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‘Substantial network reductions’ required to increase car dealer profits

ICDP managing director, Steve Young

Substantial franchised car retail network reductions and restructuring is required if operators are to benefit from a significant increase in the profitability, according to a new report published by the ICDP.

The automotive distribution research and consultancy provider’s 2019 edition of its European Car Distribution Handbook (ECDH) revealed that the number of franchised car retail sites across Europe had declined by 16% in the past decade – with 52,000 dealerships remaining.

But the handbook’s findings concluded that the reductions made by car manufacturers to date were “much less significant than required to increase network profitability significantly”. 

Coverage by AM has exclusively revealed plans to significantly reduce UK franchised representation by Vauxhall and Honda in a bid to improve franchisee profitability.

However, while the ICDP revealed that the number of sales per retailer had risen to an all-time high of 331 across Europe, the ICDP asserts that there continued to be a requirement for accelerated restricting.

In a statement issued to mark the publication of the ECDH, is said: “ICDP continues to see a requirement for substantial network reductions and restructuring with fewer main dealer outlets, greater separation of sales and service networks, and more variety in format types for both sales and service. 

“The ECDH data demonstrates wide variations in sales and service point density by market, indicating that the scale of further change will also vary by market.”

The ICDP) said that the need to redesign networks was being driven by a number of pressures, including changing customer behaviour and expectations, new channel options and product technologies, and new entrants entering the sector in various roles.

In January AM sought to answer the question ‘Will Britain ever host a new dealer network again?’.

The article was prompted by the emergence of brands like Geely’s Polestar and Lynk & Co brands which intend to enter the UK market without creating a traditional franchised retail network.

‘Overdealered’?

In its analysis of the European franchised car retail networks the ICDP concluded that some nations have significantly greater over-representation of OEM brands than others.

It said that Germany remains significantly ‘overdealered’, accounting for the lowest sales per main dealer in EU5, in stark contrast to the UK where dealers average nearly double the average number of sales for the region. 

The ICDP said: “The recent increase of average sales per main dealer has been broadly similar in trend across most brand types, increasing this key indicator of potential sales profitability by up to 10% year-on-year, whilst premium brands saw a decrease of around 3% year-on-year.”

OEM service networks remain much higher than for sales outlets, with 96,000 locations, according to the ICDP. 

It said that the decline in all service outlets stood at around 17% between 2009 and 2019, whilst Fiat has seen a decline of 40% and Audi 28%.

However, it found that declining aftermarket volumes with these low numbers reinforces the need to transform service networks to an improved model that maintains availability and customer convenience but reduces the fixed costs of network coverage.

Omnichannel retail

Despite moves by Hyundai, Ford, Mitsubishi and Seat, and the impending arrival of new brands based out of store-type urban retail spaces, the ICDP believes that there is no clear trend for new permanent retail formats.

It said that OEMs are looking for opportunities to establish direct customer relationships through a variety of B2C national online direct sales channels.

Plans for such sales, aftersales and lifestyle support for customers was revealed by Mercedes-Benz at a conference in The Hague, which was attended by AM, earlier this year.

The German premium brand expects to complete 25% of its vehicle sales online by 2025.

The ICDP said: “For new retail formats and online channels, the extent to which they contribute to sales elsewhere in the network is not adequately tracked, but we anticipate that both innovations will become mainstream within the next few years if they are incorporated into a holistic overall omni-channel structure.”

Despite the shift towards online activity, however, it concluded that dealer footfall is actually on the rise – a point reasserted by the National Franchised Dealer Association’s (NFDA) recent consumer attitude survey results.

ICDP said that there had been a “steady upwards trend for number of dealer visits and number of dealers visited over time from ICDP’s consumer survey, as ‘digital’ customers become even more engaged with the process of buying a car”, adding that this finding was contrary to opinions expressed by many commentators that dealer visits are declining.


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