The European Networking Group’s 4th Automotive Retailing and Distribution Forum in Brussels on 2-3 April saw senior OEM distribution managers showcase their plans to ensure better and more uniform retailer performance under new Block Exemption-compliant dealer contracts. Toby Proctor was there.
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Last year, successive conferences on European auto retailing reform debated the rights and wrongs of the European Commission’s new Block Exemption Regulation (B.E.R.). Now the B.E.R. is fact and OEMs have geared up to make the best of it, it was clear from this conference that the run-up to the abolition of exclusive/selective dealer territories in 2005 has presented them with opportunities to exercise more, not less, control over dealer operations. If Competition Commissioner Mario Monti expected new rights for dealers to expand the choice available to consumers – or to lower new car prices faster than they’ve been falling already – he may well be disappointed.
Standards and communications systems to keep dealers on-message
One factor the EC may have ignored in drafting its complex Regulation is the power of IT – with particular focus on CRM and dealer-manufacturer communications systems – to bring dealer operations within closer reach of OEM control. This Brussels conference was more than anything an opportunity for OEMs and their increasingly important IT suppliers to showcase the moves they’ve made to ensure ‘seamless’ relationships between customer, dealer and brand. OEMs have used their newly revised quality standards and the systems implemented to control them as a means of raising the bar – to improve their brands’ local representation and help lock out new entrants.
Requirements for dealers to adopt new brand-specific communications platforms, along with other operational standards enhancements, may mitigate the risk of brand dilution through any shared showrooms that emerge after 2005. For dealers too, these requirements may also diminish the theoretical appeal of combining brands on single sites. Besides which, Michael Dornan of researchers GartnerG2 told the Brussels conference that the firm’s latest research on European consumer attitudes suggested most Internet-savvy new car buyers had decided on a brand long before they entered any showroom. So, where new car sales are concerned, new multi-franchising rights for dealers may turn out to be an irrelevance in marketing terms.
Little change in prospect for aftersales
It’s been in aftersales service and parts that the reform of the B.E.R. has widely been expected to have the greatest impact – but here too, the consumer lobby’s expectations may have been too high. Matthew Carrington, chief executive of the British Retail Motor Industry Federation told delegates, “Any change in aftersales will be investment-driven”. He added that OEMs will control diagnostics systems, unless parts makers invest in parallel systems for the independent sector. The Commission expected that the provisions of the new B.E.R. in favour of independents’ rights to obtain technical data – and apply for manufacturer-authorised status – would increase the number of service points available to consumers. That, said Carrington, won’t happen: “The prohibitive cost of equipment, and consolidation in the aftermarket driven by technical and market factors, will result in fewer, larger, and more sophisticated service/repair outlets”.
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By GlobalDataBut in Germany, Michael Lamle, chairman of the German VW dealer council, told the conference, Audi had received over 1,500 expressions of interest in authorised repairer contracts. Even if most of these applicants fail to rise to the challenge of Audi’s standards and data/training charges, the prospect of authorised repairers poaching business from their dealers has certainly alarmed some manufacturers.
Then they have the new right of dealers to fit equivalent-quality non-OEM parts for non-warranty repairs to worry about. One OEM delegate asked whether it would be legal to require dealers to list the sources of parts used on invoices. The consensus was negative. Another queried whether OEMs might be able to give their dealers preferential discounts on OE parts in the disguised form of bonuses for customer data provision. This was another no-no, according to at least one other OEM present.
And indeed, the consensus among OEM speakers was that it was difficult or impossible, and certainly pointless, to attempt to finesse a way to evade the new B.E.R. Instead, OEMs were using the necessity to cancel old dealer contracts and issue new B.E.R.-compliant ones as an opportunity to introduce new and more sophisticated ways of raising and controlling dealer standards, as a barrier to existing as well as future competition.
In the case of aftersales contracts, these standards include the same types of specifications relating to customer and operations data and branding as apply at present to bundled sales/service dealerships, though some grey areas remain as to what’s permissible in terms of branding approved service operations. After 2005, current sales/service dealers who plump for authorised repairer contracts having lost or sold their new dwindling car sales business will meet these new service standards already. But it’s unlikely that the need to install OEM-specific dealer management and marketing systems for each authorised repairer contract will be attractive to many new entrants from the all-makes sector. Especially if it turns out that OEMs can insist that technicians change overalls when they move from one make to another!
Good in parts?
Whether the parts trade will see significant changes is also open to question. Exceptionally, PSA Peugeot Citroen has issued separate parts contracts to selected dealers, but most others are leaving their aftersales operations intact. How many non-OE parts suppliers will seek to capitalise on their new rights to supply the aftermarket – and authorised repairers’ new right to fit non-OE parts? Not as many as Mario Monti’s team may have hoped. Firms such as Bosch are already present in the aftermarket, and other Tier 1 suppliers such as Delphi and Visteon are likely to follow – not in outright opposition to their main customers and former owners GM and Ford, but rather in supplying specialist services in areas such as air con, navigation systems or lighting. Tier 1 suppliers have yet to plump publicly for any declared strategy to reach aftermarket custom. But in the interests of simplicity for end-users, they’re likely to supply specialist services mainly to their OE customers’ repair networks.*
Change in store for automotive consultants
Whether one of the senior OEM network planning/development directors or the Microsoft representative was speaking, IT was the strongest vein running right through this conference. New, more powerful and more CRM-centred platforms are mandatory investment for dealers, OEMs, and the software vendors and consultants.
The ability of more powerful systems to save (hopefully) cost and audit network activity more closely is a challenge to anyone outside the loops specified by the OEMs and their strategic IT partners. All the new dealer standards, for instance, would normally provide an enticing opportunity for the automotive consulting and training firms. But Katrina Maestri, GM Europe’s regional director, customer network and Michael Perschke of Mitsubishi Motors Europe both outlined their state-of-the-art systems to make customer-dealer-OEM relationships ‘fully wired’; and Mitsubishi is automating much of the standards auditing that’s been done hitherto by field managers and consultants, via online ‘self-auditing’.
Adversity helps win commitment
Katrina Maestri said that successful CRM programs required senior management championship, but the systems complexity involved tended to dampen enthusiasm. The turnaround effort at GME/Opel had given her team the opportunity to get this management commitment to network systems improvement. Even then, however, GME’s CRM efforts are expected to be self-funding.
Michael Lamle said the new investment required to capitalise on the new B.E.R. was being contemplated by dealers who, in Germany, had suffered three years of continuously declining returns. Even in the UK, after three bumper years for new car sales only the biggest dealer groups see the BER as an opportunity. Few of the OEMs may relish the prospect of their dealers competing openly on each other’s territories, but for the moment, they look likely to disappoint the politicians who wanted the new B.E.R. to usher in a more competitive and diverse environment.
As for consumers, the conference consensus was that they’ll pay more for their new cars and more for servicing, too – and dealer consolidation will reduce their choice of suppliers. The rising electronic content of cars is going to require aftersales investment that will raise prices, offsetting longer service intervals. And Michael Lamle is convinced European new car prices will be harmonised upwards, not downwards. Since the EC won’t be able to penalise OEMs for that, the suspicion is that it will use the auto industry as a battering ram to push for the sales tax harmonisation that EU governments have so far stoutly resisted.
* More light should be shed on this topic at ENG’s European Aftermarket 2003 conference in Amsterdam, 3 & 4 June. See www.eng.nl for information.
