He also believes the industry will not win another opt-out from European Union free market rules after the current block exemption ends in 2010. Buzzavo talked with Automotive News Europe Chief Correspondent Luca Ciferri on the sidelines of a dealer conference in Verona, Italy.
How will the dealer network change over the next five years?
We will see two paths. On one side will be [premium] brands capable of controlling supply and therefore margins. These brands can afford high standards and a controlled customer experience that will allow a distribution system close to what we have today.
On the other side, there will be brands driven by volume. Their distribution channels will operate on lower costs, which means the end of the much-touted brand experience.'
Car distribution will become similar to other sectors with a fragmentation of sales channels. To survive, the distribution networks of traditional European volume makers can either increase their brand portfolios through multifranchising or boost their business portfolios by expanding services such as financial products.
Some automakers are increasing the number of sales outlets they control directly. Isn't this expensive?
We are seeing some growth, although the number of directly owned showrooms is still rather low -- about 3 percent of total outlets in Europe.
This is a way to support a brand, particularly in high-cost metropolitan areas, and bypass dealers that are not capable of promoting the ideal brand experience.' Past examples of this have proved very expensive. I cannot see company-owned outlets as a viable structural solution.
Will the auto industry see new low-cost outlets outside official dealer networks?
We are already seeing cracks in the franchised distribution system. Oversupply is leading to a high number of pre-registrations, and cars are leaking into many [outlets] outside the official sales channels.
We are starting to see some product leaking to shopping malls as a way of disposing of pre-registered units.
Low-cost channels will ultimately dominate for brands where stock pressure is the norm if manufacturers do not help dealers to become leaner. This means automakers must reduce the cost to the dealer of some of the operating standards.
Will automakers and dealers increasingly try to make more money by charging for extras? This has become quite common at low-cost airlines and hotels.
In the airline industry, the big companies have adopted the policy of low-cost carriers -- advertising low fares, then adding extra charges.
With [car] imports coming from China to Europe, we can expect a similar pattern in the lower segments. It already applies to the car industry to some extent with examples including vehicle handover charges and finance commissions. These aim at keeping dealers afloat as margins become more variable and much thinner.
Jaguar wants its dealers to name their outlets after the city where they are located, for example Jaguar Rome. Will dealers be able to keep their brand names, or will the carmaker's win?
Dealers of premium brands will have to trade their own brand name if they want to earn satisfactory margins. They might react by promoting their own brand through related businesses such as used-car sales, financial services, car leasing and rental operations. But the brand names of dealers that sell low-cost cars, which could well be dealer chains, will remain alive and kicking.
More people now want to buy cars during the weekend. Are dealers prepared to adjust their work weeks to meet this growing demand?
No. Many dealerships don't even open on Saturday. It will be a major problem for dealers to find the staff and the money to open during weekends and still comply with EU working hours legislation. Dealers will have to think of new ways to attract customers [during the week] -- perhaps with Happy Hours, or something similar.
The auto industry's existing block exemption expires in 2010. What will happen after that?
I think that the chance of the auto industry getting another exemption after 2010 is marginal. The European Commission has plenty of hot potatoes to deal with in the telecoms, finance and e-commerce sectors. It does not want to spend too much time in dealing with the automotive industry.