Trevor Finn, chief executive of the UK's largest dealer group Pendragon, has reiterated his support for extended franchised contracts, calling on manufacturers to accept five-year rolling agreements - and pressing dealers to make sure their views are heard in the Block Exemption debate.
This morning at Automotive Management's autumn conference, 'Beyond block exemption' at the ICC, Birmingham, Mr Finn spelled out the financial realities facing dealerships that under manufacturer pressure saw the most effort placed on chasing the least profitable area of the business - selling cars - compounded by restrictive, fixed two-year franchise agreements.
His analysis of a typical dealership showed that while the most effort and resources were given to selling cars, this area of the business represented 7.9% of the gross profit margin, or 22% of total gross profit. This compared to servicing with a GP margin of 71.6% and total profit of 36%.
"In most industries people concentrate on the high margin aspects of the business. But in our industry, while we give the most time and resources to selling cars, servicing is the biggest-margin business and biggest contributor," Mr Finn said.
He said the results of this "bundling of sales and service", advocated most strongly by car makers, and its financial impacts should act as the spur to dealers to pressure for longer contracts.
"We should make it very clear what we are looking for. We should all strive for the simple objective of rolling five year dealer agreements. They would set the framework within which we can have a dialogue that provides balance and subjectivity to the carmaker and the consumer. Once we're aligned with the consumer our business can become much more profitable," Mr Finn said.
He ended his presentation with a generalised model of a high profitability franchise. It has lower staff turnover, high customer satisfaction, higher paid employees, higher quality staff, high product satisfaction levels among customers, better dealership facilities and liaised with high quality staff at a manufacturer level, Mr Finn said.
"A lot of the consumer distrust that we face has come about because this model isn't adopted. It's an easy challenge and one day perhaps we will meet it."
Competition makes the industry 'work harder'
Greater competition is to be encouraged in the industry, delegates at today's AM autumn conference, 'Beyond Block Exemption' were told.
In response to a question as to whether greater competition was of benefit to the consumer and for those in the industry, Trevor Finn, chief executive of dealer group Pendragon, said it was best for both: "It makes you work harder. We can't carry on as we are,we've got to go for it."
But Gerard Ryan, managing director of event sponsor GE Captial Woodchester, was more cautious. "There can be too much competition where there's too little profit to sustain the infrastructure supporting the product."
And Andrew Tongue, director of the International Car Distribution Programme and conference chairman, questioned the extent of consumer awareness. "How much competition does a consumer know there is? They will always want more offers and better deals."
Post-Block Exemption world will boost independent finance providers
The Block Exemption review will give dealers greater freedom to choose their finance and insurance providers, boosting the business of independent companies to the detriment of manufacturers' in-house operations.
This was the prediction made by Gerard Ryan, managing director of GE Capital Woodchester, at today's Automotive Management autumn conference, 'Beyond Block Exemption'.
He said: "Any change is likely to give dealers more choice and freedom and they are likely to go for independent finance companies. We are more hungry for the business, we work harder to get it and our service levels are higher than manufacturers'."
Mr Ryan predicted that changes to Block Exemption will also lead to more choice of supplier for the customer, more control of the route to market for the retailer and reduction in the restrictions for new entrants.