A more rational approach to national distribution?

Today, a deal was finalised between Hedin Bil, the 13th ranked dealer group in Europe, and Ford Motor Company for the sale of the Swedish Ford national sales company (NSC) to Hedin Bil.  As a result, Hedin Bil will not only be the largest dealer for Ford in Sweden, but also act as the independent distributor for the brand.  In a related story, Trevor Finn, the former CEO of Pendragon plc and advocate of a ‘superdealer’ business model has joined the Hedin Bil board as a non-executive director.

The two stories have a resonance beyond Sweden because of how this might translate into broader changes across the European industry.  In 2018, ICDP presented research to our members – including most of the manufacturers – suggesting that the role of the national importer organisation should be reviewed.  Although there was a general practice of opening up new markets with an independent distributor, then migrating to a wholly owned NSC once volumes had risen above some level that represented a scale operation, typically 10,000 units p.a., in practice the picture was far more muddled.  Over a quarter of NSCs had annual sales of under that level with many selling under 1,000 units p.a.  Most were operating at a purely national level, not as part of a broader regional cluster, so carried all the overhead that one would expect of an OEM-owned organisation.  We also saw indications that independent importers operated a leaner model – although we were not privy to the discounts that they secured from the OEMs, which obviously are part of the overall business equation.

In interviews with OEMs, few disagreed with the argument that there were at least arguments for reform, but without offence to our friends in the OEMs, there was some sense of “turkeys not voting for Christmas.”  Many senior sales executives at the HQ level have served their apprenticeships in NSCs, enjoyed the experience and have friends and colleagues there.  However, we remain of the view that there is a significant layer of distribution cost at the national importer level which could be reduced by switching smaller markets to independent distributors and/or clustering markets together to achieve regional scale.  A significant cost saving would potentially come from reductions in variable marketing expense, where heads of smaller NSCs spend money on incentives, campaigns and stock disposal in order to hit some annual volume target that was less of a negotiation, more of an imposition.

From our observations, this has been borne out by the decision of PSA to transfer the distribution responsibility in some central European markets to the Emil Frey group.  These were previously operated as individual NSCs, each with their own overhead and volume targets.  Under Frey, some activities were managed for the region as a whole, and volume commitments were made for the region, not market by market.  Supply was managed to individual markets on a dynamic basis throughout the year, gaining from the smoothing that is inherent in any supply chain with higher volumes, and the result was that volumes were achieved more consistently with better net pricing.  From our understanding, both PSA and Emil Frey are happy with the end result, and this is demonstrated by the addition of Opel to the original Peugeot-Citroen-DS deal.  If the former FCA brands follow under Stellantis, then we can take that as a further endorsement of this as a win-win.  It will be interesting to see whether Ford follows PSA in reviewing their distribution structure, and deciding that

I am not privy to the discussions between Ford and Hedin Bil, nor those between Hedin Bil and Trevor Finn, but we can certainly speculate on the opportunities that are open to them, if only as a worked example of what others could do.  Across the Nordic markets, excluding Denmark but including the Baltic states, Ford sold a total of 22,500 passenger cars in 2019, of which Sweden represented 40%.  This was managed through 3 NSCs and 3 private importers.  This was under 3% of their total sales in Europe.  I cannot believe that there are not organisational and operational benefits from managing that as one region, and if the deal is right, why not through an independent importer, following the example of PSA?  Hedin Bil is a sophisticated operator with strong internal resources, and one of the stated ambitions of Anders Hedin with the Ford deal is to apply digitalisation to “enable a more multi-channel way to sell.”

Commenting on the deal, Trevor Finn has suggested that it allows Hedin Bil to become a ‘superdealer’, a concept he launched to an ICDP audience in June last year.  He has described this as a more focused model that benefits from scale for the brand, operating in strategic partnerships with OEMs.  He called for a leaner model, removing friction from processes, interactions between the different players, and with the customers.  He saw the application of dynamic pricing – successfully applied in Pendragon to used cars, and a core element of an agency sales model for new cars – as a key success factor.  His overall tagline was “optimising retail price achievement, market share and profitability”.  If he is able to support Hedin Bil in achieving these goals for themselves, and for Ford, this will certainly be a “win-win”.  It will be a fascinating journey over the next couple years.