A seasoned veteran with 40 years of experience in the industry insists that franchise motor retailers will continue to be the indispensable interface between manufacturers and customers.

Speaking at the Vehicle Remarketing Association’s (VRA) latest seminar, Graeme Potts, CEO, Eden Motor Group, acknowledged the long-standing speculation surrounding the demise of franchise retailers. Drawing on Mark Twain’s famous quote about exaggerated reports of its death, he said the franchise dealer would remain the crucial interface between motor manufacturers and customers, suggesting that any perceived threat might actually spur innovation and resilience.

In order to make sure the industry remains relevant, viable and of importance in that chain between manufacturers and customers dealerships will have to rely on their existing skills which are characterised by flexibility, innovation and stoicism, skills which they have already had to develop in a bid for survival. “It is not an easy life now,” he admitted.

Amid the ongoing transformations in the industry, Potts touched on the rise of online platforms, partnerships, and the perpetual evolution of the franchise model.

Addressing the looming challenges facing motor retail in 2024, he highlighted the need for passion and a belief in the industry’s specialisation. “Motor retail is a specialism that sometimes is undervalued, but we have to believe in it, or there is going to be no future at all.”

Discussing the emergence of new business models Potts spoke of the necessity for these to work seamlessly for all stakeholders, including manufacturers, retailers, and, most importantly, customers and pointed out that a significant percentage of new car customers in the UK still prefer the traditional in-person buying experience.

“Agency is in its infancy, but wherever it’s being piloted around the world, it has been an unproven case and there are many, many subsets of what agency actually means. But there’s one thing that is certain. If a new model of distribution, if a new interface with customers is going to truly gain traction and work, it has to work for all stakeholders.”

He acknowledged that OEMs manufacturers have to reduce their costs in order to cope with short change cycles and new technology in highly competitive marketplaces but pointed out that they can’t contemplate reduced volume or reduce market share – with those last two things are in danger of being compromised as a result.

Delving into the potential benefits for retailers, Potts explored the prospect of reduced working capital and inventory costs under the agency model.

“It may be that for the retailer, reduced working capital, reduced inventory costs, reduced assets all over the place might mean that there’s a viable solution for both parties. But the third stakeholder and the most important of all, it must work for the customer. I’ve heard horror stories of manufacturers who are saying the customer must dispose of their part exchange before they can place the order for a new car. What utter nonsense.”

“At the moment, there’s a binary view. Some say definitely a network, some say definitely not. But those that say definitely not do have networks. They just try to pretend that they haven’t. And look at some of the disruptors who have attempted to get into the used vehicle market. Almost exclusively, they have a physical estate of dealerships – just by another name.”

Expressing concern about political influences on the market, particularly in the electric vehicle segment, he said that the promotion of electrification was having a dramatic impact on franchise retailers.

“The fact of the matter is that inventory, marketing, pricing, and so many other factors are being driven by the desire for change of technology that is not yet front and centre in people’s minds and it is massively distorting the marketplace. I have very few internal combustion engine vehicles unsold in stock in my business, but I’ve currently got £6 million worth of unsold EVs.”

“I’m not political, I’m just trying to deliver to the marketplace where customers are telling us they want. And at the moment, it is leading to a hold back in the overall scope of the market. It’s also leading to price increments, not just for EVs, but for associated ICE cars. Therefore, we as retailers are handling the price escalation on behalf of our customers that is not directly related to input prices.”

He said the shift to EV would likely lead to further manufacturer consolidation, further franchised motor retailer consolidation and severe liquidity challenges in the industry.

Shifting focus to the global perspective, Potts discussed the interest of foreign investors in the UK automotive industry. Highlighting undervalued motor assets, a mature market, and high retail standards, he outlined why foreign capital sees an opportunity in the UK automotive retail sector.

“We’re characterised by not being complacent, but also by our retail standards which are among the highest in the world. Therefore, there is the opportunity for investors who may be operating automotive businesses elsewhere and get some reverse best practice into their purchase of a UK business. And, of course, very relevant is the sophistication and scale of our used car and aftermarket business, a lot of which is managed within the franchise network.”

Potts concluded with a reflection on the influx of new brand entrants, cautioning that an increase in brands doesn’t necessarily correlate with market growth.

“The number of brands increasing does not increase the size of the market. The number of customers and the number of people who are confident to purchase determines the size of the market. So let’s not kid ourselves that every new entrant grows the market and that everybody makes more money. There has to be a cost associated with new entrants in that revenue gets spread more thinly so there will be winners and losers.”

The challenges faced by new entrants, including brand consciousness, time to achieve critical mass, and the impact on residual values, were emphasized.

“Brand consciousness is slowly eroding in the UK, but it’s still far stronger than most other markets. It also takes a long time to get to a critical mass and therefore there has to be considerable investment by new entrants into the marketplace.

He said the other huge challenge for new entrants is the effect of residual values. “The thing that customers are increasingly conscious of is whole-life costs and therefore the initial purchase price if it’s accompanied by a particularly weak residual means that the whole-life cost is no longer competitive.

“Established brands are reacting through reducing the ranges This is not a good thing for retailers. Some of them are reducing their ranges in order to have fewer cars and plenty of margin versus volume in reverse. That’s very strange behaviour that we haven’t seen before.”

Asserting that franchise motor retailers will continue to be the indispensable interface between manufacturers and customers, Potts concluded: “OEMs need us. Sometimes they deny it but OEMs need us and a mutually rewarding business proposition will persist in one way or another. My conclusion is ‘we’re here to stay’.”

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• Source: https://www.am-online.com/news/dealer-news/2023/12/01/we-re-here-to-stay-eden-motor-chief-on-future-of-retail