This article was written several years ago. Ford has recently announced that it has taken on Jardines’ Joint Venture entirely under its wing and we have no doubt it will be run very differently. Publishing it here is not a comment on Ford, but the shape of the industry, and the process of change we are currently going through
Recent moves by Ford have shaken some parts of the industry out of its complacency. Things may never be the same again.
Until now, we have been relaxed looking at some of the smaller importers owning their own retail outlets. It was never something that the Big Two would involve themselves in.
Vauxhall had contented itself with the Motors Holding route. This appears a very good and well respected Dealer Development scheme that combined convenience, influence and strategic goals in equal measure. It left the manufacturer holding influence, whilst allowing successful operators access to capital and the potential purchase of their own business.
Ford, on the other hand, had tended towards strong alliances with larger Groups. They have actively moved away from the smaller operator over the past few years. Recent reports of their planned joint venture with Jardines are a logical, if radical, development of that plan.
Subsequent press comments that long term there will only be fifteen amongst the “chosen few” strategic operators, cast a huge shadow over the future of smaller groups who have invested millions in the new CMA’s.
We know that it costs millions, because Quicks, probably one of the most loyal Ford Groups, has recently blamed much of its poorer second half performance on this. Companies have invested on the back of a modest boom, only to find that even the slightest cooling of the market makes many territories uneconomic.
The danger for the large players is now more acute. A relatively small main dealer territory consumed costs in a recession before. What is going to happen if you control the North East for example, and it plunges into severe local difficulties? Will you expect preferential treatment from the manufacturer? Can you get more efficient than your competitors, when they are members of your own Group?
Ford’s move must be seen against this background. When margins continue to be at best wafer thin, they can see the opportunity to move away from boom-bust by controlling their own outlets. Instead of having to poor millions into incentives and dealer support, they can share those costs in bad times, and reap the rewards in good.
There are three other spectres on the horizon, all of which send shivers down the spine of the market leaders. The lifting of Japanese quotas into Europe over the next year will have a profound effect, not least in attacking Ford’s niche products. The comparative strength of the pound and the dollar will not help in the immediate future either.
The other two are linked, and call into question the whole organisation of our industry. Ford knows this and is trying to react first. They are the OFT enquiry into informal cartels and anti-competitive practices, and the review of our industry’s Block Exemption from the EEC’s anti-competition laws. A side issue is the apparent disparity between our car prices and those in the rest of Europe, and the continuing attention this receives from the media.
In my opinion by far the most serious factor is the issue of Block Exemption. Economists, academics, politicians and Civil Servants are all equally opposed in principle to the Franchise system, or “Inter mediated Sales” as they call them. They hate the idea that a producer can bring undue pressure to bear on its distributors, that they are in a position to abuse this power if they should wish to do so. They view this as the least competitive of all the models of distribution.
Whatever the arguments in favour of a strong franchise system, and there are many, Europe does not see it the same way. Any adverse publicity, and a feeling that the large players are controlling the market, will raise their hackles. Block Exemption is the simple tool that they can use to restructure the market.
Block Exemption has the potential to be the most radical and bring the most far reaching changes. It only requires the tiniest change on the European Statute books to completely turn our industry upside down.
The reason is that no new laws would need to be drawn up, no new thinking undertaken. All the Eurocrats have to do is say that our industry can no longer claim exemption from its anti-competiton laws, and it will automatically fall within it.
How would we cope with no exclusivity of supply, no protected territories, no barriers to the same product being marketed directly from elsewhere in Europe?
Ultimately, if we join EMU, how will we cope with continental dealers being supplied on exactly the same terms as us, with the consumer free to buy wherever the tax regime was at its most benevolent? (If 20% of all off-licence sales are bought in France because of the massive savings, how many more car sales would be made this way if the manufacturers were forced to supply?)
If they had no Franchise Dealers to support, why would they bother where the sales were made, as long as they met their targets?
With manufacturers losing their control over their distributors, they have little choice in the short term but to buy the means of distribution themselves.
The joint venture with Jardines may well be seen in that light. If they are paid a management fee to operate within a brief set by the manufacturer, then there is no question of conflict of interest in a legal sense. Not all the other dealers surrounding their territories will see it that way, however, and it must raise serious questions about their future.
The landscape is about to change, better that we are all aware of the potential for restructure and be involved in it, than to watch it all pass us by. We will know shortly whether this change will come about by gradual erosion, or seismic change. Let us hope it is the former, earthquakes are not very pleasant.