icdp_managementbriefing100_futurenetworks

ICDP Management Brieﬁng 100 © ICDP, 2013
Realigning Networks with Future Needs
By Steve Young
Managing Director
During the last two years, ICDP has regularly shared its predictions of disruptive changes to the current car
distribution model. These stem primarily from the continuing volatility and lack of overall growth in the market,
coupled with changes in how customers buy, use and maintain their cars. Together, these factors are maintaining
pressure on volume and margins and already creating structural changes in market size and profile. For example,
we are seeing a rise in customer usage of the internet, and expect its pricing transparency to reduce loyalty to
individual dealers, but also to create new opportunities both for existing players and new entrants to the market.
Far from diminishing with the passage of time, these views continue to be justified by market developments, with
some of the anticipated trends developing even faster than expected. Despite the fact that for the majority this is a
time when profits are under such pressure that the main focus is inevitably on short term sales, clearly businesses
should already be planning how they will adapt to the market needs of the future.
Customer behaviour is changing
To consider how network structures can be improved to cope with future change, the first step is to study
consumer behaviour and how it is changing. For car purchase, this means following the process that a buyer takes
from initial interest through to handover of the car, while for aftersales it means understanding how car owners
choose services such as repair and maintenance, insurance and roadside assistance. ICDP undertook such an
analysis across a total of nine markets – Belgium, France, Germany, Italy, Netherlands, Spain, UK, and for the first
time, Russia and Turkey – focusing on new and used cars under nine years old. Between June and August 2013,
the views of more than 2,200 respondents were collected.
The new car buying process
Overall, five of the markets surveyed – Belgium, Germany, Italy, Spain and the UK – display broadly similar
characteristics in terms of new car buying behaviour, with some distinctive differences among the remainder.
Buyers weigh up many factors when selecting their vehicle and dealer, the entire process taking on average four to
five weeks to complete. Their own perception is of high brand loyalty, and only slightly lower dealer loyalty.
However, in practice, only half of these “loyal” customers have ever owned a car of that brand, and only a third
owned the same brand as their immediately preceding car. This tendency to loyalty is also demonstrated by the
fact that half of customers in most markets only visit dealers of the same brand. Our focus group research
indicated that the gap between declared loyalty and actual loyalty relates to poor service received during the
aftersales experiences and/or during the next repurchase cycle – under-performing dealers create brand-switching
Management Brieﬁng 100/13

ICDP Management Brieﬁng 100 Page 2
The level of dealer loyalty in Turkey is notably high, which could be due to the country’s lower network density,
around half that of most Western European markets (UK excluded) in terms of sales per dealer. This could prove
significant in future network planning if reducing dealer density has the effect of increasing brand and dealer
loyalty.
Most customers begin the buying process online – almost universally so in Turkey and Russia, where they make
more contacts of all types, again explained by the lower dealer density than in Western European markets. Follow-
up with a dealer or dealers is generally by telephone. As a consequence, most customers feel well informed before
visiting the dealer premises. Such is the predominance of the virtual environment that customer behaviour in the
physical marketplace is very different to the norm of three to four years ago. The choice of brand is largely decided
or narrowed down to two brands online, before visiting typically two dealers and comparing the deals to reach a
buying decision. The traditional role of the dealership is clearly being eroded, as customers are much closer to
buying a car when they first visit a dealer. Other than in the Netherlands, most new car buyers use some form of
finance, and in the mature markets, most trade in their previous vehicle.
The used car buying process
Franchised dealers secure a minority of the used car business, especially in Turkey and Russia, where business is
mainly conducted between private buyers and sellers. Once again the majority of buyers in all markets start the
purchasing process online. Many also telephone or email, the numbers varying widely between markets. As
condition and specification need to be checked before purchase, it is not surprising that the number of dealer visits
is higher than for new cars.. However, with only around three dealer visits in total, this is lower than is generally
accepted as being normal in the past, another impact of the internet research. In Turkey, used car buyers put
more effort into both pre-visit research and dealer or trader visits, reflecting either the stage of development of the
market or local market characteristics.
The usage of finance in used car purchase is similar to that for new car buyers, but the level of trade-in is lower.
Compared to a new car, a lower purchase price implies a lower trade-in value and less scope to negotiate, so may
lead to the previous car being sold privately – or the used vehicle purchased may be a first car.
The traditional sales funnel has fundamentally changed as virtual shopping replaces
dealer visits
1
Source: ICDP Consumer Survey 2013, First group of markets with common characteristics = Belgium, Italy, Spain, Germany and the UK
Brand
Loyal
Dealer
Loyal
Number of
Dealers
Visits to
Winning
Dealer
Other
Dealer
Visits
Same
Brand
Only
First
Dealer
Won
Used Any
Finance
Had Part
Exchange
83% 61% 2.18 1.90 1.14 44% 50% 68% 55%
72% 55% 2.31 1.72 1.31 19% 63% 64% 63%
72% 63% 2.27 1.03 1.02 25% 55% 31% 71%
85% 73% 2.95 2.35 2.41 25% 48% 77% 33%
77% 44% 2.00 1.86 1.20 52% 61% 50% 20%
Physical Dealer

Servicing
The effects of changes in customer behaviour extend beyond car sales, impacting aftersales loyalty – where they
have their car serviced – and heightening price sensitivity when comparing costs for additional work. In the
Western European markets surveyed, the majority of customers remain loyal to a dealer of the same franchise as
the car marque, influenced by service plans and a perceived link between warranty and the need to have servicing
done in a franchised dealer. Around one third of customers overall get a competitive quote for any additional work
identified rather than simply authorise the repairer who identified the need. Russian drivers show some
differences, with lower usage of same brand dealers and a lower perceived value in doing so. This may reflect
Russian dealers’ lower emphasis on marketing their aftersales services when compared with Western Europe.
Time critical
Travelling time is critical to network planning. It is not a surprise that customers are prepared to travel longer for a
new car purchase – and longer still to buy a used car – than for service. However, it is surprising that despite
fewer visits during the buying process than in the past, and a lower number of service and repair visits for a
modern car, the importance of locality does not appear to have changed significantly. 60 per cent of new car
buyers want a dealer within 40 minutes’ drive, falling to under 40 per cent who are prepared to travel up to an
hour. For service, customers prefer the dealer to be closer – within around 30 minutes’ drive – with buying
behaviour changing quickly, this implies that greater differentiation of sales and service networks will become
increasingly relevant.
The profile for used car buyers shows similar initial shopping behaviour in the
virtual market, with more cars viewed – franchised dealers missing many buyers
2
Source: ICDP Consumer Survey 2013, n=550 First group of markets with common characteristics = Belgium, Italy, Spain, Germany and the UK
Used Cars
Bought
from
Dealer
From
Inde-
pendent
Private
to
Private
Went
Online
Phoned Emailed
Number
of
Dealers
Visits to
Winning
Dealer
Other
Dealer
Visits
Used
Any
Finance
Had
Trade In
42% 26% 20% 79% 47% 23% 2.18 1.90 1.14 68% 54%
50% 17% 26% 68% 37% 12% 2.32 1.62 1.45 54% 36%
35% 30% 15% 65% 65% 19% 1.85 1.38 0.56 27% 68%
10% 31% 51% 88% 73% 35% 3.67 2.69 2.82 88% 23%
8% 8% 73% 94% 55% 10% 0.67 1.36 1.30 55% 18%

