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Mercedes agrees to compensation deal

Mercedes-Benz dealers who are offered territories under DaimlerChrysler UK's franchise reorganisation will be expected to part-fund compensation for terminated retailers under the terms of a settlement agreed last week.

The meeting, between DCUK and Mercedes-Benz dealers, avoided court action due to start last Monday.

Dealers will be able to choose their own exit date from the network within the next two years. The fixed choices are the end of this year, June or December 2002, or the end of June 2003.

The compensation package, called a 'territory release payment', will depend on the date chosen. Dealers taking early termination will receive more but will have the ability to trade for longer and potentially negotiate new franchise agreements with other manufacturers. Several Mercedes dealers are believed to already be in talks with Daewoo.

DCUK will press ahead with plans to reorganise its Mercedes-Benz franchise network. Dermot Kelly, Mercedes-Benz UK director, said: “Preparations for the new format have already begun and we are working to build the structure over the next 24 months with the first of the new dealerships opening in spring 2002.”

But observers believe DCUK may struggle to find dealer groups willing to take on the larger market areas because of the compensation payment issue, which is estimated at around £75m.

The carmaker has already faced problems finding a partner to take on the large South-west England territory after existing dealers in the region turned down the opportunity. It is believed DaimlerChrysler is asking for an investment of around £20m to secure the business.

However, a DaimlerChrysler spokesman claimed the legal settlement would not affect the new dealership structure.

“All our market area partners are pretty much appointed and signed up; most of them are existing franchise holders,” he said. “There is nothing in the agreement that could be a deal breaker for any of them and we have no evidence of them turning away.”

He said DaimlerChrysler would be rolling out the programme “within our existing budget” and would be ready to name its new partners within weeks.

The terms of the legal settlement remain confidential but a source close to the negotiations said they would allow dealers to “make a comfortable exit” from the franchise. One dealer boss said lawyers had negotiated “the best settlement deal I've ever seen”.

Compensation is based on pre-tax profits for the previous one or two years and there are capital allowances for recent investment in premises and equipment.

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