Europe may soon have a car dealer on every corner, and then some. In September 2002, the "block exemption" legislation that governs the strict franchise system for new car sales in the European Union will expire. There is widespread sentiment among consumer advocates, retailers and industry analysts that the current restrictions will be largely lifted, breaking the monopoly of single-manufacturer franchise dealerships. Forrester Research senior analyst Mark Bünger points out that the single-manufacturer system dictated by the block exemption makes cross-brand competition difficult and time-consuming for customers.
Based on its IMPACT 2001 survey of roughly 6000 European consumers, London-based analyst firm Datamonitor paints a picture of a market ready for change. Thirty-three percent of consumers surveyed were willing to consider buying a car from a supermarket, while just under 75 percent indicated that they might buy from a car care outfit. Although Datamonitor analyst Laurence stock did not make any bold predictions for online sales, he says that the fact that 40 percent of European consumers research autos online means that "gradually, online new car sales will increase."
The talk of green grocers is no empty threat, as Datamonitor points out that major chains have already added gas stations, insurance and finance arms to their operations, and some have begun selling cars "almost as a novelty," according to Bünger, but might become more serious if the playing field were leveled.
The will of the people has not so far found much sympathy among automakers, however. "The manufacturers are very much in favor of the franchise system," stock says. "One of the main features of their argument is that after-sales support expertise would be lacking [through other retailers]. I think at the moment they just like the control they have, making them able to fix their prices to a certain degree."
The roots of the block exemption come from the history of the auto industry in Europe where carmakers did most of their business on their home soil for decades. Now the free flow of information between consumers may have brought the debate to a head. According to stock, UK consumers have grown increasingly frustrated with paying higher prices than their continental cousins. Also, Bünger points to Volkswagen's public relations disaster of the late '90s, when the European Commission fined the automaker 102 million euros for deliberately prohibiting Austrian and German buyers from taking advantage of lower car prices in Italy.
Both Datamonitor and Forrester speak highly of the opportunity for conglomerate Virgin, which has already started a service, Virgin Cars, that brokers cars to customers through traditional dealers to capture significant market share if the distribution channels are widened. Whether CRM-savvy Virgin and other recent entrants to the market can be successful in the long term remains to be seen. "Virgin and AutoByTel are far more service-orientated, something the dealers are lacking, but the question is [can] they can combine it with the expertise required," stock says.
Because retail margins are already quite thin, particularly on the mainstream models that are likely to find favor at humble outlets such as repair shops and grocery stores, stock says that innovative bundling is likely to be the key to capturing consumers if competition is increased. "We might see better deals, whereby you pay for the package rather than just the car--you pay a monthly price, and you're automatically buying insurance, finance and aftermarket service as you would in a lease."
Bünger expects that if the third-party firms win the fight to eliminate or weaken the franchise system, it will not come without a fight. "There is no issue--environmental, safety or legal--that concerns car manufacturers in Europe more than the block exemption, because it means a lot less profit for them if it goes away."