a buyer is found, with the sale often being made at a discount to the list price.
This tends to happen when distributors have come under pressure from manufacturers to meet sales targets. Because pre-registered vehicles are counted as a sale, this can help distributors meet targets more efficiently.
When managed well, the pre-registration of vehicles has several benefits. It means distributors can:
- manage their stock more effectively;
- diversify their product offering to customers; and
- help manufacturers increase vehicle sales, whilst achieving their bonus targets.
Tom Poynton, partner in Knight Frank’s automotive team, says: “When executed properly, pre-registering vehicles does not pose any substantial risks to distributors – or misrepresent demand within the market, as recent reports have suggested.”
“Rather, it is an efficient way of doing business – and one that usually benefits those that practice it sensibly.”
Paul Daly, partner in our automotive team, adds: “Supported by sensible risk management and careful financial modelling, pre-registering vehicles can be a beneficial practice within the automotive industry.”
Tom, continues: “Pre-registration is often of net benefit to both manufacturers and distributors.”
“Pre-registering vehicles enables distributors to simultaneously meet their sales targets – whilst enabling them to offer their customers more choice.”
Paul, says: “This is not to say that pre-registration of vehicles is not a delicate process which needs to be done with a careful eye on levels of stock, debt and cash flow.”
“The practice of pre-registering vehicles needs to be carefully managed by distributors – or they risk taking on too much stock which keeps assets illiquid.”