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Making money: Niche brands earn their right to be in the market

Niche brands seldom offer the volume opportunity to draw interest from dealer groups and city retailers.

Yet for rural loc-ations and owner-driven sites they can provide a reasonable return for a low investment.

Perodua is franchised car dealing cut to the bone. “A new car dealer can get started for £500,” says Tim Slaughter, the MD of the UK business.

One glance at the website gives a full view of the scale of the business: there is one car with four different option packs and available in black, white, grey or silver. That’s it.

The cars sell at £7,000-£8,000, depending on whether they are manual or automatic. “The retained profit can be much better than in the larger car companies where most of the entry-level cars sell at a loss. We can make sensible money – 12% to 15% margin is not unusual.

“Because we are a small business we make sure that we do not have the costs associated with a big one. Our warranty agreement with the customer is written on a piece of paper. Nothing fancy.”

Perodua routinely shares a site with its Malaysian compatriot, Proton, but more often is bolted on to a busy used car site. Volume last year was 800 cars. This year the forecasts say 1,000.

The more vigorous of the 60 dealers will sell a car a week. Slaughter reckons that a reasonable franchise size is 40 sites. The message is clear and delivered politely: “We would like 60 active dealers, but we are looking at 40 long- term.”

The opposition is Suzuki – which is “dropping downmarket again”– Citroën and Korean twins, Hyundai and Kia. The one and only car is Myvi, now Euro V compliant. Service retention is very good.

The owners are cautious people and like to come back to the expert.

At present there is not much chance of a step change in the new-sales volume. “The factory has a maximum capacity of 250,000 cars a year and is selling more and more in Asia as that market expands.”

Isuzu and Subaru

As Daihatsu MD, Paul Tunnicliffe, watched from a ring-side seat the collapse of the brand in the UK. The brand just could not stand the 40% exchange rate shift between yen and sterling.

As the UK economy was going down, the Yen was going up.

Importer International Motors (IM Group) did not have the financial strength to subsidise the trade. Neither did Daihatsu Japan; game over.

Daihatsu dealers are now looking forward to getting involved in the first Chinese invader of the UK, Great Wall. The network has already been earmarked as the conduit for the independently-owned Chinese business.

Tunicliffe is now the IM man for Subaru and Isuzu. “Isuzu is going through a dynamic period with very strong growth. Initially it was a bolt-on to Subaru, but it has been repositioned as a pick-up specialist and a work-day tool rather than a lifestyle vehicle.”

As a result, the dealership network is principally agricultural dealers and truck salesmen. “We need people who can talk tachos and tow weight.”

The plan is to sell 2,600 this year though it could be a struggle because supply is constrained. There is a new truck on its way and the factory has been shut. “Not such a bad thing. Gives a chance to harden the margins and new cars arrive soon.”

That new addition is a single cab pick-up and double cab 4x4 which extends the range down into super utility with a hose-out interior.

They used to be known as Troopers and came from Japan. The new generation, badged Rodeo, is from Thailand.

The growth is coming from non-car dealers which make up 30% of the 100-strong network. But that screwing down of the network has finished. “There will be no more culling of the car dealers.”

Dealers work on a basic margin with a volume-related bonus. They were able to get 15% at target, but with the supply shortage that has been cut to 13%.

“One dealer (in South Wales) did 100 units in a month. He has done 130 this year and is still growing.”

In the countryside it’s all about per-sonal recommendation on the lines of: “if it works for him it’ll work for me.”

Margin is easier in Subaru. “With a niche brand there is no direct competition. We are the only 4x4 and boxer engine brand and that makes a difference to many people. If that’s what a driver wants, there is a short-list of one supplier and that’s us.”

The import company has complete independence in the UK. “We do not have to fulfil global objectives.”

Tunnicliffe wants dealers and wants quality: “We want people who share our dream.”

Most dealers are able to make a margin of 11% but 12 of the 80 are in the ‘marzipan layer’ and bank 15%. The relationship between dealers and importers has been edgy. That’s down to the yen/sterling problem.

“The pound is strengthening mercifully. Keeping the network together has been crucial. There is nothing like 15% margin to keep a dealer working.”

Russian Lada is key to Mark's buy-to-order business success

As small brands go, they don’t come any smaller than the Lada Niva. The Russian car is being imported direct from the factory by a graphic designer living in a London suburb.

Mark Key is 39 of Greek-Egyptian extraction. “That is what gave me a trader’s instinct.” He has worked with cars since he was 17, having followed the traditional route of being the Saturday car-wash boy for a local Peugeot dealer.

His father, a freelance importer of food oils and sauces, was beng charged a fortune for the label graphics so Key decided that was the role for him.

The Lada idea came from skiing. He kept seeing unsuitable cars stuck on the access roads and remembered the Niva.

So bold as brass, he rang the factory and was put on to an agent who met him in London. “The element of trust is the scariest aspect. Just sending off cheques and expecting to receive cars feels a risk. But they come through”

It’s a buy-to-order business. Colour is the main variable. Many of the UK requirements are satisfied in the UK. “Things like LPG conversions and tow-bars we do here because the labour is cheaper and it helps us keep competitive.”

There have to be changes to satisfy territory standards. The speedo is replaced, headlights changed over, the sealing at the panel junctions are filled with a high quality mastic.

“I think the car is fantastic (there is a website film of Nivas off-roading in Brazil which demonstrates their capabilities.) I love its unpretentious nature. The door handles have been unchanged since 1976.”

As for dealer appointments – that is a long way off. But from little import acorns, great oak trees have been known to grow in the UK.

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