Still looking for change in dealer networks

This week, we will publish our latest update of the European Car Distribution Handbook (ECDH) – the only source of information on the size and structure of franchised dealer sales and service networks on a pan-European basis.  Prepared with the help of the manufacturers, it has tracked the evolution of dealer networks since 1998, during which time we have seen brands come and go, the growth of the internet (first opened to the public in 1991), the appearance of smartphones and dramatic changes in the cars sold and serviced through those networks.  However, the basic shape of the networks described over two decades across the 16 markets covered (now 38) is still recognisable, albeit the numbers are down.

Back then, the Handbook included brands like Cadillac, Daewoo and SAAB.  Now we have Dacia and Tesla, and the MG that we now cover is a very different business to the one we tracked back then.  Looking at a couple of key statistics on a like for like basis, the number of main dealer sites offering both sales and service has dropped by 31%, and if we adjust for the Covid-affected sales in 2020, new car sales per main dealer have increased by 55%.  However, looked at as a year-on-year change, this shows that main dealer numbers have reduced by less than 1.7% each year despite the parallel massive shift of customer behaviour to online research.  Adjusted new car sales per dealer remain at less than 360 per annum, a third of the levels that are typical in China or the US.  We do not argue in ICDP that there is no future for the dealer – in fact, we see dealers in some form remaining as a key part of the buying journey for the majority of customers for many years to come.  Indeed, I would not rule out the possibility that we might still see an ECDH 2044 edition reporting on the number of physical points that will support customers in selecting their personal transportation pod…

In the 2014 report, looking back at the period of the global financial crisis – the last time there was aa accelerated reduction in overall dealer numbers – there had been a reduction of around 20% overall, and on that basis we predicted that if that rate had been sustained, and that is about where we are when you consider the changes in brand and market coverage.  However, getting to an average sales per main dealer of around 500 per year would require a cut of over 15,000 locations across all brands and markets – a cut of around one third.  If we assume that the sites cut would tend to be smaller ones in non-prime locations with a value of say €1 million each, a cut of this size would release €15 billion of capital to dealer investors, whilst allowing the remaining investors to improve their business performance with a volume gain of around one third in sales, feeding into used cars and aftersales over time.  Some of that would be clawed back by manufacturers to fund digital investment and cover the restructuring costs, but it remains a win-win for dealers and manufacturers.

Customers do not have to lose out in this process either.  Although customers generally want to visit dealers at some point in the buying journey, they are much better informed than in the past from their online research and are willing to drive around twice as far as the assumptions generally used for network planning today.  However, a cut of a third in dealer numbers would not take us close to that maximum drive time.  Whilst there would inevitably be some exceptions, a cut of a third in today’s sales network numbers would increase the average drive time by a few minutes – such is the extent of the over-dealering in most networks today.  Service coverage needs to be maintained, but there are viable alternative approaches to that rather than relying largely on traditional combined sales and service points.

The main reason that we do not see the change on the scale that is needed as part of the general shift to omni-channel is that manufacturers are nervous.  They worry about losing sales if they are the ‘first mover’ in a market and customers have the choice of relatively closer competitor brand dealers, or a slightly more distant dealership of their brand.  However, the emphasis should be on ‘slightly’ and we need to recognise that half of new car buyers have settled on their final brand before any dealer visits.  Our research shows that they will drive past dealerships of other considered brands to get to the dealers of the brand or brands they have selected.  I recognise that there will always be scepticism about research and modelling, but it is still possible to trial this scale of change in the real world.  It does not need to be an ‘all or nothing’ irreversible gamble across a whole market.  It is possible to design trials that will take a more contained area, and work with the investor or investors in that area to reconfigure the representation locally, then monitor the results over the following year or so.  The industry needs to move forward for the benefit of manufacturers, dealers and customers, rather than be frozen in the headlights.

ECDH 2021 will be published this week and we will hold an open webinar with the research highlights on December 7th.  For more details on buying ECDH or to attend the webinar contact projectoffice@icdp.net