AS THE sun rises on a new week and the dust of panicked responses and kneejerk reactions settles around the decision to close down Holden car retailing, the time has come for sober assessment in Holden dealerships as to what it means for the future of the 200 Holden businesses operating in Australia and New Zealand today.
The first priority is to get with Holden (GM) to negotiate an exit package for which GM says it has allocated $US1.1 billion dollars for Australia and New Zealand (although it includes Thailand as well).
If General Motors is to be believed and if GM takes the same view of compensation as it took when it closed the Opel brand in Australia (see below), then dealers should be mostly satisfied.
Opel dealers acknowledge that they “did very well” from the sudden departure of what was then GM’s German brand and this is bound to be held up by dealers as the benchmark for the discussions.
The second priority is to assess what the Holden dealership looks like without new-vehicle sales. One dealer told his staff that they have been left with the “profitable part of the Holden business” and are shedding the hard and unprofitable bit: selling new Holdens.
In terms of staff cuts, the near-term damage is limited to new-car sales personnel.
The third strategy, for dealers with other brands to sell, is to look at their new-car customer base and make sure these customers understand their next car can come from one of the other nameplates within their brand portfolio. A customer event to highlight the total brand and product portfolio of the business might prove worthwhile.
The fourth priority is to develop strategies on how to keep current Holden service customers and get an increased share of the 1.6 million Holdens on the road. There appears to be merit for astute dealers to set up as used-car and service specialists for Holden (see below).
The fifth priority is to look at finding another franchise for the dealership. While there is never a good time for these things to happen, now is a good time to be looking for a promising new franchise.
Chinese brands have a foothold in Australia and are keen to grow. The network development managers of those brands (MG, Haval, Great Wall, LDV) probably cannot believe their luck that 200 showrooms run by some of the most experienced dealers in Australasia are becoming available. You can throw in SsangYong which is setting itself up for strong growth in this market as well.
These Holden showrooms are well located and well known and these new brands are not as picky as Holden has been about costly premises designs. So a switch could no doubt be achieved in a cost-effective manner.
In addition, network development managers from all other brands will be studying the Holden network for more ideal locations than they have at present. Some dealers can expect a knock on the door in the coming weeks.
If anything, GM’s decision allows dealers to make better use of their Holden showrooms. As Holden share dropped to four per cent, it became obvious to many dealers that their Holden premises were taking up far too much of dealership showroom space for a brand generating such a low market share.
Many dealers found themselves battling Holden management which was stonewalling attempts to bring in other brands or expand other brands into some of the ‘Holden space’. Holden was resisting reduction in Holden space because as little as 18 months ago management was telling dealers they would be returning to 10 per cent market share.
So for some dealers they are now free to increase the allocation of space for some of their more successful brands or hand over entire Holden showrooms for their more successful sellers.
Dealer compensation
In the immediate backwash of the GM announcement, there was a lot of heat in many of the comments.
As one dealer told GoAutoMedia: “This has class action written all over it.”
But that was the same mood when in 2013 GM closed its Opel dealership operations in Australia after a very short time of trading.
GM has said it has allocated $US1.1 billion for the costs associated with closing Australia, New Zealand and Thailand and the vast majority of that will no doubt be for Australia (given that GM sold the Thai plant as a going concern).
And when GM closed Opel, many Opel dealers’ claims amounted to between $2 million and $3 million, including investments in new dealership premises exclusively designed for Opel at Opel’s insistence. Opel paid for them in total.
Dealers heaped praise on the company and many dealers contacted by GoAuto said they came out of the episode unscathed.
One dealer said: “I think the way it was resolved was unprecedented. There is no other car company that would have done what they did. But I think if they had not done it that way they would have been facing a class action. I think they knew that.”
The various settlements included covering trading losses made in getting sales momentum for the brand, handing over the service tools and spare parts at no cost, allowing dealers to hand back cars to clear their floorplan finance accounts for Opel stock and generous compensation of premises costs which covered most or all the cost of the buildings, furniture, signage and fittings.
Dealers were also offered stock still held by Opel at an average trading bonus of $7000 a car.
It remains to be seen what Holden will do about goodwill losses.
Because Holden has been a mainstream franchise a lot of the dealers have paid very large sums of money for goodwill when buying dealerships. For example, dealers are known to have paid $2 million in goodwill for key Holden dealerships just a year ago.
