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Dealer pressure point

Expensive: Costly new 'corporate identities' for dealerships are among a range of issues faced by car retailers.

Top retailers, auto execs raise concern over undue pressure placed on dealers

General News logo15 Mar 2011

A PANEL of a cross-section of leading car retailers, senior car company executives and dealership financiers have sounded alarm bells that many car companies are destroying the ability of a significant number of their dealers to represent them at the high standards being expected in a modern dealer network.

The panel, interviewed individually and anonymously by GoAuto publisher John Mellor, was almost unanimous in voicing serious concerns about the cost and margin pressures on today’s dealers which could send many to the wall and scare off potential investors in the future of car retailing in this country.

The material was gathered for Mr Mellor’s presentation at the forthcoming 2011 Deloitte Industry Overview sessions, which will be held throughout Australia in the next few weeks.

Mr Mellor said the panel revealed that there were too many dealerships that are not able to make money on a consistent basis, and that there was too much investment in sites and facilities that are just not viable businesses.

One leading dealer told GoAuto that there are far more unviable dealerships in Australia than the industry is prepared to admit.

He said that there were even more dealerships where cost pressures mean they are unable to get a commercial return on their investments and that investors in some brands would be better off putting their money in the bank. He said that many dealerships were unsaleable.

The warning for the car companies was that demands on dealers were now reaching breaking point and that there was a risk of a capital strike where investors would shy away from investing in key brands.

The issues highlighted were:* Overseas car companies placing onerous requirements on local dealers* Unreasonable pressure on dealers to take stock on which they will lose money* Unrealistic demands for premises upgrades where the brand investment will never be recouped by the dealer* Increasing restrictions on various business activities designed to offset losses in new-car sales inflicted by a factory squeeze on margins* Allegations of illegal prohibitions preventing dealers taking on other franchises to spread their business risk* Serious impact of rising land values on the viability of many dealers and a warning that key car retail sites would be lost to property developers.

Mr Mellor said the evidence suggests there is an urgent need for car companies to come to the table with dealers on many key issues and that unfair dealer agreements should be torn up.

He said there were business models being developed by some brands that would create a healthy and vibrant retail car industry if they were adopted as a standard business model across all franchises.

Mr Mellor said one bright spot was Australia’s increasing population that would increase new-car sales and increase the size of the pool of used cars available to retailers.

But he warned that if overseas car companies were leaning unreasonably on Australian dealers and their ability to trade commercially, a significant proportion of hundreds of millions of dollars of Australian investment in selling the cars of importers – as well as the livelihoods of many of the 100,000 employees in new-car retailing and associated businesses – would increasingly be at risk.

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GoAutoNews is Australia’s number one automotive industry journal covering the latest news, future and new model releases, market trends, industry personnel movements, and international events.