Sainsbury's joins the revolution in car retailing revolution

Traditional dealers are facing competition on the forecourts from supermarkets as well as online suppliers

Sainsbury's yesterday became the first British supermarket to start selling cars, intensifying the competition in the car market at a time of unprecedented change for the motor industry.

Sainsbury's yesterday became the first British supermarket to start selling cars, intensifying the competition in the car market at a time of unprecedented change for the motor industry.

Private car buyers who prefer not to go to their local dealer could already choose instead from specialised importers and online retailers or even go direct to the manufacturer. Now, they will be able to order their new model along with the week's groceries.

Sainsbury's has been trialing its car-selling scheme, operated through its Sainsbury's Bank division, since last September at 60 stores. The initiative has proved so popular that the group has decided to roll out the scheme nationwide through its network of 432 supermarkets.

There will be a range of 3,500 models on sale. However, customers will not buy the actual car from their local Sainsbury's store along with their chicken tikka masala and ciabatta bread. Nor will they will be able to test drive their chosen model. Instead, the service will be promoted through the stores with customers able to place their orders by telephone.

The scheme will work rather like existing hire purchase or lease purchase agreements with the customer putting down a deposit and making monthly down payments over a two- or three-year period. After which, the customer can either hand back the car, trade up to a new one or buy the car outright at a pre-agreed price.

In that sense, the Sainsbury's initiative is merely a car financing scheme, albeit one promoted through one of the best-known high street brands in the country.

But it does help demonstrate the way in which the face of British car retailing is being revolutionised in the face of consumer demands for lower prices and government action to give car buyers a wider choice.

From the beginning of next month manufacturers will, by law, be forced to offer private car buyers the same discounts as those offered to fleet customers. They will also be prevented from discriminating against dealers who opt not to advertise manufacturers' recommended retail prices or who buy cars at cheaper prices through distributors on the Continent.

In anticipation of the loosening of the market, showroom prices have already begun to come down - by as much as 10 per cent in some cases. But the combined impact of the internet and further liberalisation of the market allied to the sheer buying power of some of the players entering the market is set to drive down prices still further.

Ultimately the key to liberalising Europe's car markets depends on dismantling the European Union Block Exemption, which allows car manufacturers to dictate who may sell their product, where, at what price and in what quantities. The Block Exemption does not expire until 2002 but already the new breed of online car retailers are doing their best to put the skids under it. In the past six months, the number of Net retailers has mushroomed with Virgin, jamjar.com (an offshoot of Direct Line), Autobytel and OneSwoop, a start-up backed by Andersen Consulting, BP Amoco and Credit Suisse, all joining the action.

Jamjar.com, which has teamed up with Dixons Motors, is using buying power to cut prices and is offering the Nissan Almera 1.5 at £8,229 - a saving, it says, of £2,470 on the list price.

Carbusters.com, a non-profit making service launched by the Consumers' Association, has, by contrast, chosen to exploit the difference between pre-tax prices on the Continent and in the UK to save car buyers' money. By importing right-hand drive cars through continental suppliers in this way it reckons it can save the average car buyer £3,000-£5,000. The Carbusters website, for instance, is advertising a 1.6 litre Ford Focus for £10,879 against a list price of £14,820.

In response, traditional dealerships are launching their own online sales service. Pendragon, one of Britain's biggest car dealers, has already launched a chain of internet "car" cafés through its tins.co.uk subsidiary and from next month Reg Vardy, the country's third-biggest car dealer, will launch a website for all its fleet and retail customers.

However, Peter Vardy, chairman and chief executive, says it is the group's buying power (it sells 155,000 cars a year) rather than the power of the Net that is the key. He said: "We are already knocking more off in our showrooms than some of these internet-based retailers and from September, when we will be allowed to buy cars for the same price as the big fleets, nobody will need to bother going over to Europe for a car either."

Mr Vardy doubts that more than 10 per cent of cars will ever be sold directly through the Net, despite projections that online sales could account for up to a fifth of the market by 2005.

But he does detect a sea-change in the market as car retailing comes to resemble the food sector more and more. "The big will get bigger and the small will get smaller so you will end up with Tescos, Sainsburys and Asdas of the car world on the one hand and the corner shops selling more specialised models on the other."

Phil Evans, senior policy adviser at the Consumers' Association, also believes the market will begin to polarise, leaving those in the middle most exposed. But he believes it will be manufacturers, not dealers, who will feel the pain and that it will be most acute among those who have relied most heavily on fleet sales. "The squeeze is starting to happen already but it will take the ending of the Block Exemption to produce fundamental change because that will allow anyone to buy direct from the manufacturer," he adds.

Some manufacturers have already begun to pre-empt the changes. Last November, Vauxhall became the first UK car company to launch its own online sales operation, enabling retail customers to order direct from it. But the Vauxhall dealer network has been kept in the loop. The ultimate sales contract remains with a franchised dealer, not the manufacturer. Reports of the death of the traditional car dealer have undoubtedly been exaggerated. But to prosper as well as survive, they are going to have to adapt - a lot.