One industry analyst said that AP Eagers would have in excess of $100 million in goodwill for the Holden dealerships it owns.
Other issues that will need to be addressed will be loss of rent until dealers can find a new brand tenant and losses incurred in helping GM clear its vehicle stock.
So those talks with GM will be interesting.
One point being made is that because GM has chosen to discuss each claim from dealers on an individual and confidential basis, it may be necessary for the dealers to launch a class action so that the court can quantify the losses and ensure that all factors are considered for all dealers across the entire network.
Opportunities in service and used cars
Holden has bequeathed its present dealer network with 1.6 million potential customers and will guarantee dealers will have parts support for a decade.
This has led KPMG Motor Industry Services director Wayne Pearson to conclude that the biggest opportunity for Holden dealers is to “become the biggest independent Holden used-car and service operator in town and make hay for the next 10 years”.
Mr Pearson said that once Holden is out of the picture, dealers would be able to run their own race in used cars and service without looking over their shoulders at the factory.
“With used cars the dealers control what cars come into stock and are not subject to the massive pressure from the factory to register cars without owners to meet targets,” he said.
Mr Pearson said dealers should look at a high-volume used-car operation on lower margins where they get known for quality stock at very fair prices offering warranties not available in a private sale from the internet.
“With good stock choice and sharp prices they could achieve velocity,” he said.
“A Holden used-car specialist with massive Holden service capability would be a goldmine.
“This is especially the case for a dealer who has multiple Holden dealerships.
“Just shut the new-car sales outlets. Try to build a massive Holden service business because there is huge money to be made in that in the next 10 years because there is no expectation for Holden dealers to be running a loss-making new-car sales business anymore.
“There is no expectation to take cars that are not selling, no expectation to carry stock beyond the natural market demand and no expectation to carry expensive salespeople on overcapitalised premises
“There are going to be plenty of Holden used cars around for a long time. GM would be happy because the brand is being supported and parts are being sold.
“This is the Holden silver lining to the astute dealer. But to do that they need to get fair dinkum about the business of servicing. It is not going to be the thing that sits out the back of the dealership anymore.
“It will be the entire focus of the business. It will be all they do. And selling quality used Holdens at volume because of their value (at low margins) will be the activity that lines up their service customers for them.”
Mr Pearson said it would be essential to get hold of mailing lists of Holden service customers as well as focusing on the CRM of their Holden service customers.
“They can divert all the attention they have paid to marketing the dealership as a new-car operation into taking on the local independents and become extremely good at service marketing to make sure that their hoists are fully booked every day,” he said.
“And those Holden dealers who take this on, and throw all the customer recruitment, customer retention and customer management tools at this, will steal a march on the rest of the network.
“Their future is to become an exceptionally efficient, highly customer-centric, CRM-driven service operator running an exceptionally profitable workshop operation. You still have your parts business that will last 10 years and parts beyond that will be available through recycling and additive manufacturing.
“They need to get out of the car sales business and into the car service business in a proper manner. But they need to look in detail at their service operations so they really get their processes right.
“You can’t keep the cars all day. It has to be while you wait. You can sell the service packages online so you don’t need frontline service staff. There is a whole way of doing this in a cost-effective manner and the smart guy, especially if he gets his hands on the mailing lists, could end up controlling their whole market.”
By John Mellor on 20th February 2020 Comment, Free Access Articles General Motors, Holden, Holden Exit
The first priority is to get with Holden (GM) to negotiate an exit package for which GM says it has allocated $US1.1 billion dollars for Australia and New Zealand (although it includes Thailand as well).
If General Motors is to be believed and if GM takes the same view of compensation as it took when it closed the Opel brand in Australia (see below), then dealers should be mostly satisfied.
Opel dealers acknowledge that they “did very well” from the sudden departure of what was then GM’s German brand and this is bound to be held up by dealers as the benchmark for the discussions.
The second priority is to assess what the Holden dealership looks like without new-vehicle sales. One dealer told his staff that they have been left with the “profitable part of the Holden business” and are shedding the hard and unprofitable bit: selling new Holdens.
In terms of staff cuts, the near-term damage is limited to new-car sales personnel.
The third strategy, for dealers with other brands to sell, is to look at their new-car customer base and make sure these customers understand their next car can come from one of the other nameplates within their brand portfolio. A customer event to highlight the total brand and product portfolio of the business might prove worthwhile.
