Large dealer groups – converging on a common model?

I spent part of last week reviewing and finalising our ranking of the Top 50 European dealer groups which we prepare for publication in Automotive News Europe, appearing in the coming days, and the focus of a webinar for ICDP research programme members which will be held on the 23rd.  Without giving the game away, there is only one new entrant, replacing one group that slipped down, so 49 of the 2020 Top 50 remain in the rankings.  However, if you conclude on that basis that not a lot has been going on in the world of large dealers in Europe, then you could not be more wrong!

The biggest movers are up eight places and down six places, with a lot of lesser movement in between.  This is a consequence of some acquisition activity, adding new franchise points and in some cases import responsibilities, and different degrees of success in exploiting the used car business more effectively to compensate for reduced new car supply.  These are all factors in the relative fortunes of different groups.  However, what struck me looking back over the ten years that we have been preparing this league table is how the general direction of travel has more similarities than it did in the past.  There is not one single European model, but there is definitely a converging trend.

In our research on the role of the national importer organisation a few years ago, we concluded that manufacturers were using relatively costly national sales companies in markets that could not absorb that cost, and that a more effective approach (our analysis suggested lower cost with similar or better market share) would be to use private importers.  This message now seems to be getting through, with various examples of dealer groups taking on the broader distribution role for small and medium sized markets.  As a result, over a quarter of our Top 50 dealers combine wholesale and retail responsibility for at least one brand and market, in some cases much broader than that, and we are aware of other pure retail groups who have the same ambition.  This is despite the arguably contradictory trend of manufacturers wanting to get closer to their retail customers through agency, connected cars, brand apps and so on.  How these can be reconciled in the future will no doubt be the subject of some delicate negotiations.

The second significant change is that a decade ago, a number of the groups would have been operated as financial holding companies, particularly in markets like Germany.  This would leave very high degrees of autonomy at the dealership level with light oversight from the centre, and the few group functions focused on legal and property.  I am not aware of any of our current Top 50 who still operate that model.  There are clearly differences in style, but there is much more operational management input from the centre – down to real-time data access in some groups.  This is not to support micro-management, but to provide management information that amongst other things feeds some of the central functions that are now commonplace, including digital channels, used car management and some degree of aftersales support.

A growing characteristic of the Top 50 is that more of them operate outside their ‘home’ market.  Again, around a quarter are operating in more than one market – some with clear cultural ties such as Germany and Austria, but others more diverse.  In physically large markets like France and Germany, there are more regional players and they can continue to expand domestically without running into either competition authority or manufacturer concerns about market dominance.  For groups based in smaller markets or where the concentration is already high like Netherlands, the Nordics and the UK, it is more likely that further growth will involve looking abroad.  We already see that with Dutch and Nordic groups, and it may be the next move for some of the UK groups despite the additional challenges of being outside the EU and the steering wheel being on the ‘wrong side’ of the car.

Going back to the emerging central functions around used cars and digital channels, these are again areas where the groups have universally made huge strides in the last decade.  There are still some players who stand out from their peers in terms of the scale and sophistication of their used car operations, but none view used cars as incidental business anymore.  They recognise the profit opportunity in this area, and also the advantages that scale can offer in areas like active purchasing, preparation, inventory management and online retail.  Similarly in the digital area, none of these groups view that box as ticked just by having a website.  They often have richer functionality on their group sites than the manufacturers have on their own sites, and they are incorporating the rich data that flows from a strong online presence to drive business decisions.  Some have their own data scientists on payroll, and this will become increasingly common.

In summary?  Fifty different groups, no two are clones, each having their own personality.  However, there are a growing number of similarities, and it is the effective implementation of these strategies that will feed their continued growth and pull along a tail of slightly smaller groups who likewise are becoming even more effective in the face of new demands.