Why prospects for dealer mergers have improved

Consolidation is on the table again in the European retail network after a second-half rebound in auto sales eased fears that the pandemic would bring widespread dealership closures, a leading sales analyst says.

"The pandemic has probably accelerated" the trend toward consolidation, Steve Young, managing director of dealer analyst ICDP, told Automotive News Europe. "I've spoken to dealers across the EU and the general picture seems to be optimism rather than pessimism. We'll see more acquisitions," he said.

The biggest dealership groups continue to dominate sales in Europe, with Switzerland's Emil Frey retaining the No. 1 position, according to the latest ICDP ranking of the top 50 European dealer groups, which is based on 2019 revenue. 

U.S.-based Penske Automotive, which has a large operation in Britain, is in second place, and the UK-based Lookers group is third. All three positions are unchanged from the previous year.

The largest dealer groups are increasing their share of sales in key European countries, ICDP data shows. Perhaps the sharpest shift has been in France, where the market share of Europe's 50 largest groups rose to nearly half last year from 23 percent in 2011. 

The share captured by France's 10 biggest dealer groups, led in 2019 by Gueudet after it overtook ByMyCar, rose to 22 percent from 8 percent in that time period, ICDP figures show.

France has overtaken the UK in terms of the Top 50 groups' share of overall sales. The weak British auto market in 2019 and financial difficulties at the country's two biggest dealer groups, Lookers and Pendragon, contributed to a decline of the largest groups’ market share to 45 percent last year from 49 percent in 2018. 

Italy's retail network is more fractured, with the European Top 50 accounting for 26 percent of sales last year, up from 18 percent in 2013, while the share of the Top 50 in Germany has barely changed during the last eight years, at 18 percent in 2019.

The COVID-19 pandemic, which forced dealers across Europe to temporarily shut their showrooms in March and April, brought fears of wholesale closures.

The recovery has been stronger than anticipated, however, with the CEO of the UK-based Vertu group, Robert Forrester, even describing September as a record month in terms of profits for car retailers in the UK. 

"Why did motor retail in September make more than we ever made before? There was a reasonable level of supply and demand balance. There were no forced pre-registrations. People hit targets reasonably naturally and inherent margins were better," he told Automotive News Europe.

ICDP's Young said a healthy recovery will reinforce the balance sheets of the larger groups and allow them to continue to acquire smaller groups and individual outlets, often family owned.

"Their finances might not have been as badly damaged as perhaps they feared," Young said of individual dealers and small groups, "but it doesn't alter the fact that the next generation doesn’t want to come into the business. There's nervousness about the future distribution model, and also all the issues around electrification. Those haven't really changed."

"They will still be sellers and certainly there will be buyers," he added. 

ICDP tallied 100 deals across Europe in 2019, covering 350 franchise points, including those taking place between groups in the top 50.

Another trend reshaping the retailing network is the shift by some automakers, notably the PSA Group, to replace national sales companies with importers.

Last year, for example, PSA sold its Swiss sales companies overseeing the Peugeot, Citroen, DS and Opel brands to Emil Frey, following similar deals with Frey in the Czech Republic, Croatia, Hungary, Slovakia and Slovenia. 

"In general, we will see more change in that area," Young said. "It's a significant area of cost to the manufacturers."

Big groups such as Frey are adding import/wholesale operations. figures from ICPD show that 14 groups out of the top 50 now incorporate such elements in their business.

Nonetheless, automakers continue to operate a large number of dealers themselves. Last year their networks sold a total of about 1.2 million vehicles in Europe, equivalent to a 6.5 percent market share, according to estimates from ICDP. That compares with about 8.5 percent for the top 25 dealer groups. 

In general, however, automakers continue to divest themselves of outlets, ICDP said, highlighting a decline at Renault and alliance partner Nissan, which together have 275 outlets. Renault Retail Group has moved to divest itself of dealerships in the Ile-de-France region, which includes Paris. 

Volkswagen Group sold its PGA dealer group to Frey in 2017, but it has expanded Porsche Holding Salzburg, Europe’s largest automaker-owned group, where revenue increased to 22.2 billion euros ($26.4 billion) last year from 20.2 billion euros in 2018.

Porsche Holding had 494 dealers globally in 2019, of which 227 were in France and Spain, ICDP numbers show.

The pandemic has also brought renewed momentum to online sales, which will reshape the retail landscape, ICDP said. A report from the analyst firm earlier this year said that the number of traditional dealer outlets would need to shrink by half to adapt to car buyers' changing habits. The number of outlets across Europe has fallen by 16 percent to 52,000 from 2009 and 2019, ICDP said.

Even so, Young said, physical dealers will remain the bedrock of the sales process: "It does not alter our fundamental view that even in an increasingly digital, online world, most customers will demand some part of their journey to be in a physical outlet of some form."