Six months after the block exemption changes kicked in, Arthur Way looks at what has actually happened to the retail landscape and concludes that seismic shifts have turned out to be nothing more than a shudder.
If the ballyhoo at the time was to be believed, the earth should have moved by now. Revisions to block exemption, which took effect at the beginning of October last year, were set to trigger a number of seismic shifts and change the retail motor industry's landscape for all time.
Vehicle manufacturers - for so long the bullies in a one-sided relationship with their franchised networks - were about to lose out big time. The balance of power between producers and franchised dealers was set to tilt decisively towards the dealers who would be able to exploit a series of exciting new opportunities without the encumbrance of tiresome rules and regulations determined by the carmakers. A brighter future beckoned for the independent trade too with the potential to capture business which formerly was the exclusive preserve of the franchised trade. And all the while, of course, consumers would benefit from lower prices and greater convenience.
Anyone with even a modest exposure to the workings of the retail motor industry was aware of the improbability of that script. The sector typically has been characterised by evolution rather than revolution and there was never a realistic prospect of momentous change happening overnight. In addition, the importance of existing relationships should never be underestimated. There are few dealers, especially outside the mega groups, who would go out of their way to antagonise their manufacturers even given the legal right to do so. The widespread pruning of dealer networks in recent years has engendered a culture of concern, if not fear, and the desire to maintain existing business relationships with a manufacturer has been and remains a key priority.
In any event, long before the new regime kicked into play there were strong indications of vehicle manufacturers' intent to retain as much control as possible over distribution networks and the aftermarket. Certainly there was no reason to doubt the hostility of the manufacturers towards the new order, nor the desire to resist any dilution of their influence in the retail marketplace.
Even so, after more than six months it seems somewhat bizarre that, not only is there a lack of evidence pointing to the implementation of the new provisions, but many in the trade believe that vehicle manufacturers are extending rather than relinquishing their grip. This is highlighted by the latest RMI dealer attitude survey which finds that most franchised dealers believe that vehicle manufacturers continue to exert a high level of control over their networks and no fewer than 40% anticipate that this control will increase. No wonder that some motor industry executives have described block exemption changes as a non-event.
Why should this be so, and does perception in this instance correspond with reality? The answer may be approached from two sides, by examining the response of vehicle manufacturers on the one hand, and the extent to which franchised dealers and the independent trade have been willing to take the plunge and embrace the new opportunities on the other.
Manufacturers have adopted two crucial means in order to maintain control. First, through the setting of new (allegedly onerous) operational standards at the servicing level in the attempt to ensure that new members of authorised servicing networks measure up; and secondly, through the assumption of ownership of retailing and servicing activities.
Certainly there is growing evidence that independent garages are finding the cost of complying with a vehicle manufacturer's requirements in terms of the basics - such as tooling, training and size of premises - to be a barrier to joining the authorised servicing and repair network, although this is not the same as implying that the standards are too high. The suspicion remains, however, that in some cases they are and also that the bar has been raised markedly and unnecessarily during the past year.
Citroën provides an interesting example of a manufacturer which has been active in providing an opening for independent garages wishing to achieve authorised status. Of the 120 or so independents who applied for a servicing franchise, 34 have now joined the network of which ten are former dealers. However, a further 16 who qualified decided not to take up the offer mainly because of the need to invest around £30,000 in tooling, training and upgraded premises. The remainder failed to qualify on a number of counts, of which inadequate premises was a major factor.
The ownership issue has been shown most vividly and controversially by Mercedes-Benz which, in a move pre-dating the introduction of the new block exemption rules, terminated its dealers' contracts and subsequently assumed direct ownership and control of many of the market territories.
More recently there have been other examples of manufacturers (and importers) assuming ownership and control, including Ford's acquisition of the 51% holding in Polar Motor Group that it did not already own, and the intriguing move by International Motors (the importer of the Daihatsu, Isuzu and Subaru marques) to purchase a dealer in the West Midlands in order "to exploit business opportunities presented by the new block exemption regulations".
Meanwhile, there is little evidence of widespread and far reaching initiatives from within the ranks of franchised dealers and the independent trade aimed at countering this growing influence. Those who point to Pendragon's takeover of CD Bramall as indicative of the new power of retailers ignore the fact that consolidation has been a continuing feature of the distribution sector for at least a decade, and the same applies to the separation of the sales and servicing functions.
It remains doubtful whether the largest dealer groups, representing a portfolio of marques, will be able to take full advantage of the economies of scale offered by multi-brand servicing in their workshops due to the increasing complexity of servicing requirements. Multi-brand servicing may be possible where a family of marques - like Audi, Seat, Skoda and Volkswagen - share common platforms and systems, but is unlikely to be feasible between, say, BMW, Jaguar and Mercedes-Benz where specialist tooling and software is required.
The heavy investment required by an independent garage to become an authorised service and repair agent, alluded to above, is compounded by a further impediment insofar as it is doubtful whether the new legislation and its full implications are fully understood by the majority of independent garages, and indeed franchised dealers, particularly among small to medium sized operators. Moreover, evidence to date suggests that only a limited number have the necessary managerial, financial and technical resources to take advantage of the new opportunities.
Looking to the future, it is clear that forces are being lined up which inevitably will lead to a number of skirmishes and the involvement of national and regional government agencies. Towards the end of last year, for example, the Office of Fair Trading stated that vehicle manufacturers and dealers must lift restrictions on where vehicles can be serviced and still remain under warranty, or face a legal challenge.
On balance, though, it is difficult to avoid the conclusion that the retail motor sector's eventual landscape will be conditioned primarily by the enthusiasm with which franchised dealers and the independent trade respond to what's on offer. They have been presented with fertile land, but will they till it and reap the harvest? Until they do the scenery will continue to be dominated by the manufacturers.