If the hype is to be believed, the growth of web-based car retailers – featured for the first time in our dealer network survey – is poised to overtake conventional selling. But despite current upheavals in car distribution, the franchised network shows no signs of becoming a relic of the past. Report by Arthur Way.
This latest Motor Industry Management (MIM) UK franchised dealer survey is the ninth in an annual series, based on the responses to a questionnaire sent to manufacturers and importers with a presence in the UK car market. There were a total of 31 replies – those failing to provide information by the cut-off date included Ford, Honda and Hyundai. The only blank refusal came from BMW which stated that ‘we will not be taking part in your survey on this occasion’.
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The presentation of the survey’s findings follows the pattern of previous years with numerical information and analysis followed by a round-up of franchising opportunities and a listing of key contacts in UK dealer network development. An innovation this year is a listing of some of the main web-based car retailers who, if the hype is to be believed, will soon be making the conventional means of car retailing a relic of the past. Tables 1-6 contain information on the scope, characteristics, recent changes and future plans of franchised networks, and there are charts which present the findings of several issues which were canvassed in the questionnaire.
Table 1. Franchised Dealer Networks in the UK (Arranged in descending order of number of dealers)
Source: Motor Industry Management UK franchised dealer survey 2000
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By GlobalDataChange and uncertainty currently characterising the UK new car market is reflected in the general tenor of the responses to our latest survey in which some cases were vague or guarded. Many manufacturers were unwilling to outline in detail the objectives for their franchised networks during the coming year and a higher number than usual appeared anxious to stress their support for the existing distribution system.
BMW’s refusal to participate in the survey may be prompted by a corporate decision to keep out of the limelight following its decision to sell off swathes of Rover. But it is difficult to see how the company’s current image in the UK could be darkened by responding to a series of innocuous questions concerning the dealer network. Perhaps BMW (GB) feels on the defensive over the poor publicity (some of it involving ex-dealers) that the marque has received over high UK prices and also by the threat of Rover dealers to seek compensation from the BMW group over the loss of business that is likely to occur as Longbridge comes under a new owner. Maybe the latest turmoil has affected the marque’s strategic direction more than is generally realised with the result that there are questionmarks, as yet unresolved, over the future pattern of UK representation, but this seems unlikely since BMW has enjoyed one of the more settled dealer networks. Interestingly both Rover and Land Rover had no difficulty in providing information for the survey.
Table 2. Recent Changes to Franchised Dealer Networks in the UK
*Main dealers only.Source: Motor Industry Management UK franchised dealer survey 2000
Table 3. Planned Changes to Dealer Networks in 2000 (Arranged in descending order of planned additional dealerships)
Source: Motor Industry Management UK franchised dealer survey 2000
In reality, of course, almost everyone realises that manufacturers’ relationships with their dealers are entering uncharted waters for a number of reasons, not least the continuing debate over new car prices, the impact of the internet and (in particular) the new breed of internet-based retailers, and the upcoming review of Block Exemption. Add in a number of other factors – such as the growing propensity on the part of certain manufacturers to invest in distribution activities and the high number of property developers who presently are scouring the country in the search for attractive dealer sites suitable for alternative use – and the ingredients of a potentially explosive cocktail are present in large measure.
After an extended period of dealership erosion which lasted throughout the 1980s and much of the 1990s, the latest survey confirms the findings of last year by indicating that the number of franchised agreements in the UK is stabilising. Based on the returns – and using alternative sources for marques which did not provide information – the number of franchised agreements at the end of the first quarter stood at 6,439. This compares with 6,365 at the end of March 1999 and 6,381 at the same time in 1998. Looking ahead to the end of the year, the count will have increased by 213 if all the manufacturers’ plans are fulfilled (table 3). The most ambitious target has been set by Proton which is looking to appoint a further 80 dealers, while other strong rises are anticipated by Tata, Kia, Perodua and Mazda. Eight marques – Audi, Citroën, Mercedes-Benz, Porsche, Rolls Royce/Bentley, Saab, Toyota and Volvo – have indicated satisfaction at the present level of representation, while just two (Isuzu and Subaru) have admitted the likelihood of minor cutbacks. However, manufacturers with the six largest networks – Ford, Vauxhall, Peugeot, Renault, Rover and Volkswagen – declined to disclose their end-of- year target and the probability is that most are planning a degree of pruning. In the case of Rover, latest events at corporate level suggest that substantial changes are in store and it is probable that some dealers will elect to give up the franchise and explore other business opportunities.
