No one knows with any certainty how the motor distribution system will look after the effects of block exemption changes have bedded in. But some beacons provide a useful guide on likely developments, as Arthur Way reports.
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The winds of change which have been blowing across the franchised dealer landscape for a number of years seem set to become stronger – and, for some, a good deal more bitter – as block exemption reforms edge closer to the October kick-off date.
It’s certainly possible to detect more restlessness in the air as dealers weigh up the theory behind block exemption changes against reality. Theory has it that the balance of power between vehicle manufacturers and their franchised dealers will shift in favour of the dealers. There is a persistent foreboding, however, that manufacturers will somehow continue to rule the roost, allied to the realisation that not all dealer groups have the management and financial resources to capitalise on their new freedoms.
Sentiment has not been helped by the blanket letters of termination which many manufacturers issued to their franchised dealers as a precursor to determining the best means of continuing to set the distribution and servicing agendas. Until new contracts are issued dealers are in limboland, and there is the distinct possibility that many will be culled from the distribution infrastructure. Again, theory suggests that disenfranchisement need not be completely disastrous since there will be plenty of chances to continue in business – for example, as an authorised repairer.
With regard to outlets, latest evidence suggests that erosion in the number of dealers which was such a feature of the 1990s has more or less stabilised, with around 6,500 franchised agreements now in operation. Some manufacturers are looking to trim or ‘fine tune’ their networks but others are still anticipating expansion, especially where sales have risen recently or the opportunity to secure higher market share is promising.
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By GlobalDataDaihatsu, for instance, currently has around 90 dealers but believes that ideally the network should rise to 145 if sales opportunities are to be maximised. The marque expects to appoint an additional 20 dealers during the year and has already added six in the first quarter. Similarly Hyundai reports that there are plans to add a further 12 dealers to the current tally of 161 in order to fill open points.
A prominent and continuing feature is the roll-out of the market territory concept whereby a single group takes responsibility for all sales and servicing requirements over a wide area. Often there is a central hub in the territory, supported by satellite showrooms and servicing facilities. Most notable exponent of this practice is Mercedes-Benz which caused a stir a few years ago when it announced plans to revolutionise its UK distribution and servicing functions through the termination of all dealer agreements with 12 months’ notice, followed by the setting up of a new network in which the company itself would play a significant role.
Two years on from the shake-up, the Mercedes-Benz network comprises 39 market areas of which seven (Birmingham, Manchester and five in and around London) are manufacturer-owned, leaving 32 ‘independents’. In total there are now 170 sites – rather more than the 159 single sites before the reorganisation – including retail ‘shops’ and service-only operations, as well as the more conventional outlets with a showroom and servicing facility.
Other manufacturers have implemented market territory networks but differ from Mercedes-Benz insofar as they have not attempted to establish in-house distribution operations. Volvo reports there are 145 sites in its franchised network and that these are controlled by 58 independent owners, down from the recent figure of 70. The likelihood is that a further decline in owners (but not outlets) will occur as independent operators sell out for a variety of reasons to bigger groups.
There are strong grounds for believing that multi-brand sites will become a more prevalent feature for two principal reasons. First, consolidation within vehicle manufacturing means that companies like DaimlerChrysler, Ford and GM control an increasing number of marques, some of which either lend themselves to joint distribution or can be tagged onto an existing network without providing direct competition.
An example of the former is seen with Ford’s Premier Automotive Group (PAG) where links between Jaguar, Land Rover and Volvo are strengthening. Each marque retains its identity but a clear pattern is emerging whereby distribution partners are taking on all three and, in some cases, operating from the same site. An example of the latter is seen with the Smart which is being sold by a number of Mercedes-Benz dealerships, although there is no intention to distribute Chrysler products through these channels. Similarly, distribution of the Mini is being handled for the most part by BMW’s 150 or so dealers, although where volumes permit there are stand-alone sites, numbering seven at present.
Secondly, multi-branding often provides the only feasible means for manufacturers with small market shares to attain nationwide coverage. It follows that the franchised networks of mainly Japanese and other Far Eastern manufacturers such as Daihatsu, Hyundai, Kia, Proton and Suzuki are often sold alongside other marques. This is particularly the case in London and the South East where land values are high.
A critical trend is the growing split between sales and servicing, which surely can only intensify under the revised block exemption provisions. Many manufacturers expect to appoint existing members of the independent aftermarket as authorised servicing and repair agents and, indeed, welcome the prospect of boosting their service representation in this way as evidence mounts over the difficulty that several networks are experiencing in meeting the servicing demands for a rising parc. In any event, it is logical that there should be more servicing points than showrooms, since studies have shown consistently that consumers are prepared to travel longer distances to buy a car than to have it serviced.
Less certain is the extent to which ‘outsiders’ will enter the retail motor trade. It is known that supermarkets and other retailing groups have been investigating opportunities in car retailing but are unimpressed by the poor margins. Tesco‘s relatively recent move to sell scooters came to nothing, while cars surely would present an even bigger challenge. More likely is the development of liaisons in the Morrisons/Lookers mould in which a non-traditional retailer links up with an existing dealer group.
Even before the new block exemption rules take effect, financial institutions are making known their intentions to play a significant role in vehicle distribution, not least as a means of clinching captive customers for their products including vehicle finance and insurance. Two examples are Royal Bank of Scotland’s takeover of Dixon Motors and Lloyds TSB’s more recent acquisition of Dutton Forshaw. The logic behind these moves appears impeccable insofar as both of these financial groups have now secured ‘membership’ of the retail motor trade and therefore have a continuing and reliable source of vehicles for distribution to a wide customer base nationwide. Cross-selling of goods and services to a financial institution’s customer list seems set to become an increasingly potent form of marketing, and one which will have a significant impact on the motor industry. It would be surprising therefore if other financial groups did not embark on similar moves over the next couple of years.
The franchised system could come under threat from other directions including parallel imports and online retailers. But so far the challenge from these quarters, while not absent, has been surprisingly muted. In a manufacturing sector where supply exceeds demand so decidedly, some producers may be tempted to adopt novel marketing techniques: developing, for example, an associate brand for distribution through unconventional means such as mail order, magazines or hypermarkets. In much the same way that the so-called ‘Big Bang’ shook up share trading in the City of London during the 1980s – with all contenders uncertain of how the landscape would look once the dust had settled – so it is currently with the retail motor trade. And until the fogs of block exemption are dispersed the industry will continue to fly blind. For dealer network development, this is an ‘in between time’ for everyone.
