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Business Scenarios for
         Automotive Dealers in Europe

                        Leonardo Buzzavo,
              University of Venice - Quintegia / Italy
                  ROAD Conference - Moscow, 27.8.2008


Leonardo Buzzavo - Moscow - 27.8.2008                    1
Studying the automotive industry

      Research team at the University of Venice




      International research network



                                        Since 1994

Leonardo Buzzavo - Moscow - 27.8.2008                2
Projects developed




Leonardo Buzzavo - Moscow - 27.8.2008   3
Automotive Dealer Day

      Verona, 6th year, in May
      Information, strategies and tools for players of
      automotive distribution


      25 workshops (Italian + English)
      Area expo with 50 businesses
      2,000 participants

Leonardo Buzzavo - Moscow - 27.8.2008                    4
Dealer networks
   worldwide

      Now 100 years old in Europe and USA

      USA: homogeneity and relative strength
      Japan: ‘original’ approach
      Europe: high internal differentiation

      Other countries evolving
        – Brazil, and then Russia, India and China


Leonardo Buzzavo - Moscow - 27.8.2008                5
Trend in dealers and sales outlets
    120000

    100000                                      -30%

     80000
                             -29%
                                                                                -10%
     60000
                                                                    -6%
     40000

     20000

            0
                          Dealers       Sales outlets          Dealers    Sales outlets
Source: European Car
Distribution Handbook /                     1997        2002    2007
NADA
                                          = Change 1997-2007

Leonardo Buzzavo - Moscow - 27.8.2008                                                     66
Growing importance of
                    Dealer Satisfaction

      Total automotive performance is a combination of
        – Manufacturer performance
        – Dealer network performance
      Dealer satisfaction has become as important as customer
      satisfaction
      Manufacturers paying more attention

      Monitoring activity developed by Quintegia in Italy since
      2004



Leonardo Buzzavo - Moscow - 27.8.2008                             7
(Italy)
           Dealers participating           Manufacturers
        (questionnaires): now >30%        purchasing report




            2004 2005 2006 2007 2008    2004   2005   2006   2007



Leonardo Buzzavo - Moscow - 27.8.2008                               8
Overall ranking
                                        2008 - Top10 Italy




Leonardo Buzzavo - Moscow - 27.8.2008                        9
Regulation for Dealer-
    Manufacturer Franchise Contracts
                 in EU
       Block Exemption Regulation (BER) created in
       1985
        – To discipline contracts and limit anti-competitive
          practices to stimulate free market competition
       Renewed in 1995
        – Small changes, mainly to favour multi-branding and
          opening of parts markets
       Renewed in 2002
        – Greater changes, to stimulate more competition
                E.g. freedom of additional outlets anywhere in Europe
       Expiring in 2010
Leonardo Buzzavo - Moscow - 27.8.2008                                    10
Prospects for 2010
       Industry situation:
        – Intra-brand and inter-brand competition is high
        – Price differentials have reduced over time
       So, there is less need for Competition authority to adopt a
       “strong medicine”

       We are likely to see
        – General regulation (common for all industries)
        – More delegation to authorities of national states
        – More different choices by individual manufacturers




Leonardo Buzzavo - Moscow - 27.8.2008                                11
Market share of Top25 Dealers

                      35
                      30
   Market share (%)




                      25
                      20
                      15
                      10
                       5
                       0
                           USA       UK     FRA    GER      SPA   ITA   NED
                                            2001   2003   2006
           Source: ICDP (2007), Quintegia


Leonardo Buzzavo - Moscow - 27.8.2008                                         12
Performance indicators:
               example of best practices
       Vehicles sold with finance              50%
       Gross profit from sources other
       than new+used cars                      50%
       Ratio of used/new cars sold             1:1
       Used car stock turn                     10x
       Customer follow-up                      100%


       Dealers becoming more concerned with KPI (Key
       Performance Indicators) and benchmarks

Leonardo Buzzavo - Moscow - 27.8.2008                  13
Automotive Dealers




                      Which main trends are
                  influencing dealer evolution?