Although there is a widespread perception that vehicle manufacturers are becoming more heavily involved in ‘downstream’ activities, including distribution, table 4 indicates that the number of manufacturer-owned sites increased by just 17 overall during the past year. The main advances were reported by Audi (six) and Daewoo and Nissan (four each). Audi states that its involvement is restricted to owning the property as opposed to managing the franchise, while Daewoo remains welded to its unique concept of operating only through manufacturer-controlled sites. The numbers in table 4 do not include manufacturer involvement through joint ventures as seen in Ford’s link with Jardine Motors. Concerning the future, a rising involvement is anticipated by five marques while 13 claimed there were no plans to become involved and a further 12 declined to disclose their intentions.
An important part of the survey concerns the views of manufacturers with regard to topics such as the division between sales and servicing, the future role of the internet, and the extent to which innovative methods of promotion and selling are likely to develop.
As noted last year, a clear divide is emerging between those who see the sales and servicing functions staying together and those who see the logic in a growing separation. Table 6 presents the current and future trends in service-only sites and shows that six marques are planning to boost the number in their network and a further four stated that a rise is possible. However, the past year has seen a marked shift in sentiment towards service-only sites with 23% believing that there will be a greater separation between sales and servicing in the future compared with a mere 7% who held this view in 1999.
As might be expected, the internet has become firmly planted in centre stage among vehicle manufacturers’ consciousness. Based on 21 responses, 48% indicate that consumers will be able to buy a vehicle through their web site (which approximates to the findings of last year’s survey) although typically it is stressed that delivery will be effected through the traditional franchised network. It follows that manufacturers are refusing to admit publicly that the internet will provide the means to bypass their dealers and hence secure the prime objective of achieving a substantial reduction in distribution costs.
Almost every manufacturer has a presence on the internet and those who are absent intend to remedy this omission in the short term. Everyone with a web site is providing information on the model range and, of those responding, all but one indicated that details concerning dealer locations are included. Special offers – such as limited editions and low rate finance – are being flagged by half the sites but only two are communicating information on model availability. So far, therefore, there is a tendency for a manufacturer’s web site to be effectively a ‘brochure on the screen’, but clearly the potential to innovate and add substance is huge, and almost certainly future enhancements will enable consumers to become even more knowledgeable in their negotiations with dealers.
With regard to non-dealer methods of promotion, the findings of 1999 have been confirmed in the current survey. Almost every manufacturer is using special events for targeted customers as a means of securing business, while directly mailed magazines to owners remain popular. The less targeted promotional methods – static temporary displays and High Street locations – continue to be used but are less widespread.
As for alternative methods of selling, franchised dealers should be aware that there is a growing interest among manufacturers to use motor shows as a sales channel. Indeed, recent discussions with manufacturers indicate that some believe that the cost and upheaval involved in exhibiting can be justified in the future only if the occasion is used as a means to sell cars. More than half express the view that motor shows will become sales venues in the future, although few anticipate that non-dedicated outlets (such as supermarkets) and mail order will become a feature of the marketplace.
Table 4. Manufacturer-Owned Outlets in 2000
*Owned by the importer.
Source: Motor Industry Management UK franchised dealer survey 2000
Table 5. Manufacturer-Owned Outlets
* Ford is becoming more heavily involved in dealerships through a joint venture with Jardine Motors to establish a network of outlets.
Source: Motor Industry Management UK franchised dealer survey 2000.
