As the agency model grows more prevalent, here’s how it could affect the smaller, family-owned businesses
It seems that increasingly, when it comes to car dealers, size matters. In most major towns, big new car dealer groups with familiar names dominate retail parks and motor alleys. Many of them are posting handsome profits, at least while business loans are sloshing around and used car prices are buoyant.
But the car market is a big pond, too, with plenty of room not only for large franchise dealers but also smaller ones. Brands have to start somewhere and when they’re establishing a toehold it is to these smaller, independent and often family-owned single-site businesses that they turn.
Often, the brand becomes successful, outgrows the relationship and moves to a larger and wealthier dealer in a better location. Alternatively, if the brand doesn’t become too big or too demanding, so jeopardising the delicate balance of power that underpins successful business partnerships, the small independent dealer may actually grow with it, establishing an enduring relationship and putting down roots in its local area where it develops a reputation for good customer service and, importantly, constancy in a changing world.
For Autocar Business webinars and podcasts, visit Autocar Business Insight
According to the SMMT around 8%, or roughly 300 of the 3800 main dealers that it represents, are what can be termed single-site franchise businesses. Many are those just described, with long-term brand relationships and deep connections with their local community.
Confined not just to smaller brands, they represent most franchises, although the former are more closely aligned in terms of resources, ambition and working practices.
It sounds like automotive utopia, except that clouds are gathering in the shape of the much trumpeted sales agency model where manufacturers sell directly to customers at fixed prices, leaving dealers to be a kind of ‘experience centre’ fielding enquiries, giving test drives, handing over vehicles, servicing cars and retailing used ones. Most brands are considering going to a sales agency and some, including Mercedes-Benz, have already said they will do so.
Advocates say the new model frees dealers of the responsibility of paying for stock and that, for customers, it creates a level playing field between dealers in terms of new vehicle pricing. Critics argue that it threatens the delicate relationship between dealer and manufacturer, and that manufacturers are ill-equipped to sell cars, a job they say is best left to dealers. How will small independent dealers, those perhaps least able to withstand big business shocks, fare in this brave new sales agency world?
In fact, Jim Saker, president of the IMI, believes the agency model could be the saviour of independent dealers. “It’s a bit of a win for them. It takes new car stock off their balance sheets, enabling them to borrow money for other things such as investing in premises, people and brand standards. If they can leverage the value chain effectively, they should achieve a higher return on sales, too.
“Also, quality of staff is vital to an agency model in which customer experience is everything. Here, small dealers could have an advantage over larger ones because their customer care is already often much better, while being embedded in the local community means they’re a familiar and trusted face.”
Mike Jones, an automotive consultant, agrees. “People are willing to pay for good customer service and small dealers are best placed to deliver it, where big groups can struggle. Staff in small dealerships tend to stay for longer, too, and become familiar faces to the extent that if the brand or, in this case, the business model changes, the customers remain. And don’t forget that in many cases, owners of these small dealerships own their land and premises outright and so can afford to change their business model to suit whatever card they are dealt.”
The arrival of the agency model is not such bad news after all, then, except that not all manufacturers are persuaded. Kia and Suzuki are two that have announced they’re happy with things as they are.
Interestingly, both have grown on the shoulders of smaller, independent dealers, many of whom have represented them for decades. Certainly, Kia, whose market share just keeps growing and which now stands at around 5.5% (around 92,000 sales annually), has little to complain about.
At the other extreme, Suzuki has a 1.5% market share with annual sales of 35,000 but Dale Wyatt, the company’s director of automobile, insists this position suits the brand’s business model perfectly. “Annual sales of more than 50,000 is the tipping point when a brand’s focus shifts more to distribution and processes, and away from its dealers. How you deliver these business needs without alienating your dealers is critical. Agency would be a distraction; we could waste two years on it. It puts dealers last when my aim is to put them first.”
Suzuki has 150 dealers in its network, around 100 of them individually owned, mostly by families. “I value the speed of decision making within smaller dealers and the close relationships we have with them,” says Wyatt. “They’re very stable, although the risk is that family problems – a mid-life crisis or a fall-out – can derail them.
“On the other hand, each one is a reflection of its owner and as a result the businesses each have a unique personality, a fact that resonates with our aim to be the trusted brand for those who are proud to be different. When you are a sub-1.5% brand you have to differentiate yourself and we do this through our dealer and customer relationships. “
It seems that at least within Suzuki’s ranks, the future of the small, independent franchise dealer is assured.
The dealer
“If I want to paint the showroom pink this afternoon, I can,” says Stephen Ody, co-founder and managing director of Tracks Suzuki of Exeter (he also has a branch in Taunton). He’s joking, I hope, but his point is that being the owner of an independent business gives him the freedom to make decisions that in other circumstances might have to be discussed with a board.
Ody started Tracks 30 years ago with two people and £65,000 from mortgaging his house. Today, he sells around 500 new Suzukis across his two branches each year and last year his business was crowned Suzuki dealer of the year. “Suzuki is a friendly company and easy to do business with,” he says. “They’re realistic about what a business like ours can achieve. We don’t have anyone demanding we build a multi-million pound showroom.”
He admits it’s hard work, though, but says the reward is customer retention of around 45%. “The trade is full of ideas about how to keep customers but I’ve always found that if you look after them, they’ll come back. The size of our business allows us to do that.”
Keyword: What does the future look like for the small main car dealer?