The impact of the digital age
Opportunities and challenges abound
These data indicate that changes in customer behaviour are largely a result of the growing influence of the digital
world, as online research replaces traditional dealer visits. The findings are supported by the results of Google
surveys across 22 countries, which over a two year period show a growth of 22 percentage points in the use of
internet searches in the purchase process, from 54 per cent in 2010 to 76 per cent in 2012.
This switch from physical to digital shopping brings with it a need for people, processes and systems to adapt to
accommodate the changes. Adaptation will in turn bring opportunities to be exploited and challenges to be
overcome; some examples are outlined below.
Opportunities
 Enhance customer relationships by harnessing analytical tools to develop deeper and more timely customer
insight from the increasing amounts of data becoming available
 Look beyond the sale and aftersales support of the car to win a greater share of customers’ future mobility
spend
 Deliver the brand promise by providing better tools for customer-facing staff and a richer and more
differentiated experience during the online research phase
 Enable a true customer account management, personalised approach by redefining IT-supported processes
at both dealer and manufacturer/sales company levels
 Free sales and service staff from their desks by using mobile technologies to enable more customer-friendly
processes and better support for new channel formats
 Work towards a single customer and vehicle record, channel-wide, so that customers can switch freely
between channels in a seamless way
Challenges
 Handling the explosion of data sources and volumes relating to the customer, the car, and the external
environment, while maintaining data privacy and security
In summary, the Western European new car buyer today follows a very different
journey to that which would have been typical even 5 years ago
3
Starts looking 5-6
weeks before
purchase
Visited supplying
dealer twice and
one competitive
brand dealer once
Felt well-
prepared before
any dealer visit
Conducted research
on the internet
Bought with
finance, part
exchanged old car
Goes back to the
same dealer for
aftersales
Made one dealer
contact before
visiting (typically
by phone)Research included
finance and part-ex
59%
contact a
dealer
before
visiting
42%
research
finance or
trade-in
online
For 36% the
second
dealer visit
is same
brand
Grew by
22% from
2010 to
2012
59% felt
well
informed
before any
dealer visit
75% of
consumers
remain loyal
to supplying
dealer
Source: ICDP Consumer Survey 2013, Google reports
Owns a brand to which
he/she feels quite loyal,
less dealer loyal
81% of
consumers
brand loyal,
60% dealer
loyal
64% use
finance,
57%
trade-in

 Greater accessibility of data for independents (which will be enforced by regulation) will erode franchised
sector share and margins
 The requirement for data analysis skills and associated training will have implications for staff recruitment
and profiling
 The traditional work pattern and distribution of responsibilities within the channel may not be sufficiently
flexible to cope with online channels and IT-based tools that are ‘always on’
 Systems integration requirements will grow in complexity with increasing channel variety and continuing
technical developments changing elements of the overall system
 Fast changing technology will breed heightened customer expectations of capability (reinforced by
experiences in other sectors), and all players and their legacy I.T. suppliers will face competition from
nimbler players, including new entrants
 Manufacturers and dealers will have conflicting systems needs and ability/desire to invest in solutions
Structural changes are applying pressure to networks
Beyond the changing customer behaviour and impact of the digital world, there are a number of structural
pressures which increase the pressure further, and challenge whether current structures and division of
responsibilities are sustainable.
More complex product offers bring logistical and commercial challenges
Product and option variety offered on a model results in a high number of possible combinations, most of which
are never built. Around 15 per cent of derivatives per model make up 80 per cent of sales. At the derivatives level,
around 200 combinations are typical for a volume brand, which expand into around 500,000 at the total end item
level. For premium brands, the situation is even more extreme, with several million plus end items. Asian brands
that build in Europe tend to constrain variety, bundling items and offering fewer options. Our work on New Vehicle
Supply has shown that manufacturers and dealers are not leveraging the process and system capabilities they
already have, resulting in higher supply chain costs and lower revenues – through discounting of overage stock
and weaker option mix – than would be the case if the capabilities were fully exploited.
In addition, NSCs apply different base margins, bonuses and tactical payments to different models, and vary them
according to business and stock pressures. It becomes impossible for dealers to keep track of the potential
retained margin by variant, which will vary depending on whether a specific car is built to order, fresh stock or
overaged stock.
Diminishing aftermarket volumes hit franchised dealers
ICDP’s 2010 aftermarket projections indicated volume reductions of around 20 per cent between 2009 and 2020,
with some variations by market. The model is currently being updated to reflect a 2012 base, and taking the
French market as an example, the volume reduction in three years was already 6.5 per cent. The earlier model
anticipated front loading of the reduction, mainly as a result of a smaller parc since the onset of economic crisis,
and the longer service intervals introduced by many VMs. However, the latest modelling shows a lower reduction in
volume during the remaining years of this decade; for France the total reduction is 13.3 per cent, compared to 19
per cent in the 2010 model. This change is driven by two main factors:
1. Introduction of annual routine service by some VMs
2. Increase in winter tyre fitment from less than ten per cent share to 17 per cent, either due to consumer
preference (e.g. France) or legislation in some markets.
These trends are having a dramatic effect on dealer performance. For one network in France, the actual absorption

rate was steady in 2009 and 2010 at 76 to 77 per cent, but then fell rapidly to 67 per cent in 2011 and 58 per cent
in 2012. For the first half of 2013, it fell even further to just over 52 per cent, a level that we previously suggested
would only be reached in 2020 following a 25 per cent decline. This structural decline in volume could face further
reductions if service schedules are not adhered to and pricing has to be lowered to attract customers into
franchised dealer workshops.
Crash repair and the parts business in need of overhaul
Trends in the crash repair sector also exert an influence on future network structure and economics. A combination
of lower distances driven and improved vehicle technology has led to an overall decline in the market, while its
value is being eroded by a number of factors. Firstly, there is increased pressure from insurers to reduce prices
and accelerate repair times – some now even operate their own repair facilities. Meanwhile, other new players are
also appearing in the market, from independent franchise groups to SMART repairers replacing traditional panel
craft.
In a business sector that achieves marginal profitability (around one per cent return on sales in the UK which many
view as the toughest market), many smaller bodyshops cannot justify the investment needed to meet tougher
environmental standards and provide new repair capabilities. Their number is reducing as a result, large
independent chains and franchises replacing them in some markets.
The parts business is currently important to both manufacturer and distributor revenues, but insurers are looking
for new sources and independent distributors are trying to grow their presence in the market. Ultimately, it seems
inevitable that the logic and cost of distributing crash repair parts through the dealer network will be brought into
question.
Other areas of the parts business also need to change if they are to remain viable. A dedicated wholesale parts
operation supplying via multiple franchises and independent repairers is far more effective in penetrating the local
market than the traditional dealer parts counter. Pressure from independent parts distributors and online channels
is increasing, and taking cross-brand opportunities to combine logistics flows at national and local level could yield
significant cost and performance benefits.
Who is the customer for service and repair?
A growing number of car buyers also buy a service plan, either as a standalone product or as part of a lease
package, and there are indications that service will be bundled in with the new car sale – already common in
Switzerland, and growing in the US. The service and repair customer – who decides where a car is maintained,
with which parts, and funds the transactions – is therefore effectively changing from the driver of the car to the
underwriter of the service package. Where the underwriter is the manufacturer or dealer group, this favours
franchised networks by locking in customers contractually for much of their work. However, where the underwriter
is a specialist finance and insurance (F&I) provider, it may have the opposite effect, excluding customers from the
franchised sector for a period of some years.
Mobility schemes gain traction
A growing proportion of customers, especially in urban areas, would consider a mobility solution rather than
outright purchase next time they change their car. According to used car web site Autoscout, around a third of
customers polled would consider a usage package – a car share or similar – rather than ownership, either for their
only car or in place of a second vehicle. While car sharing operators have long existed in many markets, mobility
schemes are now bringing together a variety of mainstream players:
 Leasing companies, with long experience in running pooled vehicles via fleet or rental business models,