Table 6. Current and Future Trends in Service-Only Sites
Source: Motor Industry Management UK franchised dealer survey 2000
Web-based Retailers Under Scrutiny
It is doubtful whether anything divides the retail motor trade more intensely than the debate over the prospects of selling cars on the internet and, especially, the future role of specialist web-based car retailers.
The extremes are represented by those who contend that the internet’s impact in car retailing will be barely measurable and those who believe that the momentum is unstoppable and will sweep conventional dealer networks into oblivion.
A number of internet-based operators work in conjunction with dealers and operate effectively as commission agents. Although these may be considered ‘within the trade’, they nevertheless pose a major threat to the existing network structure because they widen considerably an individual dealer’s geographical coverage.
Examples of these operations include Autobytel, Autohit and Autolocate.
However, many internet-based car retailing operations are being developed on the basis of establishing a virtual showroom. Under these circumstances the consumer will choose the car which will then be delivered without a conventional dealer having a relationship with the final customer.
Participants of this approach include some high profile names including Direct Line, P&O and Virgin, many of which bring skills – such as database management, logistics and brand marketing – which have a direct relevance to the task at hand.
Here’s a brief run-down on the leading ‘cyberspace showroom’ operators:
• Autobytel – originated from America and opened a UK site in 1999. The operation acts as a referral agency and takes a commission from participating dealers.
• Autohit – an internet vehicle locator business in which Lex (which recently disposed of the last of its dealerships) has taken an equity stake.
• Autolocate – operates as a referral agency.
• Carbusters – the Consumers’ Association web site which is scheduled to be wound up as soon as UK car prices fall to those prevailing in continental Europe.
• Direct Line – to be launched in mid-2000 in association with Dixon Motors.
• One Stop Car Shop – aimed at private buyers of used cars but also handles new cars.
• OneSwoop – described as the first pan-European online car buying service.
• P&O – another big name with financial muscle which believes it has spotted an opportunity to add
another profit stream.
• Totalise Eurekar – offers big savings by importing from the continent and claims it will be a £100m
operation within 12 months.
• Virgin Cars – scheduled for launch in the first half of 2000.
Here are summaries of the main competitive features and dealer development objectives for the 31 companies which responded to the Motor Industry Management 2000 dealer network development questionnaire. In addition, there is commentary on the competitive positions of companies which did not respond to the survey. The percentage figures after each marque’s name refer to market shares during the first three months of 2000, while the figures in brackets indicate market shares during the corresponding period of last year. These are sourced from the Society of Motor Manufacturers and Traders.
OPPORTUNITIES ROUND-UP
Manufacturers are reviewed in alphabetical order.
Alfa Romeo 0.38% (0.4%)
After a strong rise following the introduction of the 156 model, Alfa Romeo’s market share has stabilised during the opening months of 2000. Prospects should be enhanced in 2000 following the launch of an estate version of the 156 and, later in the year, by replacements for the 145/146 range. The past year has seen the dealer total fall by five to 88, but by the end of 2000 the company plans to have a further four outlets to bring the total to 92. The number of service-only sites is expected to remain stable at nine.
Audi 1.72% (1.57%)
Audi has achieved a pleasing performance in the UK car market and is expected to maintain competitiveness through new model introductions, notably the A2. An important policy concerns the rising proportion of solus sites which advanced from 51% of the total during the first quarter of 1999 to 62% at the end of March 2000. The present year is likely to see this trend continue as the number of dedicated Audi centres increases. However, Audi has no plans to raise the number of outlets beyond the current level of 130.
BMW 3.28% (3.48%)
BMW has seen its market share slip during the first three months of 2000 although the 3 Series is performing well and is benefiting from an increase in the number of variants. As noted earlier, the company declined to provide any information concerning its dealer network. Other sources indicate that there are 155 dealers and it is unlikely that this will change during the next 12 months.
