I’ve written on this subject before. As someone who has a business who ranks Car dealers as one of it’s most important business segments, it’s something that defines the future of our business.
Traditionally, the relationship between a Car Manufacturer or Importer and it’s Franchised dealers was one of uneasy symbiosis. Car Manufacturers built cars and made replacement parts, and they needed a Dealer network to sell and service these in order to be successful.
In my opinion, sitting in that gap that spans Dealer and OEM, it has never been an easy relationship. The OEM believes that it could do a better job itself, but has never been able to really do so. Instead they have attempted to control the dealerships to the point where the dealers are run to the tune of the OEM in order to remain profitable enough (but not too profitable).
Over the past few years though, the landscape has changed.
Increasing Digitisation of the customer experience has given the OEM the opportunity to believe that they can – at least – centrally engage directly with the customer and not require the services of a dealer in the way that they have done in the past.
This has already been demonstrated over the past few years in fleet sales – where many are “sold” at OEM level and the dealer just “handles” the paperwork and the final handover.
I recall, 25+ years ago, installing a system at a dealership representing a large British OEM who sold thousands and thousands of cars per year. In reality, they were simply acting as an agent for large volume OEM sold fleet deals.
The franchise agreement at the time meant that the sale had to go through the dealer. In reality, it was a paper pushing exercise. They would invoice the customer for the vehicle, pay the invoice from the OEM simply earning a commission on the sale via bonuses. They never saw the cars which were delivered straight to the customers, PDI’d at a UK OEM run facility.
We wrote special software which made this process very simple and kept track of the sales, purchases and bonuses, linking them together and ensuring that the paper trail was complete.
Today, it feels like much of the trade is starting to move completely this way – with the OEM now able to sell the cars directly on it’s web site. It still needs PDI and Handover points along maybe with Part exchange processing and therefore still requires some levels of dealer network. This is the basis of the “Agency Agreement”
It also requires servicing, maintenance and warranty capability. Most OEMS have had split sales/service franchise agreements for years so the aftersales is no issue. However, with the reduced maintenance of EVs this is less attractive than it once was!
The value of the sales franchise in an Agency Agreement would appear – at first glance – to be less.
There is less profit to be made per unit with less ability to sell more units.
The car dealer needs to adapt to these conditions.
One way that much of the larger dealer groups are moving is to move more into Used Sales – there are several large dealer groups that are reducing their franchise portfolio and at the same time increasing their investment in Used Retailing – two examples that come to mind are Peter Vardy (who have significantly reduced their volume franchise representation and rebranded these sites for Used Vehicles) and Arnold Clark (who have their Motor Store network and have completely stepped back from representing Ford – one of their major franchise partners).
Traditionally, a franchise dealer’s workshop would be largely full of cars of their own brand representation which are under 5 years old.
To compensate for the reduction in service income from their own brand they will need to retain more service and maintenance income from both cars as they get older and also vehicles from outside of their franchise.
As always, all the above is amplified by the traditional and increasingly worsening battle of “who’s customer is it?” between the OEM and the Dealer. Both have laid claim to the customer and ownership of the customer experience. In an Agency Environment, the balance of power in this area fulls heavily towards the OEM who are now simply introducing their customer to the dealer to handle for them.
The symbiotic relationship is no more. The OEM now genuinely believes that they don’t need the dealer in the same way they have historically.
Perhaps this attitude is starting to come to the fore – recently Nissan and Kia have both been accused of “secretly” and unfairly trimming the dealer outlets that they believe they don’t need.
There is the now infamous case of Mackie Motors, who were effectively terminated by Renault with 7 days notice by simply removing access to the OEM franchise financing and access to OEM systems.
But it’s not Universal
Fortunately, this doesn’t appear to be universal – some OEMS are strongly in favour of the status quo – for example Suzuki, led by Dale Wyatt are very loudly proclaiming that their future is with a dealer-oem partnership going forwards.
Is this the way things will continue ?
Will dealers need a new strategy going forward?
Inevitably, yes.
But, this is nothing new. I’ve been in and around the Motor Trade all my life. Dealers have had to adapt and change over and over again over the years.
I’m sure that they will change again, though this time fundamentally I believe that the success of a dealership will be less reliant on their Franchise representation than it once was.
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