Where have all the dealers gone?
... to huge retail parks, as James Ruppert finds out
Saturday 11 January 1997
Station Garage is not alone. It is one of many Skoda dealers being pruned from the nationwide network. This is part of a trend sweeping through the motor industry as manufacturers seek to exercise more control over the way their cars are sold. What it all boils down to is that your local dealer may not be so local in the near future. Servicing parts and sales are increasingly becoming a regional phenomenon. For rural motorists in particular, popping down to a small, friendly, local outlet a few miles away is proving increasingly difficult. Manufacturers want you to visit a huge, impersonal, business park site.
In Yorkshire, for instance, the number of Volvo dealers is just three, catering for one huge territory, whilst Rover has expressed its intention to cull up to 30 per cent - around 160 sites - of its existing 511 dealers. According to the motor industry analysts Sewells, UK car dealership numbers as a whole will drop by as much as 40 per cent over the next 10 years. The signs are that car makers are expanding the territories of larger dealers at the expense of smaller ones. Remember the corner shop? Replaced by the big, bland, corporate supermarket. Something similar is happening in the motor trade.
Once upon a time there was an Austin Morris dealership down every high street. It explained the big sales and huge loyalty enjoyed by the home marque, but during the rationalised British Leyland era, the small outlets were cut back. "That's what happened to this site 25 years ago," says Mike Commin. "So we decided to sell Skodas ... now the same thing has happened again, and this time we are striking out on our own."
When it comes to innovative ways of marketing cars, the Daewoo has been remarkably successful - making much of the fact that they are cutting out the dealer completely and are selling direct to the customer. In the first year of trading the company sold 18,000 cars in the UK, and has taken around a 1 per cent share of the new car market.
Meanwhile, Kevin Jones at Rover does not see a problem with his company's proposals to slim down the network. "This is not a cut-and-slash policy, but a businesslike approach that will ensure the network's future. Essentially every dealer has to justify his or her existence, and clearly one that is not selling a good mix of cars, or operating profitably, won't survive. Take the specialist MGF, for instance: we appointed just 125 dealers to sell that marque because it would not have been viable for all 500 to have sold a sports car. We would like nothing more than a Rover dealer in every town, but that is not possible in today's environment. However, as cars are less dependent on servicing, it makes sense to concentrate our activities over a wider area."
Dealers are fighting back. A highly publicised case last July involved Harry Wake, a Lincoln Renault dealer, who had his franchise cancelled when Renault UK said the premises were inadequate and wanted them replaced by a green field site run by another dealer. The judge ruled in favour of Mr Wake, who can now trade until 2002 as a Renault dealer, because there was a verbal agreement between the parties after Mr Wake rescued the company and invested pounds 75,000. The judge saw Renault UK's actions of backing out of an agreement not to terminate so long as Wake was in charge as "deeply unattractive ... making a mockery of the manufacturer's fine words about partnership with its dealers".
However, this ruling does not alter a manufacturer's right to dump a dealer without notice, even though copycat cases to test the legal precedent set by the case were threatened. It all turned on the existence of a verbal assurance which was construed (backed up by Renault UK's internal documents) as a binding contract. Clearly, manufacturers will have to be careful what they say to dealers. A sales manager told me: "their guys from head office were quite open; they want to put dealers on huge retail parks. They argued that customers flock to the out-of-town superstores, such as MFI. But I argued they don't all need to take their flat-packed furniture back to be serviced, do they?"
Prime movers behind the big-is-best movement were the multiple dealer groups, which account for 50 per cent of the UK car trade. However, the biggest of all, Lex Retail, maintains that a leaner operation is a more efficient and profitable one. According to Malcolm Harbour of Solihull- based motor industry analysts Harbour Wade Brown, "large dealer groups may identify new opportunities by concentrating their efforts in market niches, or by developing a strong regional base."
One of the most remarkable indications that this is happening is the announcement that the Chesterfield-based Pendragon Group has been awarded the Fiat and Alfa Romeo franchises for the entire territory within the M25, an area that accounts for 10 per cent of Fiat Group sales. This two- year scheme will see Pendragon develop 15 retail sites with three more after-sales service centres. Fiat's Peter Newton refuted the suggestion that this amounted to a cartel. "This enlarged territory approach is not a strategy that will be applied countrywide. It suits the metropolitan area, provides economies of scale and will result in better customer service. Overall we operate and believe in a balanced network with everything from small, family-run outlets to public companies."
In theory you can shop around for your next car, but all dealers operate on a postcode basis and are supposed to draw their customers from that area. BMW and Porsche franchises are just two of the more strict prestige marques who could refuse to sell you a car if your postcode does not fit. But should you be forced to buy from a dealer you don't like, or who offers the worst buying package?
There are signs that some dealers are turning away from the franchise system and becoming masters of their own destiny. Inverness dealer Norman Cordiner recently sold their Ford franchise to become a nearly-new car specialist. They have turned their three-acre site into a "Motor Mall", and they are combining it with a fast fit, service, accident repair and rental operations. "We felt that as a family firm we should become fully independent to expand down our chosen route," a representative remarked.
At newly independent Station Garage, Mike Commin was relieved. "You can't make a small franchise pay these days: the margins are tiny and then there are all the costs of signage and promotion. Sometimes the Skoda sign put customers off. Our used-car operation is thriving. Breaking away from the franchise system has given us a new lease of life."
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