AM Online

'The idea that size meant power was a pipe dream'

Looking back 10 years, there has seldom been one that did not contain numerous predictions about the demise of smaller dealerships and the onward march of the big battalions. In the early Nineties, this view was supported by statistics.

Dealer numbers fell dramatically. Some failed. Some were taken over. This trend continued with larger groups either taking over the more vulnerable, or paying significant premiums to buy success.

The result was a clear trend. The large got larger. Although the total turnover of AM100 groups also rose, the total accounted for by the top 20 got larger quicker.

Close examination of profit trends would have shown profitable groups across the board, but not a clear advantage for the larger groups.

The lesson from other industries was plain. This trend should continue. Scale brought cost savings and thus an improvement in overall margin. Even greater scale was needed to have some influence with suppliers.

And the trend did continue, as far as turnover was concerned. But improved returns from scale proved elusive.

The idea that size meant power was always a pipe dream, while Block Exemption lasted. If scale returns are a real possibility, you would think that someone would be able to show the way that others could follow. You might say that Reg Vardy has shown that way. But it does not seem that many can follow. In order to preserve some level of performance it seems to be necessary to constantly trade portfolios, losing the bad and gaining or hanging on to the good. Much as an investment manager would with a stock portfolio.

But while the better portfolio managers grow both the portfolio and its performance, the opposite seems to be true in the motor industry.

Analysis of the proportion of the total AM100 turnover controlled by the top 20, 30, 40 and 50 groups reveals the decline is small. However, it is clear the proportion controlled by each of these groups has fallen over the past three years.

By itself this would not necessarily be significant. But this is taking place against a background of further consolidation pressure. Where the major players have had some time to digest previous acquisitions and have learnt how to do it more effectively and where there is an overriding need to generate higher returns. In this context any decline becomes highly significant.

One factor must be that acquisitions have become hard to come by. But this only adds to the argument that size is not the principle criterion for success in the industry. Now take profitability. The number of the largest groups achieving top 10 ranking in return on sales has fallen.

Even more telling, so have the number achieving celebrity for the efficiency with which they use their capital. This measure should be a happy hunting ground for the majors. They can access cheaper capital, in theory. They can afford the people and the systems to control it. They have the scale to achieve what buying efficiencies are available. And, perish the thought, greater scope for creative accounting.

To predict the decline and fall of the larger groups would be as selective and short sighted as previous predictions of the demise of the smaller groups. There are different needs and different opportunities in the various segments of this marketplace. There is no one-size fits all. There is also a pressing need for investment in systems and new technologies. It is difficult to see how smaller groups can compete. But it must be in the interest of manufacturers to see to it that they can. It is clear from the AM100 analysis that there is a large proportion of the buying public that has a preference for the regional specialist.

Their results show it.

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