Leonardo Buzzavo - Moscow - 27.8.2008             14
1.      More manufacturer control
       Structural standards
                                                              Variable
       Operational standards                                  margins
       Business Management



        Dealer response / focus:

                    - Conflicts between dealers and manufacturers
                    - Development of businesses outside new cars


Leonardo Buzzavo - Moscow - 27.8.2008                                    15
2.      Broader business mix
       Extended services
       Used cars
       Finance and insurance (F&I)



        Dealer response / focus:

           - Find the right providers and establish business relationships
                       - Develop competences and processes


Leonardo Buzzavo - Moscow - 27.8.2008                                        16
3.      Multi-branding
       To complete the portfolio of offering
        – Model mix
       To reduce the overall risk of the company




        Dealer response / focus:


                       - Exploit synergies across different brands



Leonardo Buzzavo - Moscow - 27.8.2008                                17
4.      Business management
       Managing by numbers
        – Fast
        – Accurate
        – Relevant for decisions



        Dealer response / focus:

                     - Develop adequate decision-support systems
                                - Develop competences


Leonardo Buzzavo - Moscow - 27.8.2008                              18
5.     Customer focus
       More attention to customer needs and segments
       Greater focus on customer satisfaction and loyalty




        Dealer response / focus:

                         - Develop appropriate databases
              - Develop customer research and information technology


Leonardo Buzzavo - Moscow - 27.8.2008                                  19
6.      Organization / human
                            resources
       Managing larger and more complex organizations
        – multi-brand
        – multi-business
        – multi-site



        Dealer response / focus:

              - Human resource focus (selection / training / incentives)
                   - Focus on lean processes (reducing waste)


Leonardo Buzzavo - Moscow - 27.8.2008                                      20
Key points and perspectives
       When markets become saturated dealer-
       manufacturer conflicts become critical
        – Particularly when dealer density is high
       Dealer business highly entrepreneurial
        – Manufacturer-owned dealers not a solution
       Scale economies are lower than other industries
        – Limited advantages in buying power
       Distribution is a capital-intensive industry
        – Importance of lean processes

Leonardo Buzzavo - Moscow - 27.8.2008                    21
Change over time




Leonardo Buzzavo - Moscow - 27.8.2008       22
Business Scenarios for
         Automotive Dealers in Europe

                        Leonardo Buzzavo,
              University of Venice - Quintegia / Italy
                  ROAD Conference - Moscow, 27.8.2008


