August 26, 2014

Carmageddon – The beginning of the end?

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Dramatic title isn’t it? Well it’s certainly been a tumultuous time recently in the world of car manufacturing and retailing and we should not underestimate just how much things have changed. When the dust settles there is no doubt that the automotive industry will be leaner, meaner and definitely greener and that can only be a good thing. Take a look at dealer groups; there used to be so many of them with a diverse portfolio of franchise agreements, and manufacturers enjoyed holding all the cards and having all the power. With no dealer group having more than a handful of branches representing each franchise, the manufacturers could enforce their trading rules at will. Now, however, some of the more powerful groups often have as many as 20 branches representing a single brand, giving them far more leverage to reject manufacturer decrees that are unpopular, unprofitable and which involve expensive investments to enhance the brand at the dealers expense. The amount of representation in each brand will have reduced dramatically in the last decade and if you were to look at how many dealers the top 5 car makers had say 5 years ago to what they have now you will be amazed at the difference.

The reasons are varied, the manufacturers in their quest for greater market share and brand growth imposed greater dealer standards and dealer investment and the profits which traditionally were earned by the volume of cars sold, soon became dependant on a variety of other hoops the dealers were asked to jump through in order to qualify. This left them selling lots of cars for their brand partner and helping their market share in the process but often at the expense of decent profits. This situation, coupled with the showroom improvements required to comply with brand standards which could cost thousands with little or no chance of ever recouping that investment, it is no surprise that smaller players with less clout were forced out. With only major dealer groups having survived and as we are seeing now not without a struggle, it has to be said the car makers have bought much of their current problems on themselves. In their desperation to increase market share they have embarked on disastrous pre-registration exercises which proved non-profitable for everyone involved. But they just kept producing cars at a rate of knots in their blind quest for market share, not stopping to consider whether they were creating an oversupplied false market.

This global attitude has finally caught up with them and will inevitably lead to the demise of the worst offenders with the least effective cars. What we have been seeing in the dealer network will probably happen in the manufacturer network, with the fittest and leanest surviving to make the next generation of cars and serving a true market by building the correct amount of cars to the right amount of customers. Hopefully when things do pick-up they will not be tempted into the wasteful, demented folly that has led us to where we are right now – Carmageddon!

The only questions left will be who will survive and why?


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