including the recent acquisition of Zipcar by Avis
 City and transport authorities, such as Deutsche Bahn with Flinkster, looking to integrate the public transport
system with end of trip options to create an A to Z mobility offer
 Car manufacturers, which have recently entered the arena with offerings such as Car2Go from Daimler and
Drive Now from BMW and Sixt; others such as Ford2Go are in progress.
While such partnerships demonstrate that there is scope from both competition and collaboration, the potential
role of franchised dealers on the mobility scene is presently unclear.
Network pressures in danger of spiralling down
The points noted in the previous sections combine to create a number of pressures on mature networks. While
defensive actions taken to ease these pressures are logical when viewed in isolation, they are largely tackling the
symptom rather than the cause. Their net effect overall is to generate additional costs that force the brand into a
worse position, in order to maintain some level of network profitability. We are reaching the point – or perhaps
are already there in some cases – where this level of support is unsustainable, and more fundamental action is
required to create a viable sales network.
Financial modelling scenarios
To assess what these trends mean for networks financially, the ICDP network financial model was used to create a
fictional ‘ICDP-land’ – a middle ground market avoiding the extremes, for example, of used cars in the UK or
aftersales in Italy. Should an ICDP member wish to repeat the modelling for their own network in specific
markets, the model has the flexibility to reflect any individual requirements.
Within ICDP-land are three versions of the model:
Traditional European Volume; includes those with long-established, usually oversize networks, and are
generally under the greatest pressure currently
Established Premium; intended to cover the three leading premium marques – Audi, BMW and Mercedes-Benz –
We have created an “ICDP-land” in our network financial model representing a
significant European market which delivers a performance “middle ground”
4
1
2
3
5
4
6
1 – Network dashboard
2 – Channel dashboard
3 – Consolidated Financials
4 – NSC Assumptions
5 – Channel Financials
6 – Channel Assumptions
• Data drawn from dealer composite and business management
information, published NSC accounts and other sources across multiple
Western European markets and brands
• Outputs benchmarked against other independent data sources
• Not perfect – but a consistent base for comparative modelling
• Flexible such that it could be readily adapted to an actual network

which have large networks and are continuing to grow as they extend their product ranges into smaller segments
Successful Growth; typified by Hyundai and Kia, still growing market share and adding to their networks, with
HQ-driven growth ambitions.
Some of the data below benefit from additional explanation:
 The dealer density and therefore sales per dealer for each segment are derived from the data in our
European Car Distribution Handbook, and are representative of Western European, mainland markets.
 The parc expressed as years of current sales is influenced by the long term trajectory of the brand –
declining brands which previously enjoyed higher market share at a time when total volumes were higher,
benefit today in terms of total parc, and vice versa.
 Wholesale parts retention reflects the proportion of parts usage within the local brand parc by other
franchise dealers and independent repairers (including bodyshops) which are supplied by the franchised
dealer – it reflects the availability of alterative parts and the customer attitude to non-OE parts.
 Parts retention within the parc is higher for premium brands due to the relatively lower number of
alternative sources, particularly for crash repair parts.
 For the growth brands, many of the dealers have a used car background, so their used-to-new ratio is
relatively high, and the extended warranties provided by the Korean brands increase retention relative to the
European brands
 Most of the growth brand new car customer base is still retail rather than fleet, but this can be expected to
change as the search for volume and growing acceptability of the brands results in higher fleet penetration
Taking these and other more detailed assumptions such as those related to property costs, manning levels and F&I
income produces results that broadly match available benchmarks. For example, the 0.6% Return on Sales for the
European Volume sector is the same as the six-year average across the top six European markets according to
data available to ICDP. We recognise that profitability at the NSC level is largely driven by the transfer pricing
policy adopted by each manufacturer, but the values produced by our model are in line with data available from
published accounts across a sample of brands and markets, so we believe that this fairly reflects current
performance with current transfer pricing policies.
In our fictional “ICDP-land” market we have looked at three brand types using data
chosen to reflect steady state rather than a “crisis” position
5
European
Volume
Established
Premium
Successful
Growth
Number of dealers (all assumed Tier 1) 250 175 150
New car sales p.a. 90,000 60,000 35,000
Fleet as % of total 40% 33% 10%
New car sales per dealer 360 343 233
Retail Used:Total New 0.70:1 0.50:1 0.72:1
Trade Used as % of Retail Used 60% 43% 50%
Parc (years at current sales rate) 13 10 7
Aftersales retention as % of parc 40% 50% 60%
Workshop Hours per unit p.a. 2.5 3.0 2.5
Workshop Parts:Labour ratio 1.5 1.5 1.5
Wholesale parts retention 50% 90% 40%
Source: ICDP Network Model

For the volume segment in particular, the financial viability of the system appears marginal with return on sales
(ROS) below one per cent and return on capital (ROC) less than two per cent for the combined network. The
position for Premium and Growth networks is better at dealer and NSC levels, but still falls short of the returns
produced in other retail sectors.
When applying some of the pressures described earlier to the base model to see what the financial impact would
be, a number of assumptions were made:
 Generally – no corrective action taken to eliminate headcount or cut other costs; a reasonable assumption
given that the volume decline for example only represents 18 fewer cars per dealer
 Volume decline – marketing spend in NSC is maintained at original level, so spend per unit increases. No
change to used car volumes or aftersales activity (although the latter would decline with some lag)
 New Car Price – assumed that the 0.2 percentage point decline in new car transaction pricing applies to
retail and fleet, and is partially covered by NSC increasing dealer margin by 0.1 per cent. No change in
selling price from VM to NSC
 Aftersales – ten per cent reduction applied to workshop and parts, including original parts sold into
independents.
The combined effect of these changes takes the dealer level into loss at -0.16% ROS, and the NSC to -0.5% ROS.
The network is no longer viable, even with changes at this fairly modest level .
For the Premium scenario, the same assumptions are made; as in the Volume scenario, reduction in aftersales
volume has the greatest impact, but the combined effect takes dealer Return on Sales to under two per cent and
for the NSC to less than one per cent. This is not as severe as the Volume case but would probably make dealers
question whether they were prepared to continue to invest to meet new standards and invest in the franchise .
Growth brands remain both viable and relatively attractive. Assuming that growth continues, and the network size
is managed in a way that does not eliminate the benefits of growing scale for the existing dealers, returns will
The financial results of the system are already marginal at both NSC/importer and
dealer level, with variances largely driven by fleet content and aftersales
6
Source: ICDP Network Model
European
Volume
Established
Premium
Successful
Growth
Dealer:
Return on Sales 0.6% 2.5% 1.9%
Return on Capital Employed 1.6% 8.2% 5.1%
Overhead Absorption 52.0% 62.1% 44.1%
NSC/Importer:
Consolidated:
Total Network Capital Employed €1,250.8m €1,411.8m €362.8m

remain positive at both dealer and NSC level.
Lessons from other retail sectors
Change must integrate new structures, processes and systems
Are there lessons to be learned from other forms of retail that could indicate possible challenges and solutions for
the automotive sector?
All consumer industries face the challenge of the ‘omni-channel’ retailing trend, whereby consumers switch
between multiple channels at various points during a transaction. An A.T. Kearney study of 4,000 US consumers in
the banking, electronics and grocery sectors shows that over half use more than one channel; for example, the
physical store, online, telephone and mobile channels. The study warns that as consumers gain multichannel
experience, they will expect to have the same options in other transactions in other sectors.
The simultaneous use of different channels can include going online via Smartphone while in a physical store, or
looking online while on the telephone to a call centre. Checking online while in a store – termed ‘showrooming’ – is
evident already in the automotive sector, where used car customers in particular will check online used car sites for
alternative cars and price valuation information while looking at a car on offer on the dealer forecourt or
showroom. This can create issues where customers are comparing data on pricing or availability between different
channels of the same supplier, and find conflicting data. Systems and processes are rarely designed to recognise
this possibility.
The conclusions of the Kearney study seem equally applicable to automotive. The approach needs to become
customer-centric, acknowledging the use of multiple channels and the expectation of a seamless experience as
customers move between them. Integrating systems and adapting processes are key if all channels are to access
common information, and ensure that customer interaction in one channel is immediately reflected when viewed
from any of the others. The study also concludes that analysis of browsing and e-commerce behaviour can provide
customer insights that are applicable across channels, but that many companies fail to do so, even when they
already capture the data. There are inevitably IT issues to be overcome, including data protection between
different players in the channel, and arguments about ownership of data within the organisation. Once the data
can be accessed however, there are many tools available to assimilate and present them in a value-added form.
While technology has a role to play in omni-channel retailing, it needs to be backed by appropriate processes and
trained staff to leverage the opportunities. Take Amazon for example; year-on-year growth for the company has
consistently been two to three times greater than the US Census average of e-commerce businesses. This has not
been achieved solely by having better technology than competitors but also through innovation in developing the
customer experience, including features such as customer recommendations based on previous purchase history,
and “One-click” ordering. It is the combination of technology, processes, product offer and customer engagement
that has driven its success.
Finally in this section, we can draw parallels with the challenges facing the automotive sector and a recent study
from EKN on the ‘Future of the Store’. This suggests that the future retail store needs firstly to be driven by
customer insights, i.e. knowledge not only of customer needs in general, but also of the specific customers visiting
the store.

