Coca-Cola, McDonalds – and car dealers

I’m on holiday in the Algarve at the moment, so wasn’t really planning on a blog this week, but one thing struck me on the way from the airport, and subsequently driving round in my rental car.  (Opel Corsa, very nice drive, well equipped by the way).  There are many unfamiliar sights when you travel around, even within Europe which has become increasingly homogenised over the last twenty years.  I take a peculiar interest in how many ways there are to support high voltage power lines for example.  Driving a rental car, you also need to pay attention to how on-street parking works between countries.

One constant that I have noticed is car dealerships – both franchised and independent traders.  Dealer sites have become standardised largely due to the influence of the OEMs – which is questionable, given the different market potentials between countries, but it remains a fact.  Used car traders the world over have a common look and feel the world over.  This all gives a certain degree of familiarity with your new surroundings and make boring observations to your family like “interesting that the big Ford dealer there has managed to squeeze a small MG outlet onto his site”.

One thing I have discovered as I have had the privilege of travelling globally over the years is that the similarities are only skin deep however.  The basic principles are obviously the same – you sell and maintain cars – but the mix can be very different, and some elements can be almost absent, depending on local practices and regulations.  A few examples come to mind.

Although the appearance of franchised dealers in China is very similar to that in Europe or the US (other than the size), the used car retail business is largely absent.  The dealers feel that this is an area best left to the traders who operate from dedicated locations with a ‘no frills’ approach.  This possibly represents the purest form of entrepreneurial activity in the sector that I have seen.  It appears crude to western eyes, but is highly efficient in areas like sales per square metre and stock turn.

Finance and insurance (F&I) is a key profit source for any dealer, but in the US, they take it to new levels.  Cars can be “sold at invoice” because of the profits generated by F&I.  I recall a visit to a Chevrolet dealer in New Orleans who admitted to a difference of over 20 percentage points between the highest and lowest rates charged to his customers, with the highest being more than that charged on credit cards, potentially over 6 years or more.  Our friend Glenn Mercer commented on the importance of F&I to US dealers in a blog back in January.  Worth a read if you want to get a deeper insight into the US dealer business model, and perhaps an indicator of the direction of travel elsewhere.

I had the privilege of visiting Chile almost ten years ago, when Chinese brands were already well represented – some offering the Western-inspired ‘copy’ products such as the Lifan ‘Mini’.  The combined market share of the Chinese brands then was already in double figures, now it is 33% split across 23 brands.  Is this a sign of things to come in Europe?  There were also some novel multibrand formats, alongside the more familiar single brand dealer boxes that we know from elsewhere.  The image at the top of this blog is one I took of the ‘Movicenter’ in Santiago, which in conjunction with another even larger site held 20% local market share at the time.  The site was owned by a property company with 81 different franchised, independent and repairer businesses as tenants.  Possibly also a model for the future as we need to find new representation models?

Norway offers a window into the future for European dealers.  In April, BEV share of the new car market was over 83%.  At the end of last year, the EV share of the parc reached 20%, doubling in three years, and is expected to reach 30% in just another two years.  Currently the effect on workshops of the reduced repair and maintenance work content expected from BEVs has been cushioned by higher warranty work, particularly from software issues.  Norwegian dealers have also traditionally been able to generate higher profits from new cars than many other markets, so the anticipated profit crunch has not yet bitten.  It will come however, and dealers in other markets do not start from as strong a position.

The point about this – and many other examples – is that although there is the same superficial similarity in dealers the world over, in the same way that we now expect to see Coca-Cola in every store, and McDonalds on many street corners, there are significant differences in how they operate behind the standardised glass windows.  This creates obstacles for manufacturers who would like to roll out common global processes, but also for ambitious investors who will need to recognise where local adaptations are needed.