Mercedes-Benz today launched its own network of used car centres, created out of what it says is the inability - or unwillingness - of its dealer network to win business in the sector from its competitors.

The operation, branded Mercedes-Benz Direct, is based around six of the seven Lex Autosales sites in Birmingham, Bristol, Chelmsford, Hemel Hempstead, Poole and Waltham Cross, which were acquired for £17.95m on December 1.

Each centre will stock between 200 and 250 cars, aged between one year and eight years, and 80,000 miles on the clock. Each car will come with a 12 month warranty conditional on the owner taking the car for servicing and repairs to a Mercedes franchised dealer.

A crucial element in Mercedes' decision to create its own used car sales operation was its franchised network's poor performance in increasing used car sales.

Dermot Kelly, UK passenger cars director, said that the franchised network handled only 29% (30,000 vehicles) of used Mercedes sales. The remainder was “lost” to private sales or independent outlets.

A review of the used car business last year by Mercedes showed that in 1999 there were 91,000 'changes of ownership' of used cars and that this figure will grow to 181,000 by 2005.

Mr Kelly said: “Our current franchise network does not have the capacity to service this growth.

“With the growth in the used market we predict franchised dealers would need to double their stock turnover and stock – and invest in more real estate - just to maintain their 29% share. If we do nothing this would fall to 15%.”< p> He also said franchised dealers were not meeting the needs of customers who wanted to buy a Mercedes more than two years old, typically with about £15,000 to spend – and that their franchised dealerships were “intimidating”.

Another factor which had led to the decision to create its own used car retail outlets was the franchised networks reaction to an appeal from Mercedes to give greater focus to this area. “We talked to our dealers about improving used car turnover, but that appeal coincided with a decline in residual values and our dealers actually cut back on their used car purchasing, some made the choice to withdraw from used car sales,” Mr Kelly said.

The six centres are forecast to sell 6,000 cars in the first year rising to 10,000 by 2005. However, major growth will come from increasing the number of sites. Mercedes will open another in Croydon (the seventh site bought from Lex Autosales) by year end and is looking to establish centres in Manchester, Edinburgh, Newcastle and Leeds/Bradford.

John Bissett, Mercedes-Benz Direct managing director, said its used stock would be sourced from the 2,500 cars a year coming from Mercedes own employee fleet, 4,500 fleet buy-backs, 6,000 from rental firms, like Avis, and another 2,500 from EasyRentacar.

“I realise this is a sensitive time to be launching a direct sales operation, but we had to be honest and question the ability of our franchised network to meet the growing market for our used cars,” Mr Bissett said.