The store then needs to be more than simply a location where you can purchase goods or conduct your business –
it needs to be a physical expression of the brand. It will act as the integrator of other channels, supporting pure e-
commerce, and selling products not only from physical stock but also from remote stock and the order Technology
can be used to give salespeople access to resources beyond the store, providing new or improved services to
customers. It can be used to keep the store fresh without the need for physical upgrades, by changing images in
large format display screens. Different types of technology-enabled interaction with customers are possible, such
as displaying clothing on an image of the actual customer. It is also the means to build a local community specific
to the store through social media, promoting specific events and news.
Finally, the study emphasises the continued importance of people using data to tailor how individual customers are
approached in store and what is offered to them. None of this feels inappropriate for an automotive ‘store of the
future’.
Building the network of the future
While this briefing is focused primarily on physical networks, in the future these will depend more than ever on the
support of appropriate IT infrastructure, integrated systems and processes, people, and a more diverse range of
customer offers of products and services. Despite the various challenges and needs discussed thus far, the
blueprint for such a network can be created using strategies and innovations that already exist.
The FMCG retail sector is adapting to similar pressures by using customer insights
to shape an integrated approach, leveraging physical outlets, technology and people
7
Source: EKN “Future of the Store”, 2013, www.eknresearch.com
Customer
Insights
Brand
Experience
Omni-
channel
Integration
Personalised
Engagement
Technology
Enablement
• Physical expression of the brand
• More than commerce destinations
• Encompassing integration,
technology and engagement
• Delivery, commerce (sales from
physical and virtual stock), services
and showroom
• Unified order entry via eCommerce
• Keep the physical store “fresh”
through built-in technology
• Enable salesforce flexibility through
mobile technology
• Create local community via social
• Combine customer data with trained
human intuition
• Unified customer data master
• Personal interaction at store level

Throughout the sales and service experience, physical networks fulfil a range of needs in a variety of ways. The
network as a whole must combine these in a manner appropriate to brand needs and positioning to develop an
overall structure which supports the spread of customer segments. This briefing focuses mainly on new car sales
and aftersales, but it is important not to overlook the value of used cars both financially and as a means of
introducing new customers to the brand.
Property – Variety and Risks
In broad terms today, dealerships around the world across all brands follow a very similar format in terms of basic
design and role, yet customer needs and behaviour varies. There are examples today of different formats which
have the potential to appeal to different types of customer, or at different points in the purchase cycle.
 Shopping mall outlets, as being rolled out by Tesla, taking the showroom to a high footfall location, rather
than expecting (or hoping) that customers will find you
 Shop in shop, used by Hyundai in the US for Equus, where a second brand is displayed within an existing
showroom with minimal investment ($50,000 in the case of Equus), fundamentally changing the economics,
and still leaving the option open to back this display up with other forms of customer contact such as home
or office visits (a key part of the overall Equus value proposition)
 Digitally enabled or virtual showrooms, such as Audi City launched recently in London and Beijing where
relatively small showrooms can “display” the full range of product using sophisticated imaging technology
and interactive tools
 Multibrand showrooms – feared by manufacturers, but highly desired by consumers in our research.
Formats vary, from simple shared showrooms or adjacent dealerships with common back office through to
large sites such as those we found in Santiago, Chile offering 81 independently operated sales and aftersales
brands from multiple facilities on one large site
As shoppers move online, the challenge of what to do with physical outlets arises. This is not unique to the motor
trade; over the last decade, Tesco in the UK invested in increasingly larger sites to accommodate growth. The
increase in customers now using home delivery and ‘click and collect’ services has led to lower footfall and lower
Future networks will have to address a number of needs in the face of these
developments and challenges, and blend them together into a logical structure
8
Brand Building
Trade-Ins
Test Drive/Handover
Parts Distribution
Repair & Maintenance
Property
Local Contact
Awareness
Online Sales
Plus:
Used Cars
Mobility….

inventory needs, so the company is remodelling its larger stores to add new business lines and attract customers
to visit the stores and stay longer. The outcome is a diverse collection of initiatives from adding in-store
restaurants to providing tyre sales and fitting bays. If the number and size of dealer sites reduces – as we believe
both must in many cases – dealers will also need to reconsider whether their property portfolio is appropriate for
future needs. Should still have the same number of sites, or the same range of activities on each of them? Delays
in considering the impact on property requirements may result in dealers facing the possibility of having surplus
property at the same time as other dealers are closing or shutting sites, causing a fall in property values. This
could substantially weaken dealer balance sheets and result in banks reconsidering credit lines. We call this the
“property time bomb”.
Online sales – a race to the bottom?
The basic requirements of setting up an online sales channel and a supporting fulfilment process are not
particularly challenging, and there have been a number of limited pilots over the years. This may be moving to a
new stage with the launch in 2013 of new online channels by GM in the US and Mercedes in Germany. In addition
to the basic question of how many customers will be prepared to use a pure online channel, two more
fundamental issues are the potential impact on general pricing and the implications of distance selling regulations
potentially allowing high levels of returned vehicles.
Transparency of pricing and ease of comparison quickly results in the pricing level of goods being reduced, both
online and offline. For this reason intra-brand competition on the internet is undesirable from a margin retention
perspective, both between dealers in the same market and between markets.
To protect margins when an internet sales channel is introduced, dealer margins could be reduced significantly
(compensated by other forms of financial support) to minimise discount levels (similar to the Dacia approach). An
alternative would be to move to an agency model for all sales, where the transaction is between the manufacturer
and the end-customer, with the dealer being paid a fee to manage that transaction. A third option is to make price
comparisons with the offer in the physical channel more difficult by bundling options and service packages with a
finance scheme. These elements provide options for creating a viable proposition for customers who welcome the
convenience of an internet channel while accepting that it may not be the lowest price that they could pay for that
car.
The distance selling regulations give consumers the legal right to return (within a defined period) a product
purchased at a distance from the normal business premises of a retailer, which would apply to home or office-
based sales and online channels. This creates the possibility that cars sold over the internet could be returned after
a few weeks for a full refund, but would then from the manufacturer or dealer perspective be used cars.
We have seen two approaches adopted in response to this. Smart in Australia includes in its contractual conditions
an agreement by the customer that even though the deal is being concluded over the internet, it is legally deemed
to have taken place in the Mercedes office in Victoria. It is doubtful that this form of wording would carry any legal
weight in Europe; it may well be unenforceable in Australia too. The second option is that adopted by Fiat Click in
the UK, and we assume by other pilots: the manufacturer accepts the risk and hopes that returns are minimal.
Martin Leach, CEO of Magma, who operated the Fiat Click pilot said: “We were aware that distance selling
regulations applied and we and Fiat accepted the risk of returns. In the end we did not have any.” This was the
result from more than 300 sales; the only additional condition imposed on customers was the exclusion of ordering
extreme specifications, so that if there had been a return, it should not have presented any particular resale
challenge.