Chrysler Jeep 0.7% (0.67%)
Chrysler Jeep’s market share has held up well and the marque has secured a worthwhile position in the 4×4 and MPV segments. Two outlets were lost during the past year but the intention is to appoint two more during 2000 to bring the level to 105 once again. Following the formation of DaimlerChrysler, the UK operation is moving to Milton Keynes where Mercedes-Benz (UK) has long been based, although it remains to be seen whether this will prove to be a positive development for Chrysler Jeep.
Citroën 3.36% (3.5%)
After producing a series of dull but worthy models it appears that Citroën is regaining its reputation for innovation and panache with offerings such as the Picasso MPV along with the forthcoming C3 (Saxo replacement in 2001) and multi-function Pluriel (scheduled to be launched in 2002). The objectives for the franchised network in 2000 is to maintain the existing number of dealers at the current 245, sustain profitability and increase CSI through better service levels.
Daewoo 1.69% (1.25%)
Daewoo may be experiencing a rough ride in Korea but its performance in the UK car market has been highly encouraging with a market share during the first three months of 2000 noticeably ahead of the corresponding period a year earlier. There is no intention of abandoning its policy of distributing exclusively through a company-owned network. At present there are 61 sales points and the year-end target, if achieved, will see this rise to 68. Daewoo is also planning to increase the number of service-only locations from the current six to 12 by the end of 2000.
Daihatsu 0.19% (0.42%)
Daihatsu’s worrying decline in market share reflects a change in policy from an emphasis on volume to a greater concern for profitability. There are 93 outlets in Daihatsu’s current franchised network, and plans to increase this marginally to 95 by the end of 2000.
Ferrari
In the context of a strong economy and an increasing number of rich entrepreneurs and celebrities, Ferrari is enjoying buoyant demand in the UK. Winning the F1 constructors’ title in 1999 and making a cracking start to the 2000 season has added to the magic surrounding the marque. The number of dealers currently stands at 14 and the aim is to add another outlet by the end of the year.
Fiat 4.04% (3.74%)
Fiat’s dealer network is benefiting from rising sales thanks to the success of the latest Punto and progress should be maintained into 2001 with the arrival of a revised Bravo/Brava range. The past year has seen a degree of pruning with 13 new dealerships appointed and 24 deleted, leaving a net loss of 11. A modest increase from the present 170 dealers to 173 is expected by the end of the year.
Ford 17.33% (17.04%)
Ford remains the UK market leader and has managed to increase its penetration slightly during the first quarter. The Focus has provided a welcome impetus and further important introductions will arrive in the next couple of years. In the absence of hard information, rumours are circulating within the dealer network that far reaching changes will take place during the short to medium term, but few expect Ford to step back from its recent involvement in the retailing sector.
Honda 3.51% (3.01%)
No details have been forthcoming concerning Honda’s dealer development proposals although it is thought unlikely that the current representation of 180 dealers will change noticeably. Market share has risen recently in line with the marque’s reputation for offering a good and widening range of products.
Hyundai 1.3% (1.01%)
Under the Lex umbrella, Hyundai has recorded a strong gain in market share recently and is known to be favoured by some of the major dealer groups. Moreover, prospects should be enhanced by the arrival of new models during 2000. There are 165 dealers but no information concerning future intentions.
Isuzu 0.08% (0.14%)
Isuzu’s dealer count fell by two during the past year and erosion of a further two is anticipated by the end of 2000. Like Subaru, Isuzu is operated by International Motors and the two Japanese marques often share the same dealer location.
Jaguar 0.65% (0.34%)
Jaguar’s dealers are enjoying bubbling conditions: market share during the first quarter is almost double the outturn of 1999’s corresponding period; the marque achieved an excellent second place in the latest JD Power survey; and there is the promise of much higher volume next year following the planned launch of the X400 model which will effect an entry into BMW 3 Series territory. During the past 12 months the dealer network has fallen by one but three outlets are expected to be appointed by the end of the year. The mission in 2000 is for the franchised network to achieve it sales objectives while continuing to enjoy high profitability.
