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Former hell-raiser looks to shake up car retailing

Nick Lancaster is seen as visionary, maverick and a former hell-raiser. Sometimes his vision doesn’t pay off, as in the case of the failed Big Chief used car supermarkets set up in the Nineties.

But he’s not afraid to take a risk and try new things.

Nor is he afraid to speak his mind, as carmakers found out when he recently slated the cost of operating in London, calling on bosses to accept that major changes in car retailing were needed.

Lancaster believes the industry is at a crossroads, brought on by the carmakers’ heavy-handed reaction to the Block Exemption changes. The revised rules, intended to give dealers more control, which the European Commission thought would in turn open up the market to greater competition, were hi-jacked by the carmakers who implemented tougher franchising standards to retain their grip.

In London, this happened at a time when car sales were falling, in contrast to the rest of the UK, which has been enjoying record levels.

“I see black clouds over the current retail structure,” says Lancaster. “Virtually all the franchises lost money in London last year. We are getting less than half the national average margin on investment due to the difference in operating costs, especially property. Something needs to change.”

Bringing brands together

Formed in 1932, HR Owen’s current composition can be traced back to the early Nineties when Lancaster and his board embarked on a buying spree in anticipation of the changes to Block Exemption first time around (in 1995).

“The original plan was to bring together a broad range of brands starting in London,” he says. “We bet that Block Exemption would fundamentally change the industry and if we had this range of franchises we would be at the forefront of that change. But it didn’t happen that way.”

Now, two years after BER II, Lancaster believes carmakers are at odds with customers – and that is squeezing retail margins. He claims manufacturers are not listening to what customers are saying.

“Manufacturers want to produce cars that are market leading, at a price that makes them money, with dealers who look after customers to give them repeat business and a growing market share,” Lancaster says.

“Customers want all the information available from all the sales channels; they have no loyalty to any particular channel or brand. They want a product that meets their immediate needs and a brand that suits their lifestyle, but they want to buy it at the lowest possible price and with a good level of service.”

Threat to dealers

Lancaster claims feedback shows that customers want to go to dealerships where they can park and see a range of cars in the niche in which they are interested, meet knowledgeable staff, test drive the car, get a part exchange and funding options – all at the same site. “What they don’t want is gin palaces – they want to buy a car, not a dealership,” he adds.

“But manufacturers are going out of their way to prevent multi-franchising. They have the threat hanging over dealers’ heads of opening their own outlets or encouraging other dealers to open sites nearby,” Lancaster says. “At least, that’s what they tell dealers privately, so no-one will take the chance.”

He believes this is a mistake, and points to a future concept of sector-based showrooms, specializing in, for instance, 4x4s or MPVs. It’s a view similar to the one championed by London neighbour and friend Clive Sutton (see AM feature, August 12). Lancaster questions why carmakers would fear allowing direct comparisons between competing models if they believe their products are the best, although he suggests that several senior bosses recognize that the way to market has to change. “For me it’s a no-brainer.”

Carmakers, he adds, should look at the way they remunerate dealers, putting more emphasis on achieving loyalty in the service department, rather than focusing on the number of new cars sold. This would help to foster a greater sense of customer care.

“The only way to get repeat business is to pay dealers for it. We need to invest in parking spaces, getting phones answered, service monitoring, cleaning vehicles, test drives, training, parts inventory control. At the moment, dealers can provide all these services, but only if they make a loss,” says Lancaster.

“And if you look at labour rates in London for service and repair, they range from just under £100 per hour to £120. But plumbers get £180 per hour. We invest in facilities in high cost areas, training and equipment, yet we can’t get paid more than plumbers.”

His solution? A new way of approaching car retailing. Lancaster’s guarded about the detail prior to an announcement to the City likely next month, but he’s been working on it for around three years and is confident it will surprise the market.

“Other dealers will look closely at this model and some will copy it,” he says. “One part is a well trodden path, but few are doing it. The other plan is entirely new and we expect a few imitators.” As part of the strategy, HR Owen will offload around 50-60% of its business during the rest of the year. It intends to “specialize in luxury and specialist brands at the top end of the market, which we believe will grow disproportionately,” says Lancaster, selling any business that does not meet this profile.