Brand building useful up to a (price) point
There are many examples of major investments in different forms of brand experience ranging from the £30
million investment by Mercedes-Benz in their Experience Centre in the UK, now replicated elsewhere, or the €300
million Autostadt in Wolfsburg, to Audi involvement in Le Mans racing over many years with related customer
hospitality. Seen by some as vanity projects, it nevertheless makes sense to showcase a strong brand proposition.
Most Ferrari and Porsche owners won’t take their cars on a race circuit, nor will most Range Rover customers
exploit the full off-road ability of theirs. But actually experiencing the full capabilities, or just knowing that this is
available to them, builds the strength of the brand in their mind and is likely to be shared with others within their
business and social circle. Attempting to do the same with a less differentiated brand at a lower price point makes
less sense, as the proposition would probably be less authentic, and the costs unaffordable within the available
margins and marketing budgets. These brands need to build their reputation through the ownership experience
and consequent word of mouth.
Maintaining brand awareness is key
As customers spend more time online and less time physically visiting dealers, creating and maintaining brand
awareness in their minds becomes even more important to ensure a place on the consideration list. One approach
to this is the use of pop-up shops to take the brand to the consumer. Some examples:
 The Vauxhall (Opel) Adam display in the Westfield Shopping Centre, West London. As the Adam is
positioned as a fashion-oriented product, the choice of Westfield with its high fashion retail outlets such as
Armani, Burberry and Dior makes sense.
 Nissan’s launch of the Leaf EV in the UK included a three year deal with the O2 Arena, a leading concert and
sporting venue in London. As part of this, the ‘Innovation Centre’ showcased the car and aimed to dispel
concerns about EVs in general.
 An initiative by Ford in the San Francisco Bay area of the US. Ford had gradually lost all of its traditional
dealers within the Bay area, so instead a series of pop-up shops was set up in vacant retail premises. These
not only had cars on display, but also hosted a series of events including art, cookery and film themes to
draw in customers who were not necessarily actively looking to switch cars. Under Californian franchise
laws, any leads were referred to traditional dealers in the surrounding area, but despite this disconnect,
sales rose by 17 per cent in 11 months.
Local contacts need to be maintained as networks thin out
As traditional networks become less dense, other approaches can be used to offer a local contact point for
customers and prospects, helping to support larger outlets and online channels. An example of this is Miranda, the
largest dealer in the 1,100 sq. km Naples region of southern Italy. As low labour rates in the Italian economy make
franchised workshop operations unattractive for both dealer and customer, an alternative model has developed.
Franchised dealers now typically work with a network of local authorised repairers (ARs) to which they sell parts,
and receive referrals for new car sales. Miranda has taken this a stage further for its Ford franchise, linking 18 ARs
described as ‘partners’ into the business, including full integration into the CRM, sales and aftersales systems. This
initiative has been responsible for generating 35 per cent of new car sales and 60 per cent of parts turnover.
Trade in doesn’t have to be a problem
Handling the trade-in of a previous car is often considered an obstacle to pure online sales and thus confirmation
of the need for traditional dealers. This is despite the fact that in most cases fleet forms a substantial part of the
total market, and that in the private segment, leasing is growing in popularity. Of those that are truly privately
owned and operated, some consumers pass cars on within their family or sell privately, but for the remainder there

are still trade-in options. There is an increasing trend towards separating the trade-in from the purchase in terms
of the deal – two schemes already in operation are described below.
CarMax perhaps led the way in the US, but its methods have now been adopted by some dealers in Europe,
including Pendragon. CarMax promotes its valuation service without any pressure to buy, and in some of its
locations there are dedicated appraisal lanes, where the owner is given a valuation certificate. The value put on
the car holds, regardless of whether the prospective customer buys or not. Only a quarter of valuations lead to a
purchase at CarMax, some customers using the valuation certificate as the starting point for driving a deal at
another dealer – but CarMax accepts this, viewing the exercise as a valuable source of market intelligence and
data.
Ford Retail Online takes a different approach. Customers are encouraged to get a valuation online by preparing
their own condition report, identifying any damage and marks on the schematic and attaching photographs of
anything they consider significant. In practice it appears that customers are more diligent than professional
appraisers, sending in photographs of tiny marks, and calling the help desk if they have any concerns about what
should be included. The customer is then sent a valuation prepared by an appraiser who examines the submitted
information. A similar process is used by some other UK dealer groups, where a sales executive prepares the
report and sends it to a central valuation team – the only difference is who prepares the condition report. Ford
Retail has not found any reason to adjust the valuations when the customer has turned up in person, small positive
and negative differences balancing each other out. As customers generally want to avoid confrontation at the
dealership and a wasted journey, it is not in their interest to conceal the true condition of the car when doing their
own appraisal. It is easy to see how such a system could work with cars being taken to a non-dealer location or
being collected by a trained appraiser, breaking the link between dealer premises and trade-in.
Test drives still on offer and more flexible too
Another area often cited as a barrier to significant change in the dealer network is the need to offer test drives.
Our consumer research shows that the current dealer-based test drive format is viewed negatively due to
limitations on length, route and the need to be accompanied. There are already a number of non-dealer based
test drive options available, which also carry advantages from the consumer perspective. One option is to leverage
the existing parc of vehicles in daily rental or car club fleets – they’re young, professionally maintained, and
available in wide geographical networks. One brand recently launched an innovative test drive approach in a
European market using car clubs. The customer registers online then picks up a demonstrator dedicated only for
test drives, but using car club telematics for access and management. The fleet of cars is maintained and refuelled
by dealers, but the dealer does not have direct contact with the prospective customer at the time of the test drive.
For many customers this flexible approach is preferable to the traditional accompanied test drive, which puts
manufacturer or dealer convenience ahead of the customer.
An alternative approach is adopted by D’Ieteren, the VW Group distributor in Belgium. Operating a customer
contact centre on behalf of the whole network enables the company to offer the customer a choice of 160 cars
covering most bodystyle, engine, transmission and trim variants. Clients can take unaccompanied test drives
lasting from 30 minutes to 24 hours by booking direct or via the dealer intranet. Around 10,800 test drives a year
are arranged, achieving a 58 per cent conversion rate.
Home delivery and roadshows
Cars can also be taken to the customer at their home or office – in most markets and for most manufacturers, this
capability already exists through the fleet demonstrator operation. The Fiat Click online trial in the UK is an
example of this approach.

Mercedes has tried using pop-ups to gain visibility for its new A Class, and to encourage test drives. This is an
important brand extension for Mercedes into a sector where it has not previously been well represented. 15
modular pavilions were taken across Germany , setting up in 90 cities over a three month period, during which
25,000 road tests were conducted. In addition to the modular pavilion, Mercedes-Benz presents itself at the fairs in
various townships around Hamburg with a mobile pop-up store in the form of a sea-container. This pavilion
combines catering with an informal presentation relating to the brand and its products, and also offers the
opportunity for a test drive. Such presentations facilitate access to the brand and attract prospective customers
who previously had no contact with Mercedes-Benz. Feedback indicates that more than 70 per cent of the visitors
to the displays at fairs do not drive a Mercedes-Benz, and more than half have had no contact with a salesperson
from the brand in the last five years.
Repair and maintenance - more options, better customer service
Although networks face lower volumes and increasing competition from the independent sector, customer
expectations in terms of having local service remain unchanged, so the challenge for franchised networks is how to
compete on a basis other than price. Examples of some players’ initiatives are outlined below.
Fast turnaround
Toyota and Volvo have adopted double manning on a vehicle to cut service times, but a Toyota dealer in the US -
Jon Lancaster in Wisconsin – has installed a facility that allows them to put six technicians to work on a car for a
guaranteed turnaround in 15 minutes. The outcome is improved customer service, reduced need for courtesy cars
and better use of the facilities investment.
Single point of contact
One point contact offers the customer a similar experience to that offered by an independent repairer, with the
technician that works on the car having direct contact with the customer on booking in and handover. This
increases trust, and in the case of Chevrolet in Brazil is claimed to deliver the highest customer satisfaction ratings
in the country. This model also has the potential to reduce overheads, so is relevant to small scale/low overhead
franchised service points in the future.
Personalised service
Mercedes-Benz offers gold, silver and bronze levels of service in the UK, while BMW is rolling out telematics-driven
proactive customer contact. Others offer the option of overnight servicing so that the customer does not lose
access to their car. All of these schemes have the potential to differentiate a repairer in the eyes of the customer.
Overnight servicing is common in the HCV sector but currently rare in cars, sometimes due to restrictions on
operating hours in traditional car dealer locations.. In Russia, some Moscow dealers offer overnight servicing at a
lower price than daytime servicing by limiting the complexity of work accepted, which allows the employment of
less skilled technicians on the night shift, at lower labour rates.
Alternative channels
Is the traditional franchised dealer workshop really needed for simple repair and maintenance work? Perhaps
workshop density could be reduced, and the gaps filled by mobile technicians or by sub-contracting work to
reputable independent repairers. The latter could be perceived as a risk to customer loyalty, but service plans
could lock in the fitment of OE parts, and collection/delivery services would mean that the customer was unaware
of where the work was done.
Focusing parts distribution networks
The opportunities to gain cost and service improvement by increasing the scale of local distribution is
demonstrated well by the VW Group UK Trade Parts Specialists (TPS) initiative, previously reported on by ICDP

