What’s happening to sales networks?
Again, my blog for this week is a bit late as amongst other things I have been supporting my colleague, Gareth Arnould, in the mammoth task of producing the latest version of our European Car Distribution Handbook. This has been published annually since 2007, and is the only publication that quantifies the size of manufacturer sales and service networks across Europe. (40 brands across 38 markets now, with more markets in the east and a changing roll call of brands – Cadillac, Proton and SAAB just a few of the names departed since the very first related publication in 1997, and the MG we track today a very different one to that of 25 years ago!) We will launch the 2023 edition formally on Tuesday 12th with a webinar which is open to all, not just our ICDP Research Programme members, so if you want to attend, click here and you will see the details. In the meantime, I thought the conclusions of the report provided a useful overview of the macro-level changes which we face in the next few years.
As we have progressed through 2023, we have seen all manufacturers taking actions to reduce cost in their European dealer networks and/or improve their effectiveness to support growth ambitions. Given the need in some cases for contractual notice periods to be served before change can be implemented on the ground, it may be 2024 or even 2025 before we see these changes translated into actual numbers within the networks. By then we will undoubtedly also have seen more Chinese brands join MG as significant players at a European level, but despite the growing competitive pressure do not expect to see any of the existing brands depart the European market at that point. That may then represent a high point in terms of total franchise numbers and a bumper edition of ECDH.
What the franchise point count will not show is the growth of multiple franchise points under one rooftop and the concentration of ownership into a shrinking number of dealer investors. Multi-branding under single rooftops is the core of the ‘Stellantis House’ strategy with more brands per rooftop, but less showroom space per brand, and shared back office and workshop giving throughput gains that exceed the additional investment for an improved return on capital. This is also the direction of travel for Genesis as they move from a standalone direct sales model to being integrated within the Hyundai network, most likely with shop-in-shop or closely coupled facilities. We believe that the VW Group will also be forced to look for more synergies across their brand networks with more multi-branding.
Agency is also driving multi-branding as the desire to cut distribution cost overtakes the previous focus on purity of the brand identity, opening the door to more multi-branding opportunities in franchises that are moving to agency. This is already apparent with Mercedes-Benz who have advised their retail partners that they are open to multi-branding, and whose network seems to be targeted in particular by BYD who have a number of franchise points located in or co-located with former solus Mercedes sites. Large dealer groups are also supporting this multi-branding for Chinese brands by looking across their property portfolio for space that can be better utilised by adding a Chinese brand at marginal cost, where the Chinese brand gains from the halo effect of being represented by a well-respected dealer group, and being alongside long-established ‘legacy’ brands.
At the ownership level, we have reported in our research programme on the accelerating pace of dealer consolidation and see no reason why this should slow down. It is not only the number of deals and number of franchise points changing hands that is increasing, but also the cross-border element with a handful of European players led by Hedin, Van Mossel and Emil Frey making growing numbers of cross-border deals within Europe, but also investors from North America, the Middle East and Asia all wanting to establish or increase their presence in European motor retail. This is despite the fact that the sector is largely shunned by investors outside our sector who see it as too complex, and possibly too much influenced by the power of the manufacturers.
The need to remain on top of these trends is all too evident, both for the players directly involved, but also those whose businesses depend on supplying goods and services to the dealer community. Within the constraints of an annual publication, we will aim to continue to provide the reference work that tracks these trends, whilst maintaining the ‘real-time’ monitoring and forward-looking insights within the ICDP research programme. We greatly appreciate the support of the manufacturers who make time to contribute to the production of ECDH, and the support of the members of our research programme whose continued support allows us to understand the complex environment within which the network changes are happening. We are looking forward to another undoubtedly action-packed year and a few months off before we start on the production of ECDH 2024!