Manufacturers are cutting the number of dealer principals and asking survivors to invest in bigger and more modern establishments. Automotive News Europe reporter Kathy Jackson talked with David Evans, president of the European Council for Motor Trades and Repairs, in London on 21 May about the changing scenario.
How would you describe the state of business for dealers in Europe? Are they making money?
Generally speaking, business is improving because there are fewer dealers. But a number of people still complain there isn't much profitability in the business.
What is the average profit margin?
Business varies from country to country. But generally, profitability is characterized by a very small return on a high level of capital investment. So the return on capital invested will very likely be somewhere around 2-4 percent. Most of the money is made on the sale of parts, servicing, repair, accessories and so forth - not the sale of new cars.
Why aren't profits higher?
Manufacturers are constantly improving standards, and it is the dealer who has to pay for them.
I think it should be a dualed thing, but it's seldom an even-handed partnership. The manufacturer is always in the dominant position. It can always call the shots.
Also, in a market which is saturated with vehicles because manufacturers are over producing, their initiatives to create sales has meant that the price competitiveness has been very fierce.
What is the industry doing to try to increase the profit margins?
We're looking at fewer dealers with larger territories.
Another big thing is for dealers to have less stock at stores to reduce floorplanning costs.
What makers are furthest along in the lean distribution concept?
Toyota is doing very well. I think they've promised to produce the goods within 21 days. But this only works when production is going well. Nobody is there yet, but most of them are moving toward it.
What are the legislative issues?
We have a rule called the block exemption that expires in 2002. The majority of franchised dealers want a continuation of the block exemption regulation because it protects them. It allows dealers to have a territory and not allow another dealer in that territory without the dealer's consent. That is something they want perpetuated.
What about wholesale pricing? Is it an issue that dealers in some countries can buy vehicles from the manufacturer more cheaply than dealers in other countries?
Yes. Dealers in the UK know that a dealer in Belgium, for instance, can sell a car at a much lower price because he doesn't pay as much for it. It's really not possible for UK dealers to attack their manufacturers on that issue because although we are a European union, we have not yet got common taxation and common currency. So until we have harmonization with taxes, which is not far off, we will see these disparate prices.
Any other big issues?
There is a surge of interest in consumer protection. It's in tandem with a rush to provide a minimum period of guarantees for goods, new and used, for two years. And under this new law, the consumer can choose whom to hold responsible: the manufacturer or the retailer.
It's unlikely that the dealer caused the defect because invariably it will be a design defect or some kind of manufacturing defect, but the proposed legislation doesn't actually state if the manufacturer must stand his corner. But it does state that member states can introduce a means by which the seller has a remedy against the producer.
Why is it that the retailer can be held liable if it is a manufacturing defect?
Because the retailer is the one who entered into the contract. This is likely to go into effect within the next three years. Another feature is that in the first six months the burden of proof is reversed. Under normal laws, the complainant must show there was a defect when he took delivery. Under this new law, during the first six months, the onus of proof is on the retailer to show that there wasn't a defect - that the customer created the problem. The dealers are not happy about that.
Does that mean that the manufacturer does not have to stand by the warranties?
It's too early to tell if manufacturers will change their positions when this directive becomes law, assuming it does become law, and I think it will. I don't imagine the manufacturers will leave all of the responsibility up to the dealer, but there is always that possibility.
What is your association's role in helping dealers to adjust to these changes?
Part of our task is to demonstrate that change is a constant - to explain to them that maybe they will be a large dealer or they may be wiped out or they just may do repairs. But dealers must come to grips about their futures. There needs to be better dialogue from the manufacturers as well.
Are dealers in some countries better prepared than others?
We are told that the arrangements in the UK are superior to those in any of the other member states.
Is the Internet playing a big role on the retail side?
The dealers are beginning to realize that there is a new actor on the scene, but they're not that worried.
Our dealers have been through the superstores; they've seen the mail-order concept fail. The Internet is growing, but we believe the customers will still want to use the dealer to acquire the vehicle. You can't sit in a car on the Internet.