(ICDP Management Briefing 90, The agency sales model for multi-brand parts supply:
Case study of Volkswagen Group Trade Parts Specialists). Faced with a projected ten per cent loss of market
share, VW transferred most of its trade parts business from 211 dealers to 61 TPS centres, providing two to three
deliveries per day and 95 per cent parc coverage. As independent repairers and non-VW franchised workshops
switched from independent distributors to the TPS channel, stock turn doubled and revenues rose by 37 per cent.
VW is not alone in experiencing problems of making the parts business viable – almost all parts distribution
networks are too dense to achieve scale and logistical efficiency. Most manufacturers advise they have one repair
contract per authorised repairer, in some markets numbering over 1,000 outlets against less than a 100 for an
express parcel delivery network in the same market. There is also the question of whether it makes sense to
manage repair and maintenance parts and crash repair parts through the same channels; the parts characteristics
physically and in respect of demand patterns are different, and in many markets the delivery points are also
different.
Planning the future network
Having examined changing customer behaviour and needs, at this stage it should be possible to consider what
future networks might look like, building on the various elements described, and responding to the pressures in the
market. As these vary by brand, a universal ‘one size fits all’ plan is unlikely to suit, so a spectrum of solutions is
anticipated, and these are only scenarios, rather than a suggestion that there are only a fixed set of outcomes.
Should networks be planned around retail or fleet customers?
Before considering what future networks should look like, it’s worth thinking about whether planning a network
around the retail customer – under half the total in some markets – makes sense. We considered the purchasing
process from deciding on the car, striking the deal and taking delivery, looking at how the flows vary in terms of
NSC and dealer involvement for different customer types. We concluded that although the level of dealer
involvement varies for some stages between, for example large fleets, SME fleets and true private buyers, in most
cases other than daily rental, the dealer network was fulfilling some role. It therefore makes no sense to provide
dedicated channels for different customer segments, when a channel to support private customer needs – whether
that is dealer-based or something else, can be used flexibly to also support large fleet and user chooser business.
This stage of research does not consider whether commercial arrangements to support this are equitable from the
dealer perspective.
Taking buyer behaviour into account
Summarising the drivers of change, and the implications for sales networks, it’s taken as a given that for current
players an omni-channel approach is needed. Most customers still want a dealership within 40 minutes’ drive time,
and no manufacturer is in a position to risk sales volume by reducing the network to a handful of flagship sites or
eliminating dealerships completely.
Sales network structure
The buying journey begins with online research for most customers – dealers are no longer the primary driver of
brand choice, being used only for final validation, deal negotiation and contract completion. To make the process
straightforward for the customer, the internet journey must therefore be integrated with the physical dealer
channel without creating a barrier to completion of the sale. However, as the role of the dealer is reduced, and a
40 minute travel time is considered acceptable by most, then the density of dealer networks can be reduced. As
our research has indicated that customers are inclined to be loyal, a tiered structure that provides the functions
most often needed by a customer relatively locally (i.e. within 40 minutes), but others more distant, should prove
acceptable to most.

In summary, the sales structure would follow the profile described on the right hand side of the diagram above, a
manufacturer-led omni-channel network, with a small core network, supported by additional points deployed in
areas of high footfall. These would be intended to create awareness and drive customers to the internet site at the
beginning of the purchasing process.
It is worthy of note that changes in structure and channel in other sectors have not happened at a pace dictated
solely by natural changes in customer behaviour. Taking airlines and banking as examples, customers have been
incentivised or penalised to drive acceptance of changes such as online check-in and online banking. Perhaps the
auto industry could also consider how some form of incentivisation might help it to lead rather than simply reflect
customer behaviour.
Repair and maintenance network structure
Similar thinking can be applied to repair and maintenance networks. Work volumes are reducing, and despite less
frequent visits, customers still want shorter journey times than they do for their purchase – so realistically, there is
little scope to reduce the density of service points from today’s level. With more intense competition for work, it
will be critical to improve customer retention through service plans, higher levels of customer service and the use
of telematics. This may still not be enough, so franchised repairers should be more open to attracting other brands
into their workshops to maintain scale. This also has the benefit of introducing a customer to the dealer, possibly
to the primary brand through the use of their courtesy cars, and therefore into considering that brand when they
repurchase.
With lower volumes and more complex products, not every authorised repairer can be expected to maintain the
diagnostic skills to fault find on the most sophisticated products in the range or to be able to repair every fault on
every model. A tiered structure may be more appropriate, the customer not necessarily needing to be aware that
their car is on occasion taken to a hub repair location for particular types of work. However, if total volumes are
down someone must lose out, leading to an overall reduction in the number of service points. In some areas and
for some brands, the customer’s only dealer service points within the target drive time would therefore be
operated by dealers of other brands.
Sales networks need to reflect – and could potentially lead – fast-changing buyer
behaviour whilst recognising the volume risk of being too distant for some buyers
9
Dealers are
not the
primary
driver of
choice
Internet
journey
must be
integrated
Physical
networks
must be
reduced
Customers
are
inclined to
be loyal
Tiered
structure
will be
required
Omni-channel approach needed
60% of customers want <40
minute sales drive time
Volume risks are unacceptable
Omni-Channel
• Manufacturer-led
• Handle start of most
customer journeys
• Sales close or
fulfilment through
physical network
Core Network
• Functional and/or
experiential
• Allied with service
points only where this
makes commercial and
logistical sense
Flexible Network
• Creating brand and
product awareness
• Deployed where and
when needed
Customer Behaviour
can be influenced!

In summary, a limited number of full function, full capability service points is foreseen, probably co-located with
sales points as ‘brand centres’. These would also provide full bodyshop capability, including the use of advanced
techniques and materials, plus regional wholesale parts distribution responsibility. Beneath these would be the
familiar brand-focused workshops with capability to handle 80 to 90 per cent of mechanical or crash repair needs
on site. Where the facility already exists and needs to fill current capacity, multi-brand activities would maintain
workshop throughput. At a level below this would be authorised repairers required to be integrated with customer
and vehicle databases, and using a manufacturer-managed OE parts inventory. These ARs would likely be multi-
brand, but where owned by other network partners the model would be of a low-overhead, technician-managed
site, applying the principles described earlier from Chevrolet in Brazil.
Network differentiation of volume and premium brands
By necessity, the structure of future networks will differ between volume, premium and growth brands, due largely
to margin and investment considerations for the first two, and network and existing parc differences for growth
brands.
Volume brands
There is intense competition in the volume segment, from traditional competitors and potentially in the future from
additional Chinese entrants. The key constraints are the risk of volume loss through brand-switching and the
inability to fund large-scale change. Networks are too large and over-invested for current needs, and are generally
independently owned, with some local and brand variations. The biggest problem is over-supply, European
factories largely dedicated to supplying European markets leading to price-based competition and a push supply
chain.
The parc is decreasing and ageing due to a progressive loss of market share, causing intense pressure on
aftersales, and there is a high risk that a short term focus by manufacturers and/or dealers on volume will result in
a ‘race to the bottom’ on prices. If any one of them follows this route, others will be obliged to follow. There is
however a possibility that distinctive sub-brands within the general ‘volume’ label – for example sporting or EV
Repair and Maintenance networks need to adapt to lower volumes
10
Customers
still want
local
service
Service
network
density
little
changed
Improved
retention &
multibrand
to maintain
workload
Tiered
structure
of skills
and
investment
Reduced
number of
service
points in
market
Volumes down ~20% this decade
60% of customers want <30
minute service drive time
Service contracts increasing
Brand Centre
• “Master technicians”
• Full bodyshop
• Regional parts
distribution
Local Service
• Service and regular
diagnostics
• Smart body repair
• Multibrand
Authorised Repairer
• Service and routine
repair - multibrand
• Technician-managed –
light overhead
• Integrated with CRM
and vehicle databases
• VMI OE parts supply
as franchise condition

