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Still no answers to the key strategic questions

The spectre of the Block Exemption review hangs over UK franchised dealer networks like a black cloud.

Still ignored by many, the fundamental European Union shake-up of the legal framework of the industry will soon become a reality. Those businesses which do not have a strategy in place will suffer.

The problem is trying to second guess the outcome. From a purely UK perspective it would seem certain a fairly fundamental reform is on the cards. The political and consumer climate demands it. Customers should have freedom of choice to buy where they please. Manufacturers should loosen their grip on dealers' business.

However, in the rest of Europe, the view is somewhat different. Certainly across France, Spain and Italy, the exclusive franchised dealer networks are seen as offering consumer protection - a guarantee of quality workmanship, stable prices and personal service. There is no political climate for change.

This then is the dilemma facing carmakers and dealers as they try to plan for the future. Put simply, will carmakers continue to be able to enforce exclusive territories and exclusive sales contracts or will dealers be able to sell what they want, where they want?

In the circumstances, it is not surprising manufacturers and importers are becoming increasingly cagey about revealing future network strategy. However Automotive Management's annual survey of franchised networks shows two quite clear trends: there will be fewer franchised dealers around by 2002 and they will be operated by fewer company owners.

Of the carmakers with any significant market share, only Seat and Mitsubishi plan to increase both their network size and the number of companies they are prepared to do business with.

Honda, Mazda and Suzuki aim to increase their networks but reduce the number of business partners, moving to larger territories under fewer managers.

The net result is few opportunities for the independent dealership, either choosing or being forced to drop out of a volume brand because of shifting territories or falling profitability - and there are plenty of them about. Ford, Vauxhall, Rover, Peugeot and Volkswagen have all completed their market area reviews.

Now the shakeout is from franchises like Renault, where smaller retail dealers are struggling with the investment required to meet corporate standards in the face of a high volume, low margin expansion.,p> Dial in the unanswered questions about possible network links between Renault and Nissan; Ford's joint-venture business with its major retailers; falling profitability even in prestige brands; and the fundamental economic truth that car retailing is a high investment, low margin business – and you paint a fairly gloomy picture.

Little wonder then that the smart money is now going into used car businesses. Even in these days of falling residual values, at least the motor trader can be master of his (or her) own destiny.

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