Refocused income and reward

Turnover, presently just below £700m, will take a significant dip after the disposals. It will build back up with the launch of the new business, though not to the same levels because of the different profile of income and reward. The focus is on profit.

“Even if we were the top performers, we couldn’t make some of the franchises pay in London,” says Lancaster. “The business model doesn’t work so we are the wrong people to be operating these franchises.

It needs groups with bigger market areas or worldwide relationships with the manufacturers.”

He intends to use the proceeds to implement this new strategy and to return funds to shareholders, who have stuck with the business during a difficult few years.

“We will have a number of announcements between now and the first quarter of next year regarding new areas of the motor industry we are going into.”

Lancaster has a renewed clarity of vision that has been helped by putting his notorious hell-raising days behind him. He’s swapped the pubs and clubs for pounding the streets of London, clocking up 5-6km a day, and confesses to feeling fit and focused for the challenge ahead – not to mention four stone lighter.

“I don’t miss it at all,” he says, “but boy, did I have fun at the time!”

Now teetotal and a non-smoker, Lancaster gets his fix from work. His new venture will ensure plenty of stimulation.

#AM_ART_SPLIT# The London factor

“Manufacturers’ response to Block Exemption has not helped us to provide better service to customers,” says Nick Lancaster.

“Dealers are unable to use the new rules so they are of no benefit to the end user. We have seen a groundswell of customers that want a focus on service without the showroom facilities. They want to compare similar models side-by-side to get the right car for them.

“In London, sales are down and margins have been eroded while the cost base is higher. It’s an expensive place to do business and manufacturers have a simple choice: have no representation, do it themselves – and we’ve seen that with Mercedes, Ford, Renault and Porsche – or support dealers by offering different margins.

“Those manufacturers who say that increasing margins for dealers in London will give them an unfair advantage if they sell cars nationwide are actually creating an unlevel playing field by not doing this.

“They achieve the same outcome because dealers outside of London have a lower cost base and can compete more favourably. There are two or three manufacturers looking at changing margins in London – they are the more progressive ones.

“Virtually all our franchises lost money in London last year and that position has stayed with us this year.

“Since the Block exemption changes we have bought and sold 35 businesses, but all we have to show for this is the same brands configured in different ways in different areas.”

The Business

Name: HR Owen
Key executives: Nick Lancaster, chief executive; David Jaggar, finance director; David Evans, operations director; Barry Green, business development director
Turnover (2004): £687m
Profit (2004): £500,000
Share price: Year high 228.5p Year low 161.5p Current 177.5p (Sept 19, 2005)
New car sales (2005est): 16,000
Used car sales (2005est): 12,000
No of sites: 45 dealerships, 25 of which are in London
No of employees: 1,600
Key franchises: Bentley, Rolls-Royce, DaimlerChrysler, VW Group, BMW, Lexus and Premier Automotive Group

#AM_ART_SPLIT# HR Owen – a brief history

Established in 1932 by Captain Harold Rolfe Owen in London, selling Rolls-Royce and Bentley cars, HR Owen has had a turbulent existence. Closed in 1939 for the duration of World War II – a period that saw founder Owen die aged 41 from wounds sustained in the First World War – the company was re-opened in 1946 after being bought by Yorkshire businessman Fritz Swain.

In 1969 it was registered as part of the Swain Group, owned by Hanson Trust, but sold a year later to Heron. In 1994, HR Owen was acquired by Malaya Group, with the brand used only for the specialist franchises.

Three years later, Malaya adopted the HR Owen brand for the whole group, reflecting its focus on prestige and performance cars.

In 2000, HR Owen acquired Jack Barclay to become the world’s largest Rolls-Royce and Bentley retailer, also taking on the Lamborghini importership the same year.

It’s expanded into various franchises, particularly during a growth spurt in the Nineties with VW Group, Ford’s PAG, DaimlerChrysler and BMW, but “as the market changes, so the business always returns to what it knows best, and that’s the specialist market”, says Lancaster.

Twenty-five of the 45 sites are in London, the rest in the south east and Manchester.

Turnover for the 2004 full year shows a significant increase after two declining years as new and used car sales increased

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