Europe's dealer groups adopt U.S. model to better handle downturns

Dealer groups in Germany and the Nordic countries are starting to adopt the same centralized U.S. model that has helped make large auto retailers in the UK so resilient to downturns, according to data from UK-based auto retail analyst ICDP.

The research firm's ranking of Europe’s top 50 dealer groups based on 2014 revenue has UK-based retail bodies ahead of rivals in continental Europe, with six UK dealer groups earning a place in the top 10. The list is topped by Pendragon, followed by Sytner, which moved ahead of Swiss-based Emil Frey. Sytner is owned by U.S-based Penske Automotive Group.

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European dealers are mostly small-scale, family-owned enterprises, ICDP Managing Director Steve Young told Automotive News Europe. Even some bigger groups operating outside the UK have traditionally had a more hands-off management style, but weak vehicle sales in Europe from 2009 to 2013 forced dealer groups -- particularly those operating in Germany, Sweden and Norway -- to make changes.

"Activity in those markets is bringing them toward the UK/U.S. dealer group model with centralization of functions, rather than a pure holding company structure as was the case only five years ago," Young said.

Young cited 12th-place Swedish group Bilia, which is expanding in Norway, and No. 15 AVAG Holding of Germany as examples of dealers that are adapting their businesses to the changing market. The reasons for centralizing operations were for economies of scale and to better apply increasingly tough manufacturing standards. "For example, contact centers. To run that over extended hours at a dealership level is impossibly expensive," Young said.

Moving up

The big movers up the chart have jumped places through acquisitions as smaller dealers decided to sell. In Germany, Senger climbed five places to reach No. 33 and Jacobs Gruppe rose 14 places to No. 43.

Jacobs appears to be an acquisition target after reports suggested that Penske, which has a 50 percent share in the company, wants to take a majority stake in the group. A big mover in 2015 will be sixth-ranked Lookers in the UK, which has just acquired 35 dealers from the UK-based Benfield Group, Young said.

About half of Europe’s dealers are not hitting the breakeven point of selling 150 cars a year, Young said. When a car retailer’s sales fall below that level “voluntary exit from the business becomes increasingly attractive,” he said.

Too many dealers

Europe still has too many dealerships, a 2014 report by analyst firm Bernstein Research said. The overall number of auto retailers has fallen 12 percent to 47,500 since 2007. By comparison, Europe’s new-car sales dropped 20 percent during the same period, the report noted. “Europe’s network is much less efficient than the U.S.,” Bernstein analyst Max Warburton said in the report

The ICDP report noted that the number of dealers owned by manufacturers is in flux and Young expects more automakers to sell off sites. Daimler reduced its network to 188 in 2014, according to ICDP data (see box, below).

PSA/Peugeot-Citroen will be cutting sites. Among the top 10 dealer groups, both new-car sales and revenue grew by 13 percent in 2014, the report states. That was partly fueled by the continued strength of the UK market, Young said.

The top 10 groups also increased their sites by an average of 10 last year compared with 2013 to reach 150 apiece. Used car sales for the retail groups in the top 10 were up on average 11 percent to just below 70,000, slightly higher than their average new-car sales of 65,861 vehicles.