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The big picture: The risk to the city retailers

Within two years there might not be a single independent franchised dealer left within the M25.

Already a large proportion are owned by manufacturers – Mercedes, Renault, BMW, Peugeot and Ford run their own businesses – while several companies, including Honda, Volkswagen and Škoda, have acquired sites that are operated by dealers. Plcs dominate the balance.

The main reason is operating costs, in particular land and property – or rather, insufficient profits to absorb these costs and allow reinvestment. Retailers have spoken out about the situation, but carmakers have rejected all calls to raise margins in London. They claim it would result in unfair trading conditions for dealers in other areas of the country.

The situation in London will be replicated in other big cities. For carmakers this will present something of a dilemma. They want dealers to offer the best service in top quality showrooms, which costs money. Already dealers are dropping out, including in recent weeks Nissan dealers Dicksons of Forres and Barons of Bromsgrove, and Honda dealer Jim Russell, while the number of business failures is accelerating.

The situation could become untenable for the less attractive franchises – those with falling sales and poor retailer profitability. If dealers withdraw, what happens if others do not want to take on the franchise? This is happening. There are carmakers with no presence in some big cities. They will either have to change their retailer agreements or find new routes to market.

A few are now back-pedalling on key issues – including threat of termination – when challenged.

Dealers have become so desperate they are willing to risk termination by fighting back; it can be the dose of reality that is needed to force carmakers to realize how much they need dealers and how difficult – and costly – it is to find a replacement.

For these dealers, the balance of power has tipped ever so slightly – but it might just be enough.

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