Ford seeks control of largest dealer

News Analysis: The car giant is in talks about taking over one of its key dealerships. The move could signal a big shake-out in the showrooms

FORD sent shockwaves through Britain's pounds 30bn car retailing industry yesterday by disclosing that it is planning a takeover of its largest dealership.

The company, Britain's biggest car seller, is in talks to form a joint venture with another large Ford dealership, Jardine Motors, to take control of the publicly quoted Dagenham Motors.

The deal would give Ford a large minority stake in a combined business accounting for 8 per cent of its UK car sales. Analysts believe it could be the forerunner to further consolidation in the car sector involving manufacturers taking over independent dealer networks.

Shares in Dagenham Motors rose 12 per cent to 135p, valuing the group at pounds 24m. The company operates 10 main Ford dealerships in London and the South-east and sold 12,000 Ford cars last year. Jardine, part of the Hong Kong-based conglomerate Jardine Matheson, owns eight Ford dealerships around the country trading as Polar Motor and BPW Group.

Dagenham Motors said it had not been approached by either Ford or Jardine and no talks had taken place. However, talks are understood to have started yesterday between Ford and Dagenham Motors' chairman, David Philip, with a view to striking an agreed deal.

Ford's move comes at a time of rapid change in car retailing with the number of dealerships falling markedly and the proportion of sales accounted for by the top 100 dealers rising equally fast.

The number of dealerships has fallen from 8,000 to 6,500 since 1990 and in recent months there has been a series of strategic moves in the industry. Henlys and BSG have both sold their car dealership businesses to management buy-out or buy-in teams, while Quicks, part of the Lookers group in the North-west, has taken over Caverdale, which owned Godfrey Davis.

Meanwhile Pendragon, the country's second-biggest dealership, has struck separate deals with Volvo and Fiat which involve the manufacturers taking over ownership of particular sites and Pendragon operating the franchise on contract.

Nissan set up its own dealer network after sacking Octav Botnar's Nissan UK, and both Renault and Peugeot own some of their UK dealerships.

Unlike countries such as the US, Britain does not have a tradition of car manufacturers owning dealerships. That may be about to change dramatically.

According to Peter Whiting, car analyst with Williams de Broe in Leeds, there are two factors driving manufacturers and retailers in the direction of vertical integration. One is the financial weakness of a great many dealerships. The other is the potential scrapping of the European Commission's block exemption which permits car manufacturers throughout Europe to control their dealer networks through selective distribution agreements.

The margins given to dealers by manufacturers on each new car supplied have shrunk from 17.5 per cent to 10 per cent since Vauxhall began the process of adjusting retail prices in the early 1990s.

At the same time dealers' operating margins have contracted. No UK dealer makes a return of more than 5 per cent and dealers handling volume makes such as Ford are lucky to earn returns of more than 2 per cent.

The low quality of their earnings has hit the stock market rating of the quoted car dealership groups. They trade on a 75 per cent discount to the rest of the market, making it much more difficult to raise finance.

"For the dealerships it is an issue of funding and costs, particularly in London, where the market is bloody and cut-throat and no-one ends up winning," said Mr Whiting.

But he added that for manufacturers, the impending demise of the block exemption was an equally pressing concern.

The exemption has been in operation since 1985 and allows manufacturers to dictate who can sell their cars, where and in what quantity. The current exemption was renewed in 1995 and is due to expire in 2002. The exemption has been bitterly attacked by consumer groups for driving up the price of cars, and the EC is being lobbied to allow an open market where motorists can shop at car supermarkets.

"The manufacturers are panic-stricken at the prospect of a free-for-all, so what Ford is doing is getting a direct stake in the retailing of its cars," said Mr Whiting.

Christopher Macgowan, chief executive of the Retail Motor Industry Federation, the body which represents Britain's dealers, defends the block exemption and disputes the assumption that it will inevitably disappear. He also argues that the advent of the multi-franchise outlet has largely been a failure.

"Generally speaking it has not worked because consumers get confused. When they are dealing with the second most important purchase in their life they decide in advance which make and model they want to buy and then go somewhere that sells it."

Mr Macgowan also doubts that there will be a general move by manufacturers to swallow up dealerships. However, he agrees that motor manufacturers will increasingly want to control more of the "retail experience" so that walking into any of their dealerships is much like walking into a McDonald's - customers will get a standardised service.

Although Ford's UK market share has steadily fallen from 25 per cent to just over 18 per cent, it remains the market leader and so has a vested interest in keeping as tight a rein as possible on its dealerships, with or without the block exemption. At the last count it had 640 main and retail dealerships owned by 230 different companies. Its aim is get that figure down to 150.

Mr Whiting of Williams de Broe thinks it may have more ambitious plans. "We could see the dealer network consolidating into as few as 20 different entities. The intriguing question is: will they all have Ford alongside them in 20 different joint ventures?"

News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
peopleReports that Brand could stand for Mayor on an 'anti-politics' ticket
News
The clocks go forward an hour at 1am on Sunday 30 March
news
Arts and Entertainment
The Doctor finds himself in a forest version of London in Doctor Who episode 'In the Forest of the Night'
TVReview: Is the Doctor ever going stop frowning? Apparently not.
News
Voluminous silk drawers were worn by Queen Victoria
newsThe silk underwear is part of a growing trade in celebrity smalls
PROMOTED VIDEO
Sport
footballMatch report: Real fight back to ruin Argentinian's debut
News
Candidates with surnames that start with an A have an electoral advantage
newsVoters are biased towards names with letters near start of alphabet
Arts and Entertainment
Isis with Lord Grantham (Hugh Bonneville)
TV
Arts and Entertainment
Jay James
TVReview: Performances were stale and cheesier than a chunk of Blue Stilton left out for a month
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?