models – could follow a different distribution model.
Because of the existing investment by dealers in large networks, and the limited financial resources available to the
volume manufacturers, it seems unlikely that the future model can move totally away from the dealer-based
model, unless as a consequence of a GM Chapter 11 type restructuring. The pressure on volumes – and therefore
prices – coupled with customers’ perceived lack of differentiation between the volume brands suggests that it will
be necessary to move to an agency model to protect pricing. In summary, the picture could look something like
this:
 Perhaps 20 per cent of today’s dealers will become full-function brand centres
 A full online channel will exist, capable of going all the way through to a confirmed contract
 Independent dealers will operate the network, including full responsibility for used car sales and aftersales
business, but new car sales will be based on an agency model
 A range of support services, including some which would today be centralised or in NSC regional offices, will
be situated at brand centre level.
Each of these areas is examined in more detail below.
Main dealers as brand centres
In some cases the dealer would be encouraged or incentivised to relocate within their region. For example, in the
Frankfurt area there might only be one brand centre on the southwest of the city, which would cover Frankfurt
itself plus a number of ‘qualifying cities’ including Mainz, Wiesbaden, Offenbach, and Darmstadt, each of which is
also over 100,000 population. Brand centres would offer the full range of services, although not necessarily on the
same site. They would form the hub in a hub and spoke system of service locations and smaller sales support
sites, e.g. in shopping malls.
Full online capability
In the future, it is envisaged that in addition to web sites and other forms of digital presence to provide product
information and support, volume brands will need the capability to complete sales online. Customers would be
For volume brands we anticipate that a largely dealer-based model will continue,
but using agency terms, and with a manufacturer managed full online capability
11
Volume Brands
Much reduced number of main dealers – “brand centres”
• 30-60 in major markets – 2,000 new cars each p.a. minimum
• Serving multiple cities of 100,000+ population plus surrounding area
• Based around existing major dealer sites if in appropriate locations, in
order to limit disruption and maintain continuity – site may be
manufacturer-owned or controlled
• Sales (new and used), full range of repair and maintenance, including
bodyshop – need not be co-located – need to be low cost/multibrand
• Regional trade parts distribution
• Linked to local network of authorised repairers – independently or
directly owned – to provide more local service and sales support
(could include independent chains)

offered the tools to do more at home via Audi City type functionality with configurators that are easy to use with
smart TVs, tablets and other devices. Fulfilment would be from a restricted offer of high volume specifications, to
minimise the risk of the customer making a selection that they subsequently reject or feel dissatisfied with. This
also provides a reason for customers to visit the dealership to purchase more tailored specifications with
appropriate advice. Offers would be differentiated from the regular offer through bundling of finance, options and
services, allowing the commitment to be expressed in € per month rather than a large capital outlay, and making
direct price comparisons with other channels and other brands more difficult.
Moving to an agency model
Adoption of the agency model would show big movements in turnover and inventory in the accounts during the
transition period, with possible implications for funding lines and the external perception of the manufacturer’s and
dealer’s financial position. Dealers would have the opportunity to earn additional profit over and above the agency
fee through upselling of services, bonuses, used cars and aftersales.
Moving to the agency model would limit the ability of the manufacturer to manipulate period end results through
the wholesaling of cars to dealers. However, this could prove positive by making the manufacturers more market
focused and requiring them to incentivise consumer demand rather than dealer wholesale.
Support services based at brand centres
Each brand centre would become a regional hub – a true market area operator with the scale to support a 24/7
call centre, while retaining the benefits of local knowledge. Moving activities currently hosted in the regional NSC
office into the brand centre would leave only the largest national and international fleets with the manufacturer.
12
Volume Brands
Dealer-based, agency model
•Agency model provides pricing control, but major culture change
•Retaining dealer ownership/operation reduces new capital requirement
• Retention of major dealers significantly reduces new network
investment and reduces compensation claims where relevant
• Agency enables manufacturer control of pricing to avoid price erosion
in mixed internet/physical channel
• Limitations on pricing at dealership move emphasis for margin
improvement to accessories and services
• For manufacturer, transfer of sale recognition from “pass to sales” to
retail results in one-off sales/profit deferment, but more importantly
the loss of flexibility to influence period sales through stock push

Premium brands
The position for premium brands differs from that of volume brands; physical networks should be more about
longer term brand-building, as margins generally remain higher and dealers are still prepared to invest in the
facilities and standards needed to offer the customer a premium experience. Customer needs are different to those
of volume customers. They are prepared to pay for service and for an experience, as long as they perceive the
added value, whether it be time saved, convenience or simply the feel-good factor that comes from owning a
premium brand car. It is worth keeping in mind though that this willingness to pay more may drop off rapidly with
the second and third owners, who may value a premium car more for its superior engineering rather than any
emotional reward.
Evolution, not revolution
On the basis of these assumptions, the change for premium networks would be more evolutionary, being focused
on a significantly smaller and more capable dealer network and working with the VM to promote the brand values.
This is a process that can be seen to be already underway compared to the volume brands. A very significant
reduction in the number of dealers is still probable, but tempered by a more systematic use of experience centres,
and a major effort to extend the premium experience into the digital world to build long term brand loyalty. The
dealer model would remain much as today, with a margin based system and qualitative bonuses, as the interests
of manufacturer and dealer should be aligned in terms of upselling options and services and providing a premium
experience – though this is not always the case in practice today . The smaller number of dealers would provide
support services, but centrally coordinated to ensure that the customer experience was seamless regardless of
location and channel.
Fewer dealers and experience centres
Premium dealers would support larger territories, but with similar volumes to their volume brand counterparts.
There would then be a small number of brand experience centres designed to encourage customers and prospects
for the brand to visit at periods other than when they were shopping for a new car, through events and activities
which provided the excuse or trigger for a visit.
13
Volume Brands
Support services based at “brand centre” locations
• Operation of secondary network, mall outlets, mobile pop-ups, etc.
• Regional call centre, NSC activities, parts regional distribution, etc.
• Manages all market area activities at their discretion, including
secondary outlets (could be former dealers or shopping mall outlets),
pop-ups
• Regional customer contact centre for website support, inbound and
outbound calling, livechat and email – leverage local knowledge
• Take on remaining role of regional NSC offices including local fleets
• Manage local test drive fleet, directly and through daily rental and car
club locations
• Coordination of local authorised repairers including CRM integration

As today, some dealers may be manufacturer-owned, and unless shrinking margins and increasing demands from
manufacturers result in a further shift away from dealer investors, there seems little reason for this to change,
given the financial demands that this would place on the manufacturers.
The premium online experience
For a premium brand, the online experience should be about much more than simply providing product
information.
Given that the customer will most likely keep their car for three years and within that time may only require two
service visits, the online world is a great opportunity to keep the customer involved with the brand. Some possible
ideas include:
For premium brands, physical networks should arguably be more about longer term
brand-building, with technology in support of a more personal service
14
Selected experience centres, reduced number of dealers
• 3-5 centres in major markets, supported by ~ 20 dealers
• Regional coverage, leverage home/office visits and concierge services
• Small number of experience centres communicate and demonstrate
brand values, e.g. heritage, high performance capabilities, technology
• Manufacturer or independently-owned dealers leverage the
experience centres, and have broad geographical coverage
• Systematic and open approach to offering home/office visits to
discuss new requirements, offer test drives, valuation, etc. Respect
the customer’s time and demonstrate how customer is valued
• Concierge services to arrange collection and delivery of vehicles for
service, test drive vehicles, etc.
Premium Brands
15
• Product information, stock locater, etc. as for volume brands – “the
basics”
• Brand news, events and promotions – maintaining a continuing
interest for owners and prospectives to visit
• Sophisticated “Audi City for the home” configurator for personal use
• Downloadable apps and options, including vehicle upgrades and
service options, e.g. winter tyre deals
• Telematics-driven support for vehicle usage information, service
requirements
Premium Brands
Premium Online Experience
• Manufacturer managed, supported by the network
• Deepen the customer relationship using online channels

