Whilst many of you will be on holiday, hopefully getting your batteries recharged for the return to work (that’s your personal energy reserves rather than your BEV), we’ve been beavering away preparing for the resumption of member meetings and webinars from September.
There’s lots of good stuff there covering amongst other things crash repair, the network strategies of the Chinese new entrants, and the updates to our Top 50 dealer group ranking and the European Car Distribution Handbook – the reference work for manufacturer network planners.
However, the topic that I am personally most excited about is the question of how manufacturers manage European distribution across markets.
Our previous research has shown that manufacturers tend to quote an annual sales volume in a market of 10,000 units as the threshold between having a wholly-owned national sales company (NSC) as opposed to appointing an independent distributor.
Markets tend to be managed on an individual basis rather than clustered together, with local knowledge prioritised over cross-border synergies.
The result is a binary approach of NSCs and distributors, where the 10,000 unit threshold is widely ignored resulting in more NSCs in smaller markets, and they follow a ‘Russian doll’ approach with similar structures and responsibilities regardless of size.
At a time when the established manufacturers are coming under pressure from the new entrant brands, margins are under pressure, leading to the recent announcements from BMW, VW and others that they will be cutting thousands of jobs.
There is a widespread expectation that as the new brands grow share in Europe to possibly 20% or more by 2030, this will lead to some manufacturers being forced to leave the market, or for smaller brands to be dropped by the multi-brand OEM groups.
When you scan the manufacturer brands by market share looking for which brands might be at risk, you will find some of the smaller Japanese brands including Mazda and Suzuki, both of whom are valued members of the ICDP research programme.
The latter has been a maverick for many years with a well-deserved reputation for frugality. They have never invested in a large European HQ organisation, and for a few years have managed European markets directly from Hamamatsu in Japan.
Mazda do have a significant European HQ in Germany, and judged purely by that presence, it would be easy to assume that their cost structure was too high for the volumes that they now achieve in the market.
Their product strategy is also unusual with larger engines than is typical and a delayed entry into the BEV market. Yet I found on a recent visit that they achieve a quite demanding return on investment target set by their HQ, and seem robustly confident about their future survival, not a sentiment that you will find in all manufacturers.
One reason for this is that they have taken a unique approach to how they manage the various markets in Europe, bringing both cost and operational benefits.
Hiding in plain sight – as shown in our European Car Distribution Handbook – is that despite relatively low sales volumes per market, they almost exclusively use an NSC model, with distributors only appointed in a couple markets where the business culture is very different, and the need for local entrepreneurs is clearly beneficial.
There are elements of their model that we have suggested before in ICDP research, but they bring everything together in an organisational model that other manufacturers – including the largest – should take note of.
Mazda Europe operates in 35 European markets through an NSC model, but has only 22 NSCs due to the fact that some regional hubs and market clusters cover multiple markets.
This immediately conjures up a picture of massive overhead, with staff being relatively highly paid, extensive use of expatriates posted to NSCs as part of their personal development path and inefficient hierarchical structures as in the typical OEM world, every NSC needs a Managing Director, a Finance Director and other functional heads, as well as the team below them actually doing the work.
Mazda thinks differently, with some of their NSCs having fewer than 10 people. This does not however mean that the support to the network falls short of the typical NSC model, as they also operate on a matrix structure, with many staff based in markets, but fulfilling functional roles on a pan-European basis.
Multi-language capability is not provided through recruiting a team based at a single location, but through a remote working model with HQ staff based at NSCs who together create a virtual department in areas like technical support and marketing campaign planning.
We are really pleased that Mazda have agreed to present their approach as part of our Members’ Autumn Meeting in Paris on October 20-21.
Continuously shaving away at headcount and other costs in an effort to maintain profitability does not work, as it typically ends up with a compromised product offer and a frustrated network.
We can see examples of this today in Europe. In the face of the more intense competition that will inevitably come from the expansion of the new entrants, manufacturers need to be reconsidering how they do business.
More fundamental changes – like adopting a Mazda-like approach to managing European distribution – will be needed if they are going to be able to survive in a period when both cost and effectiveness will be key in a much more competitive market.
I’m hoping for a strong attendance from the manufacturers and major distributors at the Paris meeting, and a good debate and discussion afterwards. Can’t wait!
