Automakers shrink their European dealer networks

Automakers are using the expiry of the EU's block exemption regulations for new-car sales to eliminate underperforming dealers and shrink dealer networks in countries where vehicle sales are falling heavily.

Starting June 1, 2013, car retailing will be governed by the EU's general competition rules instead of the block exemption regime that was introduced in 2002 and offered the motor industry a "safe harbor" from normal competition rules.

Nissan is among the automakers reshaping their dealer networks ahead of the change. "We have used the opportunity to renew contracts in some markets and in other markets to issue blanket termination and give relief to dealers we want to keep," said Paul Willcox, Nissan's head of sales and marketing in Europe.

Frederic Banzet, head of Citroen, said the brand had eliminated about 5 percent of its dealers ahead of the new rules. The brand terminated all of its dealerships, then offered new contracts with new terms to the dealers it wanted to keep.

Mini boss Kay Segler said the new rules made it easier to reduce dealer numbers in countries where sales have slumped. "When it comes to Spain, there's a reaction to be made when the market collapses by 50 percent and some dealers have problems financially," he said.

More power for manufacturer

Steve Young, managing director of UK-based dealer analysts ICDP, said the change in the rules "eliminates the right for the dealer to sell on his franchise, gives the manufacturer more right to terminate and also gives them the opportunity to ban multi-branding."

ICDP has seen an increase in the number of dealerships with attached franchises changing hands ahead of June 1, 2013, after which they will need the blessing of the manufacturer to make the sale. "It's driving quite selective acquisitions from the bigger groups," said senior researcher Peter Bailey.

Once block exemption ends, automakers will be able to require dealers to separate brands in a multibrand franchise, or even stop them from selling other brands altogether. Those powers are already being used on dealers.

"We didn't have a consistent policy across Europe in terms of standards and we've used this opportunity to refresh," said Nissan's Willcox. "For example, we have a clear requirement in terms of showroom separation where we have a dual franchise." He gave the example of Scandinavia as a region where multi-franchise sites proliferated. Willcox said Nissan would not ask a dealer to build a separate showroom for a different brand but would ask for a separate "footprint" for the brand.

Smaller brands 'nervous'

ICDP's Yong said larger automakers may try to force smaller manufacturers from multibrand dealerships. "The smaller brands are quite nervous about it," said Young. "There could be instances where a multi-brand site that has a volume player who doesn't want multi-branding and a smaller player who knows that the only way he can survive is to share a showroom. The dealer could just drop the smaller franchise, and that's the concern."

Mini's Segler said the brand was aiming for increased separation in Europe. "We are on the way to exclusive Mini representation as you see in the United States and the UK. You will see this exclusiveness more," he said.

The old block exemption rules on new-car sales could still apply if the total share for an automaker's brands is more than 30 percent in a particular country. In reality, this will only apply to the Volkswagen Group in select markets, according to ICDP.

The European Commission dismantled block exemption for vehicle servicing in 2010 but added a three-year transition period for new-car sales.

Bruce Gain contributed