Tesco's car sales are beating the dealers

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The sheer size and financial power of Tesco (LSE: TSCO) mean that when it launches new ventures, it can trigger minor earthquakes in its new markets.

It pretty much did that with banking, when Tesco, along with Virgin, moved in to challenge the traditional high-street banks, in which so many people have lost a lot of confidence. Tesco has attracted a good number of customers with its in-store banking offerings, while Virgin, as we saw recently, has bought itself a high-street foothold with the purchase of Northern Rock.

But what about second-hand cars? That's a market that could seriously benefit from a shake-up, and when Tesco ventured into the business back in April with the launch of Tesco Cars, it looked like another shake-up was on the cards.

With a plan to offer RAC-inspected used cars at up to 20% less than typical forecourt prices, and selling through its rebranded Carsite website, Tesco originally hoped to be able to shift 3,000 cars a week, with a longer-term aim of hitting the 5,000 mark.

The story so far

But now, six months on, has Tesco Cars managed to hit those targets? According to new research, it hasn't quite done that, but things are still looking pretty good.



In a report based on analysis of the website over a seven-day period at the start of October, Bryan Consulting identified a sales rate of 2,000 cars per week, with stock turned over once a week.

With Tesco's financial muscle giving the supermarket a purchasing advantage in the ex-fleet market, the group appears to be achieving sales prices of around 9% less, on average, than typical dealer chains. But that's some way off the 20% discount that was initially expected.

Of course, the absence of any showrooms, no need for Tesco to store the vehicles (it mainly ships direct from seller to buyer), and no sales staff earning commission, Tesco's significantly lower overheads should provide an instant advantage over the high-street showrooms. So, as economies of scale build up, we should hope to see that 9% being beaten.

Clubcard points, too

The downside, naturally, is that buyers don't get to kick the tyres before they hand over their cash, which might seem like a pretty big deterrent. But judging by the site's stock turnover, Tesco's seven-day money-back guarantee does look to be effective in countering that -- and, of course, your average second-hand car dealer doesn't give clubcard points.

So, at the six-month stage, what's the future looking like for Tesco Cars? All the company itself would say is that it's on track to meet its five-year targets. And it's Tesco, so it would take a brave person to bet against it.

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