Kia 0.73% (0.05%)
Last year Kia stated its intention to add 31 dealers during the following 12 months – an ambitious target which was almost fulfilled. In the event the tally rose by 28 to 86 and there are plans to add a further 24 in 2000. Market share is rising spectacularly, albeit from a low base, and Kia’s objective is to achieve 13,000 new registrations in the current year.
Land Rover
(market share included with Rover) Land Rover currently has 133 dealers and is looking to appoint a further two by the end of the year.There are four service-only outlets but no further expansion in this activity is planned. Naturally there is an element of uncertainty following BMW’s decision to sell the operation to Ford but, if Jaguar’s experience provides a reliable guide, this is likely to be a highly positive development.
Lexus 0.38% (0.1%)
Lexus has secured a strongly improved competitive position as a result of success for the IS200 model and progress should continue when an off-road model arrives. There are 51 dealers and four more are scheduled to be appointed by the end of the year.
Lotus 0.07% (0.09%)
Although Lotus’s market share has slipped during the first quarter, the 31 dealers can look forward to higher volumes when the M250 – slotted between the Elise and Esprit- is launched, perhaps as early as the end of 2000. Five more dealers are expected to be appointed during the current year.
Mazda 1.01% (1.14%)
Mazda is looking to add 14 dealers by the end of 2000 to bring its network to 165 outlets. There was a net gain of two in the past year as seven were added and five relinquished. Mazda states that its short term objective is to improve the marque’s representation by franchising open points with high profile dynamic dealers, while looking for market synergies where appropriate.
Mercedes-Benz 2.74% (2.68%)
Mercedes-Benz’s network looks a pillar of stability with 155 outlets and seven service-only locations. No changes are anticipated during the current year.
Mitsubishi 0.72% (0.91%)
Mitsubishi plans to appoint five new dealers during 2000 to bring the total to 125. There are seven manufacturer-owned sites although the company declined to disclose whether this number would be increased.
Nissan 3.61% (4.19%)
Nissan’s franchised network expanded quite strongly during the past year, with 14 additions to 243. A further eight dealers are expected to be appointed by the end of 2000 to take the total to 251. The global link-up with Renault and subsequent announcement that the two companies are to weld their European sales and distribution organisations into a single body has added a measure of uncertainty. However, it is thought probable that the impact in terms of dealer representation will be restricted and that both marques will maintain their own networks and pursue their own arrangements.
Perodua 0.05% (0.03%)
As a relative newcomer, Perodua is building up its sales level and dealer network. At the end of March the number stood at 43, having increased by 13 during the past 12 months, and the end-of-year target is 60. At present 11 are solus and 32 are dual/multi outlets.
Peugeot 8.59% (8.41%)
The number of Peugeot outlets has declined by two during the past year to 364 but no indication is provided of the target for the end of 2000. Of all the manufacturers (apart from Daewoo) Peugeot has the largest manufacturer-owned estate and a ‘small increase’ is anticipated in the future. The company states that the objective for 2000 is to improve customer facing aspects of the existing network.
Porsche 0.18% (0.24%)
The Porsche dealer network rose by one in 1999 and no further changes are forecast for the remainder of the year. There are 32 dealers at present, 12 of which are solus and four manufacturer-owned. In addition, there is a single service-only location. The marque is planning for the new sport utility vehicle (SUV) which is scheduled to be launched in 2002.
Proton 0.14% (0.59%)
The Proton dealer network has experienced turbulence recently. At present there are 109 outlets, a reduction of five compared with the position 12 months ago. However, there is an exceptionally ambitious plan to boost the level of representation significantly by the end of 2000 through the appointment of no fewer than 80 dealers. In addition, the number of service-only locations is scheduled to double to 20.