Leonardo Buzzavo - Moscow - 27.8.2008                    23

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Quintegia buzzavo eng

  • 1. Business Scenarios for Automotive Dealers in Europe Leonardo Buzzavo, University of Venice - Quintegia / Italy ROAD Conference - Moscow, 27.8.2008 Leonardo Buzzavo - Moscow - 27.8.2008 1
  • 2. Studying the automotive industry Research team at the University of Venice International research network Since 1994 Leonardo Buzzavo - Moscow - 27.8.2008 2
  • 3. Projects developed Leonardo Buzzavo - Moscow - 27.8.2008 3
  • 4. Automotive Dealer Day Verona, 6th year, in May Information, strategies and tools for players of automotive distribution 25 workshops (Italian + English) Area expo with 50 businesses 2,000 participants Leonardo Buzzavo - Moscow - 27.8.2008 4
  • 5. Dealer networks worldwide Now 100 years old in Europe and USA USA: homogeneity and relative strength Japan: ‘original’ approach Europe: high internal differentiation Other countries evolving – Brazil, and then Russia, India and China Leonardo Buzzavo - Moscow - 27.8.2008 5
  • 6. Trend in dealers and sales outlets 120000 100000 -30% 80000 -29% -10% 60000 -6% 40000 20000 0 Dealers Sales outlets Dealers Sales outlets Source: European Car Distribution Handbook / 1997 2002 2007 NADA = Change 1997-2007 Leonardo Buzzavo - Moscow - 27.8.2008 66
  • 7. Growing importance of Dealer Satisfaction Total automotive performance is a combination of – Manufacturer performance – Dealer network performance Dealer satisfaction has become as important as customer satisfaction Manufacturers paying more attention Monitoring activity developed by Quintegia in Italy since 2004 Leonardo Buzzavo - Moscow - 27.8.2008 7
  • 8. (Italy) Dealers participating Manufacturers (questionnaires): now >30% purchasing report 2004 2005 2006 2007 2008 2004 2005 2006 2007 Leonardo Buzzavo - Moscow - 27.8.2008 8
  • 9. Overall ranking 2008 - Top10 Italy Leonardo Buzzavo - Moscow - 27.8.2008 9
  • 10. Regulation for Dealer- Manufacturer Franchise Contracts in EU Block Exemption Regulation (BER) created in 1985 – To discipline contracts and limit anti-competitive practices to stimulate free market competition Renewed in 1995 – Small changes, mainly to favour multi-branding and opening of parts markets Renewed in 2002 – Greater changes, to stimulate more competition  E.g. freedom of additional outlets anywhere in Europe Expiring in 2010 Leonardo Buzzavo - Moscow - 27.8.2008 10
  • 11. Prospects for 2010 Industry situation: – Intra-brand and inter-brand competition is high – Price differentials have reduced over time So, there is less need for Competition authority to adopt a “strong medicine” We are likely to see – General regulation (common for all industries) – More delegation to authorities of national states – More different choices by individual manufacturers Leonardo Buzzavo - Moscow - 27.8.2008 11
  • 12. Market share of Top25 Dealers 35 30 Market share (%) 25 20 15 10 5 0 USA UK FRA GER SPA ITA NED 2001 2003 2006 Source: ICDP (2007), Quintegia Leonardo Buzzavo - Moscow - 27.8.2008 12
  • 13. Performance indicators: example of best practices Vehicles sold with finance 50% Gross profit from sources other than new+used cars 50% Ratio of used/new cars sold 1:1 Used car stock turn 10x Customer follow-up 100% Dealers becoming more concerned with KPI (Key Performance Indicators) and benchmarks Leonardo Buzzavo - Moscow - 27.8.2008 13
  • 14. Automotive Dealers Which main trends are influencing dealer evolution? Leonardo Buzzavo - Moscow - 27.8.2008 14
  • 15. 1. More manufacturer control Structural standards Variable Operational standards margins Business Management Dealer response / focus: - Conflicts between dealers and manufacturers - Development of businesses outside new cars Leonardo Buzzavo - Moscow - 27.8.2008 15
  • 16. 2. Broader business mix Extended services Used cars Finance and insurance (F&I) Dealer response / focus: - Find the right providers and establish business relationships - Develop competences and processes Leonardo Buzzavo - Moscow - 27.8.2008 16
  • 17. 3. Multi-branding To complete the portfolio of offering – Model mix To reduce the overall risk of the company Dealer response / focus: - Exploit synergies across different brands Leonardo Buzzavo - Moscow - 27.8.2008 17
  • 18. 4. Business management Managing by numbers – Fast – Accurate – Relevant for decisions Dealer response / focus: - Develop adequate decision-support systems - Develop competences Leonardo Buzzavo - Moscow - 27.8.2008 18
  • 19. 5. Customer focus More attention to customer needs and segments Greater focus on customer satisfaction and loyalty Dealer response / focus: - Develop appropriate databases - Develop customer research and information technology Leonardo Buzzavo - Moscow - 27.8.2008 19
  • 20. 6. Organization / human resources Managing larger and more complex organizations – multi-brand – multi-business – multi-site Dealer response / focus: - Human resource focus (selection / training / incentives) - Focus on lean processes (reducing waste) Leonardo Buzzavo - Moscow - 27.8.2008 20
  • 21. Key points and perspectives When markets become saturated dealer- manufacturer conflicts become critical – Particularly when dealer density is high Dealer business highly entrepreneurial – Manufacturer-owned dealers not a solution Scale economies are lower than other industries – Limited advantages in buying power Distribution is a capital-intensive industry – Importance of lean processes Leonardo Buzzavo - Moscow - 27.8.2008 21
  • 22. Change over time Leonardo Buzzavo - Moscow - 27.8.2008 22
  • 23. Business Scenarios for Automotive Dealers in Europe Leonardo Buzzavo, University of Venice - Quintegia / Italy ROAD Conference - Moscow, 27.8.2008 Leonardo Buzzavo - Moscow - 27.8.2008 23