 For a brand with a motorsport team, use the web site to broadcast races with exclusive in-car coverage,
team interview, etc.
 If a brand participates in an endurance event, use the web site to provide progress reports and the
opportunity to experience the sensation of riding in the cars across difficult terrain
 When a product is launched to the press or at a motor show, include a live link that allows loyal customers
to participate
 Publish interviews with senior executives and designers which explain or comment on new developments
 Make the press pack and photos downloadable by customers and prospects.
Today we are not even scratching the surface of what could be done to maintain an interest and enthusiasm for
the brand in the digital world. For example, Audi City type configurators for the home could be supported by live
chat with an online adviser to talk a prospective customer through the options in real time. With the customer’s
permission, the use of telematics are another way to enhance the premium ownership experience, anticipating
requirements before the customer recognises the need. This development has been imminent for a long time – we
believe it will become common place within the next couple years.
Combine local relationships with central coordination
We believe that the primary responsibility for the customer relationship with the brand should be at the dealer
level – albeit the remaining dealers will be covering larger areas than today – but depend heavily on centrally
managed data and back-up on some services from the centre. This is not dissimilar to the service offered by some
premium banking services – still mass market, but with the opportunity to speak to a personal account manager,
who is familiar with your needs and expectations. Whilst regional centres could economically provide extended
hours coverage, the centre can handle the 24x7 support for alerts such as e-call and b-call, passing the
information back to the dealer for subsequent follow-up.
Growth brands
For growth brands such as Hyundai and Kia, the starting point is different to that for volume brands due to their
comparative network and parc positions. Dealers are not over-invested in the same way, and volume growth will
continue to drive up sales per dealer and aftersales volumes. The key will be to maintain the insistent push for
16
Support services kept local, with central coordination
• Primary customer contact through local experience centre/dealer
• Central coordination ensures common data and out-of-hours coverage
• , etc.
• Drive towards personal account manager approach with each dealer
managing a local “account team” – single point of contact for each
customer
• Local approach ensures that the customer feels that the experience is
more personal – recognition of local dialects, traffic patterns, etc. –
less scripted (Ritz Carlton type experience – process + personal)
• Integrated manufacturer/dealer customer and vehicle data ensures
seamless handover for customers when needed, e.g. e-call, b-call
Premium Brands

growth without expanding networks at the same or a faster rate, overtaken by changing customer behaviour.
However, growth brands will have to respond to innovation by established volume competitors as the target
customer is the same for both. Growth brands typically choose not to be innovators, and there is a strong HQ
influence on decision making by overseas branches, which inevitably adds an additional dynamic to the pace and
direction of change.
Our scenario for growth brands is summarised in the diagram below, beginning by avoiding the temptation to add
more dealers in pursuit of volume. Where additional service points or sales support points are required to fill in
gaps in geographical coverage, multi-branding including the use of reputable independent repairer groups would
be a better option. Brand awareness, although growing, is relatively low compared to volume brands, so there is a
higher risk of growth brands not being considered when the customer starts their online research. This suggests
placing greater emphasis on initiatives such as tailored online advertisements and links on third party sites to divert
a customer researching volume brands to consider the alternative of a growth brand.
Summary
There do not appear to be any signs of relief from the financial pressures on the distribution system, nor any
reversal of the customer behaviour trends which have been underway for three or four years now. Change in
future networks of all types appears to be inevitable, but this will evolve as a result of growing pressure, rather
than an overnight change. The transition issues will also force even the most fundamental changes – such as a
move to agency for volume brands – to be phased in rather than switched across the entire network and model
range simultaneously.
Planning for change – start now!
Not all consumers or markets are moving at the same pace, and major financial barriers involving many individual
stakeholders will need to be overcome. Nevertheless, the timescale is more likely to be five to ten years rather
than decades, and changes happening today suggest that the clock is already ticking.
Growth brands differ from volume mainly in respect of the smaller current networks
and different aftersales opportunity
17
Maintain dealer network at current level, improve quality
• Current network, if maintained with growth, will “right size” with time
• Leverage multibranding – including use of IR service (e.g. Daewoo UK)
Limited Online Capability
• Primary focus on awareness generation and brand switching
• Fulfilment capability for differentiated offer – avoid “race to bottom”
Dealer-based, margin model with quantitative bonuses
• Growth remains important, and must be incentivised
• Limited online offer and network size reduces intra-brand competition
Combination of dealer and central support
• Common access to single customer and vehicle records important to all
• Local dealer programmes supported by manufacturer campaigns
Growth Brands

There will be more variety in networks in the future, partly as a result of different brand needs and financial
returns, but also due to the wide variation in the current ability of manufacturers and networks to move forward.
However, an adverse position can be a driver of change, so the best performing brands and networks today will
not necessarily be the ones to achieve the greatest change over the next decade.
All manufacturers and dealers should be thinking now about the future model, even while today’s network model
fulfils its basic function of supporting the sales and service of cars.
Here are some reasons why:
 Investments today are typically justified on the basis of a five or ten year amortisation. Property assets are
treated as a safe bet that can act as a pension fund in the future. The changes discussed will happen within
that five or ten year period, creating the potential for write-downs in investment and the collapse of property
values
 The P&L and balance sheet effects and funding needs of a change from margin to agency will involve
movements of billions of Euros. If these changes are phased in for example with model changes, then the
transition would take the length of a model cycle to cover the entire product portfolio – perhaps 7 or 8 years
 The lack of people skills is a major weakness in today’s business model, and tomorrow’s model will be more
demanding. Recruiting talent and training and developing existing staff is a multi-year task, and the whole
industry will be making similar efforts in parallel. Those who leave it too late may find they are picking up
other people’s rejects.
Together these factors make clear that manufacturers and dealers need to plan now for a very different future,
even while having to fight hard for every sale and every service hour in some of the toughest markets ever seen.
Although the current model still functions, all players should be planning for change
now, even whilst there is pressure to focus on today’s business pressures
18
Need to
plan for
the future
Investment horizons
used today will be
overtaken by the
pace of change
Changes from margin
to agency schemes
need to be phased in
– years not months
Recruitment and
development of
appropriate skills is a
multi-year effort

ICDP is an international research-based organisation focused on automotive distribution, including the supply and retailing of new and used vehicles,
after sales, network structures and operations. Through our research activities, data services, education, events and consulting, we work with vehicle
makers, dealers, suppliers, and related organisations to improve the quality and effectiveness of the distribution model. We believe that changing
behaviours, new technologies and market pressures will combine to drive new ways of doing business. We welcome the opportunity to work with
like-minded individuals and organisations in pursuit of this goal.
Project Office: 5, The Hen House, Oldwich Lane West, Chadwick End, Solihull, B93 0BJ, UK
Tel.: + 44 (0) 1564 784200 Fax.: + 44 (0)1564 782555 E-mail: projectoffice@icdp.net Web: www.icdp.net
ICDP is a limited company registered in the UK, no. 2860398.
ICDP does not represent any of its members or their individual policy views. All requests to reproduce this material should be directed to the address above.
Change Ahead
Knowing where to start can be one of the biggest challenges facing a business that needs to change, so in
concluding this briefing, here are three suggestions for initial areas to review and act upon.
 Continuously refresh your understanding of your customers’ buying behaviours – they are changing very
quickly, so accepted thinking may be wrong
 Evaluate how well your current business model (and planned changes) will satisfy current and emerging
needs. Can your existing resources (facilities, contracts, systems, processes, people) deliver what the
customers will be looking for? Do you have capabilities on which you are spending or planning to invest that
will be needed less or not at all in the future?
 Consider the changes required and how long the implementation will take – it is likely that at least in some
areas, the first steps should already have been taken.

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