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THE BIG PICTURE: Dealers can take control

Pendragon's acquisition of CD Bramall will create by far the largest retail group in Europe. The two billion-pound turnover companies will combine to produce revenues exceeding £3.5bn, almost twice their nearest UK rival. Finally, the UK will have a group with the financial muscle and physical size to negotiate on level terms with manufacturers.

It puts Mercedes-Benz in an interesting position – the carmaker, when it reorganised its dealer network in 2000, issued a clause that no dealer group could operate more than one territory. Well, Pendragon has one and so does Bramall, so will the enlarged group be asked to give up one of its territories? Almost certainly not – even if Mercedes did try that tactic, it would face the wrath of the European Commission. Under new block exemption a dealer can sell its outlets with the franchise intact; manufacturers can no longer terminate the agreement simply because the showroom has a new parent.

In fact, the Mercedes clause is already being disregarded by United Auto Group, the American parent of Sytner. UAG acquired the Milton Keynes/Kettering territory before purchasing Sytner, which operates the massive Bristol to Newbury territory along the M4 corridor. At the time, Mercedes reiterated its condition of one territory, one group, but UAG wielded more power than its UK counterparts, and held onto both operations.

Pendragon now enjoys a similar position and should find its negotiations a more enjoyable experience. It will have significant relationships with almost every carmaker in the UK – it has 55 Ford outlets, 21 MG Rover and 24 Vauxhall, for example.

This has implications for revised block exemption. It meets European Commissioner Mario Monti's objective of giving dealers more power, softening the dominance of carmakers, but does not fulfil his ambitions for greater competition. The Pendragon-Bramall acquisition is the biggest proof yet that more and more dealerships will fall into fewer and fewer hands. It's not so much creating competition as eliminating it.

The location clause, expected to be scrapped next year, will make little difference. Dealers will not open same-franchise outlets in the same neighbourhood to try to compete fairly for business – it is simply too costly, and frankly, not needed. It will only happen in cases where they have tried and failed to buy the existing business and they will do it to close down that business through cut-throat pricing discounts. The plcs, with their ability to source stock at favourable rates, will sweep through attractive markets, leaving owner-operators with the rural regions.

Block exemption is finally being felt in car sales, but it's not quite what Monti had in mind.

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