IMI Magazine

IMI Magazine

News Analysis

Dealer takeovers: Now the pace really hots up

Although consolidation in the retail motor sector has been taking place for some years, Pendragon’s pursuit of fellow distributors – first Reg Vardy and now Lookers – shows the pace is hotting up.

Even if Pendragon, already the biggest dealership, were to capture Lookers, the expanded group would still account for only 7% or so of the UK’s new car market. This, however, would be far in excess of any other distributor and seems certain to jolt other ambitious enterprises – such as Inchcape and US-based United Auto Group – into a more urgent review of acquisition chances including, perhaps, a counter bid for Lookers.

So the coming months could well see a speed-up in the sector’s restructuring, perhaps leading eventually to the formation of between three and six dominant distributor groups with up to half the market. This is all the more probable given Pendragon’s declared intent to acquire outlets to the point where it accounts for a 10% market share of new car sales, thereby becoming the Tesco of vehicle distribution. But why stop there? Tesco enjoys a 30% share of food retailing, so it is hard to see the Competition Commission raising objections to these latest developments in the motor trade and deciding to investigate vehicle distribution, let alone putting up obstacles to dealer groups’ expansion moves. 

A more violent reaction, though, may be expected from the vehicle manufacturers who undoubtedly need to strike a careful balance over future relationships with their franchised networks. On the one hand there is the comfort of knowing that professional and dynamic organisations are involved in shifting stock. But then there’s the worry that these mega dealer groups will develop the power to dictate terms in a manner reminiscent of relationships between the big supermarkets and their suppliers. Such a prospect could act as a prompt to further manufacturer involvement in the ownership and management of dealer networks.

Signs that the motor show will ExCel

With little more than three months before the British International Motor Show returns to London after being in exile at Birmingham’s NEC for almost 30 years, the organisers and their support teams will be working at fever pitch to ensure the event’s success.

After the steady decline of the NEC fixture – attendance topped the 900,000 marker at the inaugural event in 1978 but had plummeted to just 475,000 by 2004 despite a series of innovations aimed at capturing the public’s imagination – it is certain that no effort has been spared to analyse the causes of failure which characterised the former venue.

A review of other major motor shows suggests that location and ticket prices are both critical issues, and on both counts there is hope for the London event. For a start, the capital should act as a far greater draw than Birmingham. Compared with even just a few years ago transport links to Docklands, location of the ExCel venue, have improved noticeably, and there is the prospect of the nearby Olympics development having a halo effect in future years.

The clincher, though, is that ticket prices have been pitched at an extremely reasonable rate, around a third lower than Birmingham and on a par with major continental shows such as Frankfurt and Geneva which attract good attendance. And by using Geneva as the benchmark, the organisers should note that there is a third attribute when concocting a winning formula for a motor show – a complete lack of gimmicks.

Could Ford be turning the corner?

Anyone listening to John Fleming, Ford Europe’s chief executive, at the company’s press conference in Geneva would have detected an air of confidence in his voice which, even discounting the natural air of exuberance of top auto executives on such occasions, nevertheless had the ring of authenticity.

Evidence that things may be on the up stems mainly from the new model programme and, in particular, the launch of the S-Max and Focus coupe cabriolet (pictured). For the first time on a production model the former features the marque’s new design nuances (described as ‘kinetic’) while the latter, based on the promising Vignale concept, is scheduled to enter production later in the year. If the new Mondeo, which receives its public debut at Paris in September, bears more than a passing resemblance to the ‘iosis’ concept vehicle which took pride of place on Ford’s Frankfurt stand last year, then the prospect of sustained progress will be convincing indeed.

Rover: Still burning cash

Six years after being offloaded by BMW, Rover continues to burn up taxpayers’ money. Estimates suggest that around £250m in the form of grants, loans, fees and tax write-offs has already been accounted for, with more bills expected for at least another couple of years.

Meanwhile, the National Audit Office’s mid-March report criticised the government for sanctioning what was euphemistically referred to as a ‘loan’ of £6.5m last April. This was granted with the aim of keeping the operation in business for a few more days in the forlorn hope of finding a buyer for the already stricken group. By then, though, Chinese-based SAIC – the only serious contender – had walked away from joint venture discussions following the realisation that MG Rover was doomed. Surely it should have been apparent to anyone with an inside track of events and with only the most basic commercial nous that the game was up. However, this was an area with some marginal Labour-held seats and a general election just days away.

Among the carnage, perhaps a thought should be spared for BMW which, according to some calculations, has taken a hit of almost £1bn. The generous ‘dowry’ included car stocks, an interest-free loan of over £400m – subsequently written off by the German company – and £112m in cash. No wonder there was an ensuing clear-out of BMW’s top executives, and that the Chinese had second thoughts.

Now Dana goes down

After notching up a $1.3bn loss during its third quarter and seeing
its share price evaporate close to vanishing point, there could have been few surprises when Dana – the world’s 15th largest automotive components group – filed for Chapter 11 bankruptcy protection at the beginning of March. Like other high profile groups before – such as Collins & Aikman and Delphi – the company was defeated by a combination of crippling blows, including higher raw material costs and order cutbacks from major customers.

Dana, together with most other American and European Tier 1 component suppliers, also faced the predicament of trying to meet vehicle manufacturers’ demands for ever lower unit prices while having most of its manufacturing operations in high cost locations.

It seems improbable that Dana will be the last component group to crumple. Several other big names are hanging on by their finger tips and are hoping that restructuring benefits, coupled with market recovery, will lead to a turnaround.

At some stage, though, the vehicle industry will have to decide how and where it wants to source its parts and systems. As globalisation gathers pace the likelihood that large chunks of the components industry will migrate from developed to developing economies seems increasingly probable.

Arthur Way