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Dealers resent rising franchise investment

Manufacturers have come under attack by small retail groups fed up with being asked to invest untenable amounts of money to meet new franchise standards.

For the larger groups, this investment can be absorbed into the business – many are using the cash injection from VAT repayments to pay for the cost of new upgrades.

Lookers chairman Fred Maguire, for instance, says the group has invested £50m on its showrooms over the past five years and most of the upgrading is complete. “We are now able to expand,” he says. “We have a £15m VAT payback to help finance that and more is to come.”

Few dealers are that fortunate. The managing director of one regional group says: “We decided to invest mainly in one brand and have spent millions. But we, like others, know we can never control our relationship with a manufacturer.

“Manufacturers are willing to blur the edges of their demands on standards for dealers in the Scottish Highlands. I believe they will be forced to do the same with those groups in major urban areas because the market is so competitive and margins are so small.”

Another dealer group boss says: “We have been asked to spend so much that we are concerned about being squeezed in the future by an economic slowdown and new manufacturer demands.”

Many dealers are sceptical about manufacturers’ sponsored-dealer programmes. “Selecting entrepreneurs and financing them looks good on the face of it,” says one senior AM100 group executive, “but it’s just another way of manufacturers trying to keep control. There’s no clear exit strategy and it is far healthier for people to know they can sell their business if they want to.”

One Vauxhall retailer says the standards imposed by the manufacturer under the revised block exemption rules are adding unquantifiable costs to the business.

“They are using it as an opportunity to take back money from our margins if we don’t comply with their demands,” he says. AM has seen a copy of Vauxhall’s franchise stipulations, which run to several pages for each aspect of the business – the people requirements alone were a heady ten pages.

“While we are trying to confirm with these, we aren’t focusing on selling cars,” says the managing director. “There’s been no discussion: just a case of ‘do it, or else’.”

He believes the drive towards standards will be cyclical, however, pointing out it was a route the manufacturers have gone down in the past. “As soon as sales dip because dealers are focusing too much on meeting standards, they will change their focus towards selling more cars.”

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