Fleet News

Dealers get the 'Dear John' treatment from car makers

THE shake-up of the block exemption regulation has delivered the inevitable news to dealerships – they are on 12 months' notice of termination of their contracts. But how will the move impact on fleet buying practices? Dealer principals have been eyeing their post with suspicion in the last few weeks, and opening letters with the same relish they reserve for tax demands.

More than a few letter-openers may well have been stabbed into desks as dealers read the news that had become inevitable ever since the European Commission published its proposals for the new car distribution block exemption – that they are on 12 months' notice that their franchise agreements are being terminated.

The changes will affect where fleets buy their cars, potentially opening new sales channels with new retailers, or greater opportunity to deal directly with manufacturers, and where fleets take their cars for service and maintenance work.

Many of the termination notices were accompanied by letters of intent to re-appoint dealers, amid explanations that the new EC rules forced a re-write of contracts.

But with every rewrite comes the possibility of renegotiations, and although the new block exemption is designed to strengthen the hand of dealers in their relationship with manufacturers, car makers are equally keen to improve their brand perceptions on the 'shop floor' by requiring dealers to meet ever higher standards.

The new exemption from normal European competition rules will restrict manufacturers to one of two distribution policies, selective or exclusive, but not both as under the present rules.

Exclusive offers a dealer sole status to sell a manufacturer's cars within a set territory. Selective means a manufacturer can insist a dealer meets qualitative and quantitative criteria, although it is obliged to supply cars to any retailer that meets these terms, so in theory two franchises for the same manufacturer could find themselves competing side-by-side.

Research by Fleet NewsNet has yet to find any manufacturer opting for exclusive arrangements with their dealers, with the selective approach being the universally approved strategy. However, even within the selective strategies there are opportunities for dealers to meet manufacturers' terms in different ways.

Commitments to provide aftersales service, for example, could see some dealers provide maintenance facilities onsite, others to establish service and maintenance hubs that deliver greater efficiencies of scale from lower rent premises, while some may even choose to sub-contract this work to independent third parties that meet the requisite criteria.

Ford wrote to its dealers a fortnight ago explaining that it would be introducing a revised pan-European franchise agreement next year to comply with the new block exemption rules.

Paul Thomas, managing director of Ford of Britain, said: 'Our route to market is through our franchise dealers, and we will be offering new contracts to the vast majority of them.'

He expects Ford's dealer network to want to keep service and maintenance work in-house, describing it as an important part of their business from both a revenue and customer service perspective.

Ford itself has an inside track on dealer thinking and opinion via its joint ventures with Polar (Dagenham Motors) and Lindsay in Northern Ireland.

And while the company rules out direct sales from manufacturer to consumers on the retail side, in the fleet world it will continue to deal directly with large fleets such as Government and quasi-government agencies and BT.

The Volkswagen Group of Audi, SEAT, Skoda and Volkswagen has also written to its dealer networks to cancel franchise agreements, with the intention of re-appointing them on selective criteria in the first quarter of 2003.

Kevin James, director of SEAT UK, said: 'To be able to select your dealers according to set standards means your brand is being shown to the customers in a way that delivers the SEAT experience.

'Exclusivity is less important because dealers can advertise outside their territories anyway.'

He has no objections to dealers establishing separate showrooms and aftersales workshops, even if the workshops are shared between brands or dealers, if it establishes a viable throughput of business.

However, Vauxhall cites research that customers will travel twice as far to buy a car as they will to have it serviced, thereby requiring more service than distribution points.

Vauxhall managing director Kevin Wale said the company would adopt the selective approach, meaning that new entrants, such as supermarkets, could meet the manufacturer's criteria and start retailing new cars in direct competition to the current dealer network.

'There will be people who want to enter the marketplace, and it will then be an assessment of whether there is a profit opportunity and whether they meet our standards,' he said.

'But the efficient size of retail outlets and service outlets will not change.'

And even if the internet's penetration of the new car market expands, Wale still sees online links being integrated with the dealer network.

'As a manufacturer we are not interested in the retail end of the business, and we use our retail partners to distribute our vehicles. We may provide sales programmes, but they provide the expertise to execute them.'

The final word, however, goes to Rick Wagoner, chief executive officer of General Motors, who said that the changes to block exemption will require manufacturers to 'step back and consider our dealer networks with fresh eyes.'

'But it does not change how we want to deal with our dealers. We have to make ourselves easy to deal with, and deliver product in the right timescales, but in five years' time the situation will not be radically different,' he said.

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