Megadealers face growing pains

For dealers who become the biggest in terms of sales, it seems the effort to get there exhausts them, says Garel Rhys, emeritus professor, Cardiff Business School.
The UK auto retailing business is dominated by some of the largest groups in Europe.

Companies such as Pendragon, Inchcape and Arnold Clark are big players with hundreds of dealerships across the country.

But even giants can stumble.

Pendragon, the UKs biggest dealer group, has endured a tough couple of years. Profits have fallen and it recently cut 500 jobs.

Pretax profit slumped to 46.5 million (58.9 million) in 2007 from 97.7 million. Revenues were static at 5.1 billion.

The problems have continued this year as new-car sales slipped 4 percent in the first three months.

Does this mean the days of the megadealer are over?

The business is too big. When they get to this size they are too complicated to run, said Jonathan Brown, a partner at consultants HWB International.

Brown said the best approach was to have a strong leader who allowed autonomy at dealer level, with a small central staff and a good financial control system to identify problems quickly.

I think it is very difficult to run more than 40 dealers, he said.

Growing dealerships also face problems absorbing companies they acquire.

Garel Rhys, emeritus professor at Cardiff Business School in Wales, said: For dealers who become the biggest in terms of sales, it seems the effort to get there exhausts them. If you look at the top three in 1995, they were not the top three a few years later.

HWBs Brown said that dealerships do not benefit from the same economies of scale as other retail industries. Buying more cars from manufacturers does not always mean the dealer gets a better price.

Large businesses could become inflexible and lose the local touch, Rhys said.

But Eric Wallbank, director of the UK automotive practice at consultants Ernst & Young, believes big dealer groups will survive.

There is evidence that the larger dealers are more profitable than smaller dealers. They can share back offices for financing and using their bigger purchasing power for buying all the things they need to run the business.

Only half of the small dealers, those with sales of less than 25 million, were profitable, Wallbank said.

He said the larger dealers were the ones more likely to survive in future.

I dont think the day of the larger dealers is over.

Tags: Retail UK

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