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The Big Picture: Margins by audit ‘farcical’

Despite their claims to the contrary, manufacturers have not relaxed standards one iota.

Standards have become the medium to exert power – a legacy of Block Exemption 2002, where dealers bought into high standards to keep out new entrants.

The threat of new entrants never materialised and now those high standards are influencing a lot of investment requests.

Carmakers’ insistence on micro-managing retailers’ businesses is costing thousands of pounds, money that is being taken off dealers’ bottom lines as well as their own.

Margins have been fragmented into lots of different qualifying areas – with dealers ‘ticking boxes’ to achieve bonus revenue.

Things are seriously out of hand when the profit that can be earned from a good audit can be greater than that from selling cars. It’s farcical.

Retail bosses’ concerns centre on the balance of power – not just between retailer and carmaker, but between UK national sales company (NSC) and European head office.

They believe much of the problem between OEMs and dealers stems from demands placed on the NSC by its EU HQ. “There’s too much centralisation out of the UK and a lack of empowerment for the NSCs,” one senior chief executive told me.

There needs to be a better balance of power, a happy medium that requires less policing, takes out cost and drives up profit for all but still allows OEMs to replace non-performers.

But that needs the NSC to go back to its head office and tell them that the current model doesn’t work. Ticking boxes doesn’t sell cars.

Perversely, scrapping Block Exemption in 2010 could see an end to this unnecessary control. One boss says: “The more you protect the dealer with legislation, the more hurdles the manufacturer will put in the way – and this means more cost.”

But smaller dealers rely on the protection offered under current BER and fear its removal.

Another CEO summed up the real-life situation perfectly: “If you hit your sales targets, the manufacturer doesn’t care what your CSI is.”

Perhaps scrapping BER is the answer. Or perhaps, with margins already wafer thin for many franchises, only the widescale collapse of their networks, or mass resignation, will prompt a rethink by the OEM.

Let’s hope, for the sake of the dealers involved, that it doesn’t come to this.

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