Headline news in the Dutch press last week was that the Louwman Group had cut all ties with Stellantis, terminating the Opel and Peugeot franchises at retail level from March 1st. This affects a number of dealerships including some acquired just two years ago, formerly Orange Motors. I am not privy to the reasons behind the decision, nor to what extent the decision to part company was on one side or the other, or mutual. There is also no announcement yet as to what will replace those brands in these facilities.
It did however remind me of a comment made to me some time ago by a UK dealer group head, who described himself as a property portfolio manager. This was based on the fact that within the group there were over a hundred sites of various formats in different locations up and down the country, and his job was to ensure that the returns from that property portfolio were in line with the investor expectations. As the investment line is fixed subject to any further investment, those returns can only be improved through operational efficiency – more revenue, less cost.
On a day to day basis, that comes down to how well the General Manger runs the site, exploiting all the opportunities across each department, taking advantage of any synergies offered by being part of a larger group such as in purchasing costs, group used car buying, and leveraging new IT tools that allow you to make smarter decisions, target your marketing effort better and improve customer retention. On a longer term, strategic level however, at the group level you need to ask whether the OEM brand that is being represented in that location is having a positive or negative influence on the investment return, and whether it might be improved by changing the brand at that site, or splitting the site so that the fixed costs can be shared across two brands.
All businesses have some degree of ebb and flow in their fortunes. Ten years ago, Nissan was highly sought after as a brand because they had created a new product segment with Qashqai that faced little competition in the market at the time, and was highly appealing to customers. Now they are perhaps at the bottom of the cycle, hoping that new products in the pipeline will pull them back up. Dealers need to take that longer view, and decide for themselves – on the basis of the information that OEMs share about future product plans and other changes in their businesses – whether to stay the distance and wait for the upswing.
Changing brands at a site for a dealer is disruptive. They will lose some brand loyalists and need to attract new customers who may be unfamiliar with the replacement brand that the dealer brings in, or have themselves faced disruption because the dealer they previously used has dropped their favoured brand, but loyalty to the dealer is stronger than loyalty to the OEM brand. There is therefore a ramp-up stage which may be partial cushioned by retained aftersales and used car business, but also requires new investment in showroom upgrades and rebranding, systems and staff training. These risks and costs need to be weighed against the perceived underperformance with the current brand.
These decisions will become much more common in the next few years as the established OEMs come under pressure from new entrants from China and elsewhere. Some of the established brands will be weakened by the more intense competition at a time when we have general economic challenges and the regulatory pressure for electrification. Others may do relatively well, perhaps even become stronger, as they are better prepared in terms of product and consumer appeal to beat the newcomers where it matters – online and in the showroom, with customers.
However, the newcomers themselves will also have to compete with each other to win over customers and dealers. Some new brands have established a firm footing in Europe with R&D centres, plans for local manufacturing and a network of National Sales Companies in the key markets. Others have sent signals that their commitment might not be so certain – a good example being the opening and closing in the same year by Great Wall Motors of their European HQ in Munich, subsequently reinstated in a smaller form in Amsterdam.
Dealer investors have more choice than they have ever had. When looking at the performance across their property portfolio, there is no shortage of candidates to bring into under-performing sites, and plenty of buyers for sites in the right places for manufacturers who might be looking to go direct or at least secure strategic locations. The challenge is more one for manufacturers – whether established or new. They are in a buyer’s market in terms of ‘selling’ their brand to the best dealer investors. What they have to offer in terms of the product pipeline and how they conduct themselves in their relationships with their retail partners will make the difference in terms of securing the breadth and quality of representation that they need to succeed in the marketplace. The days of a manufacturer being able to impose changes and demand new investment are slipping away, if they have not gone already, for most brands. Dealers are – if not quite in the driving seat – at last not simply passengers.
Steve Young is managing director of ICDP
