Automotive Blog

Network adjustment - initiating the next step

Xmas

Looking at this year’s developments in franchised networks in Germany, one might form the impression that major changes have taken place.  There have been lots of press reports about Toyota and Mercedes-Benz, who have both restructured their sales networks; both examples have one thing in common, a shift from indirect sales agents to main dealer sales outlets.  For some time, the same press reports have been questioning whether Toyota’s second tier network, which began in 2002 and will cease in May 2016 after 14 years, was the ideal distribution concept for the German market.  As part of their restructuring, the sales network will be reduced by 100 dealers, and the remaining 420 franchisees will all be main dealers.  Those ‘B-dealers’ stepping up to be main dealers will have to take on more responsibility and more costs in order to implement the additional standards and processes.  Main dealers who stay as they are will see an expanded area of influence, and will be relieved of the operational tasks of looking after the second tier outlets.

And what about Daimler?  As part of Mercedes-Benz’s “Best Customer Experience” strategy, the brand has restructured its wholly-owned and franchised network within Germany.  Shortly after the brand announced the sale of 63 of the 98 wholly-owned passenger car outlets, they pushed ahead with the next step.  The contracts of 358 sales agents were terminated (figures differ from those presented in ICDP’s European Car Distribution Handbook due to definitional complexities).  At 100 locations, the brands sales presence will change to a pure mediation model, combined with service.  These so-called category ‘C-dealers’ will not sell cars themselves, but will only be allowed to forward leads on to the responsible main dealer, and their commission will be halved.  To make matters worse for these players, their contracts covering their membership of the brand’s approved used car programme, covering the remarketing of the brand’s younger used cars, have also been terminated.  The new dealer contracts have a cancellation period of only 6 months, which suggests that further network restructuring may be expected in the future.

However, network adjustments are never cost-neutral.  Dealers have to cope with standards increases, usually requiring new investments; furthermore margin and bonus schemes have tended to become more complex, leading to increased pressure as more sales and warranty audits are required.

ICDP has already predicted that many franchised dealers are sitting on a property timebomb.  What will happen to these dealers who are being ‘dropped’ from their networks, or those who will undoubtedly suffer the same fate in the future?  If they can no longer purchase vehicles from the manufacturer, how will they generate future customers for their aftersales business?  Will they still be able to show a substantial return?  At this point the entrepreneurs will start to question their business model.  As the main ingredient of their business will no longer exist, dealers could chose to act as pure authorised repairers or to operate as a multi-brand cross border importer meeting no manufacturer standards.  Will mature markets experience a second wave of multi-branded outlets alongside the franchised network that will compete with them and offer lower prices?  Or will these dealers sell their business to a main dealer and act as a satellite?  Regardless of what happens, consolidation in retail will rise.

If you are interested in finding out more about what typically happens to terminated dealers, and the impact that they have on the market, then we would recommend to look at the recent ICDP webinar presentation on the “Lucky Losers” – available to ICDP members here.

Written by Martin Schomann

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