Renault 7.53% (8.39%)
Renault’s dealer count has fallen by 14 during the past 12 months and now totals 311. The company has not revealed the end-of-year target other than to state that there will be 165 main dealers. As with Nissan, it remains to be seen the extent to which the proposed establishment of a joint commercial organisation will affect the dealer network, if at all.
Rolls-Royce/Bentley 0.02% (0.02%)
There are 19 dealers in the Rolls-Royce/Bentley network, three fewer than 12 months ago. There are no plans to expand the number of outlets during 2000 and the company states that the objective for the present year is to establish defined areas of responsibility for each dealer. Further out there will be an element of upheaval as the Bentley and Rolls-Royce marques go their own separate way – unless, of course, Volkswagen takes over BMW or sense prevails and BMW sells the Rolls-Royce marque to VW.
Rover 6.04% (6.7%)
The Rover dealer network stands at 304 at present but, in the context of BMW’s withdrawal, the future seems entirely in the melting pot. Until the new owner clarifies its plans, it is unrealistic to comment on future prospects other than to observe that the dealer count looks set to fall during the current year. BMW’s retention of the new Mini represents another blow for Rover’s battered dealers and the prospect of prolonged litigation appears likely in the absence of compensation from BMW.
Saab 0.69% (0.79%)
Saab’s network has increased by one during the past 12 months and now stands at 97, a level which is expected to remain unchanged for the remainder of the year. However, there has been quite a lot of movement with ten dealers added and nine dropped. The network objective in 2000 is to reflect the Saab corporate image, and achieve volume and profit objectives together with world class customer satisfaction.
Seat 0.87% (0.62%)
Seat’s franchised network comprises 136 dealers but no details were forthcoming concerning future intentions. As with Skoda, another member of the Volkswagen group, Seat is achieving a new image which is being reflected in a rising market share. The favourable reviews accorded to the new Leon model is another positive development.
Skoda 1.13% (1%)
Skoda’s revitalisation continues and has been furthered by the launch of Fabia. The dealer network was trimmed during the past year with a reduction of nine outlets, although this net figure masks the appointment of 13 outlets and the deletion of 22. Two additional dealerships are anticipated in 2000 to bring the total to 190.
Subaru 0.44% (0.45%)
Subaru’s network looks settled with a total of 113 outlets, an increase of one over the past year. By the end of 2000 the company anticipates having dropped an outlet.
Suzuki 1.06% (1.06%)
Suzuki’s franchised network totals 145, an increase of two over the past year, and there are plans to boost this to 150 by the year-end. The main objectives are to increase volume throughput per dealer and work to maintain and develop profitability.
Tata
If plans are fulfilled the Tata dealer network will rise from the current level of 50 to 78 by the end of the year. The stated objective is to provide a comprehensive network of dealer representation throughout the UK, sufficient to meet the demands of an increasing product range in the competitive passenger car and sport utility sectors.
Toyota 3.75% (3.44%)
Toyota’s franchised network is another which looks well settled with the current level of 226 likely to hold steady during 2000. Dealers have benefited from the arrival of the Yaris and there is evidence that Avensis is making inroads into the fleet market.
Vauxhall 13.67% (13.44%)
Vauxhall’s franchised network amounts to 509 outlets (including core dealerships and satellites) which makes it the second largest in the country. In line with its response last year, the company declined to indicate numerical targets for the end of 2000 but stated that its objectives for the year include continuing the development of the market area approach and an expansion in the core to satellite relationships between retailers.
Volkswagen 6.43% (7.21%)
Notwithstanding a dip in market share during the first quarter, Volkswagen has enjoyed strong demand in the UK recently. There are 260 outlets but no indication of the end-of-year target. The separation of Volkswagen sites from those of Audi continues.
Volvo 1.76% (1.71%)
Volvo has established 113 market territories which contain 170 outlets and ten service-only locations. No change is anticipated during the course of the current year. Volvo states that the network operates on five-year fixed term dealer agreements, all of which expire at the end of 2001. The objective for 2000 is to continue focusing on achieving an improvement in standards, customer service and quality.
