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Europe without borders dawns for car dealers

By: | at 08:00 PM | Channel(s): International Trade  

Car dealers can set up shop anywhere they choose in the European Union when the last restrictions vanish on Saturday, but consumers should not expect rapid changes in prices or service, industry executives say.

Instead, big dealerships will over time tend to crowd out smaller and financially weaker rivals. More specialty outlets could also arise as Europe adopts a business model more akin to what the United States now offers, experts say.

The trigger for the changes is the elimination of the so-called, “location clause” that carmakers once used to restrict dealers’ right to open showrooms throughout the European Union.

“It offers new possibilities. Is it radically going to change the marketplace? I would be highly surprised,” said Alain Visser, executive director of European marketing for General Motors’ German unit Opel.

“I think there will be more big holdings that will obviously use the opportunity to have sites in other countries, but let’s face it: it’s not easy for any type of national group to start a business in another country. Business conditions, taxation and cultures are different,” he said.

In any event, he added, international trade in Europe’s automotive business already exists, even with the current dealer and distribution network.

“Dealers that really wanted to expand internationally have already done so long ago,” Reinhard Zillessen, sales director of Ford Germany, told a conference.

Even that does not guarantee success in a European market that is stagnating. Strong local dealers can still compete effectively even against international groups, he said.

Germany in the crosshairs

With roughly 18,000 mostly small dealers serving Europe’s biggest car market, Germany could be one of the countries to see the most change if dealer groups—a category which includes the likes of Britain’s Pendragon, Swiss-based Emil Frey and Dutch group Kroymans—decide to muscle in.

A study by accounting firm KPMG and Gelsenkirchen University’s automotive research center estimated more than a quarter of independent German dealers could be gone in 10 years.

Big dealer groups have only four percent of the German market now versus more than a fifth in Britain, noted Margo Bienert, a marketing professor at Georg Simon Ohm University of Applied Sciences in Nuremberg.

A third of German car dealers lose money in a sector where the average return on sales is around 0.5% and dealers sell 150 cars a year on average versus 768 at US counterparts.

“Customer groups will splinter,” she forecast. “If you look at the US market, then I can imagine there will be dealerships in Germany as well that sell only SUVs, for example.”

Michael Lohscheller, director of group sales management for Volkswagen AG, said all was not lost for dealers who choose to concentrate on one area.

“The trend will not be away from small outlets, by no means. At the same time in some of the bigger centers, especially in Europe, we will need our own retail. This may be in big European cities. It will be both,” he told the recent conference.

The new rules are the last piece of an overhaul of car sales approved by the EU executive in 2002. Its goal was to increase competition and thus lower the prices of cars in the EU.

New car prices, excluding tax, are in fact converging across Europe although there are still big differences for some models.

The rules also let dealers show more than one brand in the same showroom and aim to open up the market for independent garages, a direct threat to dealers’ lucrative service business.

“A similar situation will arise in Europe as in the US,” said Christian Genzow, a lawyer who specializes in the area. “Which means big dealers and trading houses will get even stronger and the smaller will either merge or have to close.” (Reuters)