Carmakers are so powerful that car retailers have never got the better of them on pricing. When a franchisee gets uppity, the carmaker sacks him or withholds supplies of the good stuff.
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But in the only market on earth where car dealers are organised into several big groups, there are sudden signs of a fight. In Britain, the market-leading and fire-breathing dealer group Pendragon last month put in a bid for its nearest rival, Reg Vardy. This week Lookers topped it by nearly 10%.
Last year Pendragon bought CD Bramall – a company then similar in size to itself. Combined, the two groups had 230 dealers and £3.5bn sales revenue. Now the combination of Vardy (who are recommending the Lookers bid just as it did with the earlier Pendragon offer) and Lookers will make a similar entity.
From here on, if Pendragon and Lookers are committed to size for the sake of it, acquisition of the remaining UK listed dealer groups gets progressively easier. The sector consolidators could soon command as much as 10% of the UK’s new car market which is running just below 2.5million units a year.
Tesco has shown in UK food retail, the going starts to get easier once market share breaks through 30%. There would come a point where carmakers would fear being sacked by Pendragon or Lookers for non-supply of the latest hot stuff.
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By GlobalDataIt’s not a bad time to strong-arm carmakers. US suppliers Ford and GM are already fighting for their lives under the weight of their legacy costs. VW and DaimlerChrysler are both focussed on weak or declining profit while Fiat is still the cause of some concern to its banks.
None of them want the distraction of a scrap with dealer groups. They would rather have a good partnership, give a little, and see the show run effectively by a large retailer with smart systems.
The world will watch how things shape up. According to research group ICDP, which is currently preparing a report on dealer chains elsewhere in the world, nothing has come to light so far that remotely challenges the size of UK dealer chains.
Some other countries already have an insider view of the British market through ownership of substantial groups. The US, Saudi Arabia and China are fully paid up foreign players. Respectively, UnitedAuto Group (sic) owns Sytner, Jameel owns Hartwell and Jardine-Matheson controls the affairs of Lancaster.
The retail bank Lloyds TSB owns Dutton-Forshaw with its £500m turnover and has a mission to build its vehicle finance connections. Lloyds is already the UK market leader in motorcycle finance. Banks have been in and out of the sector for years without ever securing either benefit or lasting partnerships. They might now get involved in the urge to be a consolidator.
The only other category of player in the UK Top-20 list of dealer groups is the wholly-owned subsidiary of a carmaker. Mercedes came in under the banner of DaimlerChrysler. Renault has been here for years to support large metropolitan sites where the land costs make them uneconomic for private companies to run. The Mercedes experiment is known to have proved massively expensive which may dissuade others.
The end of the motor industry’s block exemption from the EC’s Treaty of Rome three years ago made life easier for car dealers. Much of the anti-competitive behaviour of the carmakers has been swept away. The premium pricing of cars that used to exist in the UK relative to the rest of Europe has also gone. According to PricewaterhouseCoopers, Denmark is now the most expensive with Switzerland the cheapest and the UK somewhere in the middle. Reasons for carmakers to manage their own affairs in UK retail are slipping away one by one.
For the retail groups, the number of reasons to get a bigger network grows. The eventual arrival of the Chinese – now making 4.5m cars a year under the names of 19 transplants and 26 domestic brands – is one reason. Any minute now one of those lead Chinese brands will want a distributor in the UK and what could be better than signing a dealership group which can retail in every corner of the island at once.
Rob Golding
