BRUSSELS - Distribution methods are changing fast after a long period of stability, says Trevor Chinn, chairman of UK-based Lex Service plc.
The change is driven by improved mechanical reliability, overcapacity, and the inadequate returns achieved by many dealers.
Chinn does not expect the EU's block exemption rules to be renewed in 2002. 'Economics are the real threat to franchises, not the end of the block exemption,' he said. 'It is the main driving force for the creation of clusters of dealerships.'
In the UK 15 percent of retail firms are groups of more than 25 outlets, said Chinn, and they handle 23 percent of all new cars sold. 'In the rest of Europe the market is more fragmented. Dealerships are largely family-owned. There is some consolidation in France, with several dealer groups with more than 30 outlets.' Lex owns 34 percent of the largest, PGA.
Lex owns 80 car and truck dealerships in the UK and is also the leading contract rental company with a fleet of 84,000 vehicles.
Chinn said carmakers' top priority 'is to maintain monolithic pricing.'
'If this disappears and high-volume retailers develop,' he said, 'those retailers are more likely to 1/8cherry pick' the manufacturer's range rather than support the full range. The implications for broad-range carmakers would be horrific.'
However, Chinn does not expect to see 'car supermarkets' in Europe.
'Customers do not want them,' he said.
'The economics do not favor them until manufacturers give up monolithic pricing, which is extremely unlikely.'
Lex's conventional dealerships will concentrate on sales to individuals and small businesses. A limited number of specialist fleet dealers will handle other sales, including to leasing companies.
Lex will expand its contract rental activities. Chinn expects more customers to follow the example of the UK's air force, which leases 2,800 cars, vans and light trucks from Lex.
'We got very attractive bids from carmakers when we approached them,' said Chinn. 'The customer specified only the size and number of vehicles and the price of the contract. They don't care who the manufacturer is, or who services the vehicles.'
Chinn predicted that 'when cars are as reliable as televisions we will no longer have dealers and franchises.'
Customers keep new cars longer and spend less on repairs. Private car owners in the UK kept their cars for an average of 3.7 years in 1988. That rose to 4.7 years in 1996. Company-car drivers, who account for half of new-car sales in the UK, have extended their ownership from 2.2 years to 3.1 years.
UK service workshops have seen their volume of work fall by a third since 1990. In 1992 the average new-car owner took their vehicle for a service or repair 2.2 times a year. In 1996 they made only 1.9 visits. The amount of work done at each visit also fell.
Chinn said Lex will buy the 49.9 percent of the UK's Hyundai importer it does not currently own from IM Group in December for around £20 million. The importer made a £4.4 million profit in 1996. Chinn expects profits to be even higher this year, as Hyundai's market share rose above 1 percent in the first quarter of 1997. 'I hope they build a plant in the UK,' he said.
Chinn described Daewoo's wholly owned sales network in the UK as 'an interesting experiment with many innovative features but which appeared to have failed in its implementation.
'This is one of many models for the future: a carmaker with low margins is forced to do something different from its rivals. But a high proportion of Daewoo's sales are to car hire firms. Their cars do not keep their value. The setup is costing Daewoo a great deal.'
Chinn is not an enthusiastic supporter of a scrapping incentive for the UK. 'I have favored it in the past, but it is questionable whether it increases sales. It pulls them forward and creates a false market. Distorting the market is wrong.'
He was also cautious about reforming the UK's annual registration rush each August. 'It will be changed, but the industry will lose 50,000-100,000 sales a year when it goes.'