During the first quarter of 2006, franchise margins are 2.6%, against 0.8% in 2005 and 2% in 2004, while a quarter of the network remains unprofitable. Smith expects this proportion to fall to 15-20% this year, although most of these are new dealers not yet fully established. Fewer than 10% of dealers operating the Kia franchise for more than 18 months are loss-making.
“Network profits have been good but last year was a shock – it was a tough market for everyone. Our volume increased but costs also increased,” says Smith.
“But we have invested more in the network and have left local strategy up to the dealers rather than direct marketing ourselves.”
He says the Kia franchise is making up for losses suffered by many dual-franchised dealers on their second brand. With 70% of the 160 Kia dealers operating dual-franchised showrooms, the 2.6% margin figure drops to a network average of 1.6% when the second franchise is taken into consideration.