New competitors could make the already marginal profitability of traditional European dealer networks even worse.
'The danger comes from new competitors taking market share,' says Urban Science CEO Christian Muller.
Urban Science of Frankfurt provides information management services to carmakers and dealers.
The Internet, car supermarkets, insurance companies and rental companies all represent threats to franchised dealers, Muller said. Likely changes in the block exemption system will weaken automakers' strong grip on their distribution networks. Block exemption is the law that allows carmakers to control their distribution networks in Europe.
But even under current legislation, traditional car dealers are threatened by alternative outlets. 'For instance, [German retail group] Edeka is selling Fiats in the supermarket car park,' Muller said.
Internet steals sales
Internet-based sales services have taken a big share of the used-car market in Germany, he added, although European Internet sales are not as significant in the new-car market as they are in the USA.
Other industries are finding ways to steal the revenues dealers get from selling new cars. One threat comes from the insurance industry.
Current rules mean insurance companies can't sell cars directly as a way of encouraging buyers to take out insurance. But they would consider doing so if new rules allowed the practice, Muller said.
'Rental companies could also move into a freer market,' Muller said. 'They are able to target a precise client body and offer packages that allow car owners to pay for mobility rather than specific cars.'
If these new competitors are able to take away traditional revenue sources from established dealers, franchise holders will be under pressure to increase margins on the vehicles themselves.
At the same time, European carmakers are already urging dealers to increase investment for brand support and electronic-testing facilities. Carmaker efforts to reduce the number of service visits by extending vehicle inspection cycles also hurts dealer revenue.
Carmakers and dealers need to work more closely together to meet the challenge of new competitors, Muller said.
'Apart from the client-dealership relationship,' says Muller, 'you have to take into consideration sales, service and parts.'