Who’s leading the charge in distribution change?

We had our Autumn ICDP Members’ Meeting in Paris this week which gave me an opportunity to visit the Paris Motor Show as well (a ‘proper’, albeit slightly smaller, motor show, with a very impressive showing by a number of serious Chinese brands), but also required me to prepare a couple of the presentations.  One took advantage of this year being the tenth anniversary of us preparing the European Top 50 dealer group league table, which we release through our good friends at Automotive News Europe – more on that next month!  Looking at the changes that are reflected over that decade, it made me consider the broader topic of how the distribution model has evolved, and who has been most influential in that process.

Just to give a flavour for the changes in some key metrics for the European Top 50 groups over that period from 2013 to 2023, average revenue has grown at almost twice the rate of the increase in the price of a new car over the same time, now at almost €3 billion.  The number of brands have increased by 50%, with a third representing (as of last year, and rapidly changing) at least one Chinese brand. The number of franchise points has more than doubled, with the lowest number now being 25 compared to 4 in 2013, and most groups having over 100 points.  This means that the average number of franchise points per OEM brand is just under 8, which qualifies in my book as deserving a ‘seat at the table’ in any debate about changes in the network.  Whereas 80% of the Top 50 members were only operating in one national market in 2013, by last year it was down to 56%, and the mix of HQ locations in the Top 50 is also more diverse.

I’m sure you will agree that is a real transformation – though not all the groups in the 2013 rankings  made it through unscathed.  Focusing on the Top 20, one completely exited the business, five others slipped down outside of this first league, four were acquired, and two of the new entrants are already in the Top 10.  It perhaps reflects what Charles Darwin actually said about evolution – that it is not the fittest that survive but those who are most adaptable to change.

I am not going to attempt to put manufacturers into a similar league table in respect of their distribution performance, mainly because some of the key numbers are totally opaque.  We can all see market share and absolute sales numbers, but does that really tell us anything without knowing what the variable marketing spend was to drive the volume?  Almost all cars can be sold if the price is pushed low enough, and profitability is influenced by more than distribution performance.  Customer satisfaction numbers are easily (and usually) manipulated and often do not reflect what is actually important to customers.  My following comments are therefore very much my opinion and largely subjective.

National sales companies have faced headcount cuts, but the structure and role remains largely unchanged, though there has been a bit of a transition to private importers in some smaller markets.  Dealer networks remain much denser than is required to meet customer needs.  The number of franchise points dropped over the same decade by just 9%.  The cost of franchise in terms of property and other specified brand related costs has at best remained unchanged in real terms, and probably increased in many cases.  Supply chain management has gone backwards at least relative to a pre-financial crisis level with many fewer examples of the best new vehicle supply practices that ICDP and others successfully supported the implementation of in the 1990s and 2000s.

The distribution model remains firmly locked into ‘push’ rather than aiming for ‘pull’, meaning that dealers act as the ‘fixers’ to find a home for every car.  That is reflected in the big black hole of variable marketing expense which remains poorly managed and opaque, even to senior management.  We have had a number of major IT projects aimed at improving retail processes and the retail experience, most of which have under-delivered and over-run and a few have sunk without trace (other than a big bill).  The online functionality offered by good dealers on their own websites for used cars is usually richer and slicker than that offered by the manufacturers for their new cars.  And finally, we have agency – a fundamentally valid channel approach that has in most cases been poorly delivered and badly operated so that benefits have not been achieved as volume is still pushed through using levers that are inappropriate for an agency model.

That’s a long list, and not much there by way of good news in terms of improvements.  I therefore came to the conclusion in my presentation to our Members’ Meeting that the major dealer groups have driven through more positive change to the distribution model over the last decade than the manufacturers.  They have professionalised the business and innovated continuously in an effort to improve the customer experience.  At times they have been hampered in that by contradictory or conflicting demands from their manufacturer partners.

I am not suggesting that left to their own devices, dealers would develop a model that was optimised along the whole value chain, and with an outcome that would be wholly customer-focused.  However, they are closest to the customer at retail, and have demonstrated their ability to transform their part of the business over the last decade.  They have also – despite all the pressures and tensions – demonstrated a willingness to invest more in their manufacturer relationships – more property, more people, better support.

Is it not time for the manufacturers to rethink their approach to changing the distribution model, and to work with their dealers – particularly the largest ones – to come up with a true partnership approach that takes out the inefficiencies that sit either side of their contractual relationship?  They’ve earned their seat at the table – now they need the manufacturers to join them in the room.