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Carmakers urged to be flexible on premises

Some of the UK’s many large car showrooms have already been closed in the current downturn, and the same fate awaits others in 2009.

The logical move would be to convert at least some of them into multi-franchised sales points to give groups a better return on investment and to spread overheads.

The idea has support among motor retail property specialists but it runs against the policy of manufacturers wanting dealer-ships to resonate with their brand message.

Mike Short, managing director of architects Motor Design Group, said: “From our point of view the physical change within premises would not be difficult. But among manufacturers the thought is a political minefield and buyers of some brands’ cars might not like it that much either.”

Though the recession will force changes within the retail motor industry, executives with links to the design and build of franchised dealerships expect the size and look of showrooms to remain much the same.

“Brand image is important and manufacturers like Audi and Mercedes-Benz will want to retain their own retail presence,” said Short.

But he foresees one possible new use of parts of large outlets – more covered showrooms displaying top-end used cars: “People ready to spend up to £50,000 on a used car don’t want to stand in the rain,” he said.

Short is not ruling out some new-build next year because builders will need to be competitive on price.

Consultants say the reason for erecting new premises will continue to be a combination of retail need and long-term property speculation.
In the medium term prospects look “pretty dicey” for some motor retail group executives, or owner-drivers, said one consultant. This is where dealers have borrowed to build large premises, viewing them as a pension fund.

“Property prices have risen well for a decade, but problems will arise for some if the value of the premises falls too far when they are the security on a highly-geared loan,” he said.

David Chittenden, head of automotive property at commercial agent Colliers, believes a more flexible approach is needed.

“Manufacturers should at least consider allowing their dealers to add a second franchise,” said Chittenden.

“Some manufacturers and their retail partners will agree to let large dealerships close. Together, they will see the attraction of smaller premises and making them sweat to produce a return, in the same way that food supermarkets focus on how individual products sell.

He sees a danger if this happens: “When retail sites become cramped there tend to be fewer parking spaces, which can turn customers away.”

Chittenden hopes the testing times ahead will lead to more manufacturers and their franchised dealers becoming genuine partners. The result, though, is likely to be a reduction in the number of dealers by the time the economy recovers.

Nigel Smith, director at motor trade property investment company Gilbran, still believes in a future for large dealerships, but expects more to be closed.

“Car manufacturers work to lengthy business plans and will be looking beyond the recession,” he said. “Next year could see them agreeing with dealer groups to shut large dealerships that are marginal in terms of profitability, brand and

Smith foresees some hard bargaining ahead where dealer groups have entered into sale and leaseback schemes.

“Some of these were negotiated with retailers paying high rents,” he said.

“The market next year may require a rethink and a reduction of those rents so that profitability can be restored to the business.”

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