Steering an independent UK motor group: Part 1. Survival and success

This entry is part 1 of 2 in the series Managing A Motor Group
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Stop Press! Medium sized independent motor groups out-perform large PLC’s during the recession.

Not much new there. They often do.

Many independents, particularly established family owned dealer groups, certainly are surviving this recession, measured between 2007 and 2010, What is less well known is why.

That’s not to say that all of them survived. A number of established family-owned dealer groups ceased trading or were significantly reduced in size. But not only did many survive, some actually prospered.  Which begs two questions: why did many independent groups do better than larger PLC’s and why did some out-perform their peers?

If you study the AM100 and the Sunday Times’ Fast Track 250 it’s evident that the ingredients for survival are different from the ingredients  for success for medium-sized, independent motor groups. Many are survivors; fewer are successes.

So what makes a survivor?

While survivors are drawn from every franchise configuration and region of the country, there is a clear pattern. They mostly share three common factors: 1. Aligned with a manufacturer, 2. Dominate a distinctive geographic region 3. Cash resources. These are the three basics.

None of these factors alone may be sufficient for survival but, in combination, they provide a distinct survival advantage.

Alignment:

Ford and Vauxhall aligned dealer groups have faced a similar strategic dilemma. They have been aligned with a manufacturer that has suffered significant decline. Some disappeared – Quartic, Bristol Street, Quicks  – while others survived. Sandicliffe, Toomeys, CEM Day, TC Harrison. The ones who survived managed to align with other brands fast enough. Despite the risks, alignment with a manufacturer remains a powerful advantage for survival.

Geographic Focus:

Together, alignment and geographic focus are the foundation for many family motor businesses and have long been a feature of the retail landscape: Greenhous Group aligned with Vauxhall on the Welsh Borders; Mon Motors with Ford in South Wales, Williams with BMW in Liverpool and Manchester and there are many others. In fact since the last Block Exemption changes, the importance of regional focus has intensified. Partly due to by the widespread use of ‘market areas’ and partly owing to the rise of multi-franchise sites. But way back in the past family groups recognised the importance of  a clear geographic focus as well as a close franchise relationship. To paraphrase Kevin Walter of Hodgson Automotive, the mission is ‘world domination of a chosen area for a chosen brand’.

As the Vospers case illustrates, survivors often seem to become passive once they achieve regional representation with their aligned brand, leaving themselves open to two important threats. First, they’re weakened when the brand they’re aligned with falters or fails Unless they’ve anticipated  the decline they can be left scrabbling around for ‘bolt-on’ franchises. Second, they  respond too slowly when someone else wants their homeland. Even well run, financially successful groups  may find themselves disenfranchised due to network reorganization. When Fiat gave responsibility for London to Pendragon some years ago, it was a debacle for the existing dealers even though it failed later .

Taken in combination, brand alignment and regional dominance seem to be the most important strategic requirements for survival.

Financial Conservatism:

Hoarding cash, or more accurately positive cash flow and low gearing, may appear self-evident requirements for survivors. But, if that were so, why did PLC’s let their gearing get so high and their cash flow so uncertain? Certainly, the more cautious financial policies of smaller, regionally focused independent dealer groups have proved to be a benefit in the downturn.

The financial policy of many survivors has three main planks. They own freeholds and re-develop where possible to meet franchise demands and gain a business advantage at the same time. Typically, they create multi-franchise sites wherever possible. They prefer to acquire businesses in administration or under some other form of distress  –  franchise re-organization, retirement, cash-flow difficulties, and so on. And, finally, the group as a whole has alternative income sources, preferably not dependant on the motor trade. See the case of Parks of Hamilton.

What makes a Success?

While  survival is no mean feat, being successful during difficult times requires subtly different characteristics beyond the basics.

First of all, successful franchises are aligned with one or more growing franchises. VW Group in general and Audi in particular has been an exceptional partner for independent dealer groups. Ridgway, Westway, Sinclair, Hodgson Automotive, and Vindis all owe their success to running slick operations for some of VW’s very successful core franchises. In each case VW has concluded that the management of all these groups share two important characteristics: competence and commitment.

Self-evidently, representing a growing brand gives more opportunities than representing a declining one. But Ridgway, Sinclair and Westway have all convinced two brands that they can do an above average job for them. They all represent both VW Group brands and Daimler. Clearly, the second factor for success is above average competence as a dealer operator, particularly the ability to turn-around an ailing franchise. The managements at Hodgson Automotive and Ridgeway both built manufacturer support by demonstrating their ability to turn around lacklustre operations.

The third factor is that successful dealers are active, not passive about growth. They seek new opportunities  – open points, acquisitions, turn-arounds  – in their chosen geographic area.

The two case studies – Hodgson and Ridgeway – illustrate all of these principles.

Lessons

There is a significant gap between what business schools teach as strategy, and what strategy is for an independent car dealer. In business school, the ‘world is your oyster’. Independent franchised dealers rarely have such opportunities. Most have to operate in a limited region simply to keep the costs of management control within their resources.
Secondly, the franchise is their most important partner. If their franchise loses confidence in them, it is only a matter of time before the business relationship ends. In any event the supply of new business opportunities dries up.

On a par with these is a conservative financial policy. In the case of Bates Motor Group, Edward Belcher made clear that the group’s growth was funded by profits generated by the trading companies, with most of the operating profits being used to fund additional acquisitions. There was no high gearing, properties were not sold to provide cash for acquisitions. At the same time there was an ambitious written objective of financial growth.

So, if these are the rules, how do some groups manage to break out of a single geographic area? See Part 2 for the answer to that one!

Series NavigationSteering an independent motor group: Part 2. From Regional to National >>
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