The fourth priority is to develop strategies on how to keep current Holden service customers and get an increased share of the 1.6 million Holdens on the road. There appears to be merit for astute dealers to set up as used-car and service specialists for Holden (see below).
The fifth priority is to look at finding another franchise for the dealership. While there is never a good time for these things to happen, now is a good time to be looking for a promising new franchise.
Chinese brands have a foothold in Australia and are keen to grow. The network development managers of those brands (MG, Haval, Great Wall, LDV) probably cannot believe their luck that 200 showrooms run by some of the most experienced dealers in Australasia are becoming available. You can throw in SsangYong which is setting itself up for strong growth in this market as well.
These Holden showrooms are well located and well known and these new brands are not as picky as Holden has been about costly premises designs. So a switch could no doubt be achieved in a cost-effective manner.
In addition, network development managers from all other brands will be studying the Holden network for more ideal locations than they have at present. Some dealers can expect a knock on the door in the coming weeks.
If anything, GM’s decision allows dealers to make better use of their Holden showrooms. As Holden share dropped to four per cent, it became obvious to many dealers that their Holden premises were taking up far too much of dealership showroom space for a brand generating such a low market share.
Many dealers found themselves battling Holden management which was stonewalling attempts to bring in other brands or expand other brands into some of the ‘Holden space’. Holden was resisting reduction in Holden space because as little as 18 months ago management was telling dealers they would be returning to 10 per cent market share.
So for some dealers they are now free to increase the allocation of space for some of their more successful brands or hand over entire Holden showrooms for their more successful sellers.
Dealer compensation
In the immediate backwash of the GM announcement, there was a lot of heat in many of the comments.
As one dealer told GoAutoMedia: “This has class action written all over it.”
But that was the same mood when in 2013 GM closed its Opel dealership operations in Australia after a very short time of trading.
GM has said it has allocated $US1.1 billion for the costs associated with closing Australia, New Zealand and Thailand and the vast majority of that will no doubt be for Australia (given that GM sold the Thai plant as a going concern).
And when GM closed Opel, many Opel dealers’ claims amounted to between $2 million and $3 million, including investments in new dealership premises exclusively designed for Opel at Opel’s insistence. Opel paid for them in total.
Dealers heaped praise on the company and many dealers contacted by GoAuto said they came out of the episode unscathed.
One dealer said: “I think the way it was resolved was unprecedented. There is no other car company that would have done what they did. But I think if they had not done it that way they would have been facing a class action. I think they knew that.”
The various settlements included covering trading losses made in getting sales momentum for the brand, handing over the service tools and spare parts at no cost, allowing dealers to hand back cars to clear their floorplan finance accounts for Opel stock and generous compensation of premises costs which covered most or all the cost of the buildings, furniture, signage and fittings.
Dealers were also offered stock still held by Opel at an average trading bonus of $7000 a car.
It remains to be seen what Holden will do about goodwill losses.
Because Holden has been a mainstream franchise a lot of the dealers have paid very large sums of money for goodwill when buying dealerships. For example, dealers are known to have paid $2 million in goodwill for key Holden dealerships just a year ago.
One industry analyst said that AP Eagers would have in excess of $100 million in goodwill for the Holden dealerships it owns.
Other issues that will need to be addressed will be loss of rent until dealers can find a new brand tenant and losses incurred in helping GM clear its vehicle stock.
So those talks with GM will be interesting.
One point being made is that because GM has chosen to discuss each claim from dealers on an individual and confidential basis, it may be necessary for the dealers to launch a class action so that the court can quantify the losses and ensure that all factors are considered for all dealers across the entire network.
Opportunities in service and used cars
Holden has bequeathed its present dealer network with 1.6 million potential customers and will guarantee dealers will have parts support for a decade.
This has led KPMG Motor Industry Services director Wayne Pearson to conclude that the biggest opportunity for Holden dealers is to “become the biggest independent Holden used-car and service operator in town and make hay for the next 10 years”.
Mr Pearson said that once Holden is out of the picture, dealers would be able to run their own race in used cars and service without looking over their shoulders at the factory.
“With used cars the dealers control what cars come into stock and are not subject to the massive pressure from the factory to register cars without owners to meet targets,” he said.
Mr Pearson said dealers should look at a high-volume used-car operation on lower margins where they get known for quality stock at very fair prices offering warranties not available in a private sale from the internet.
“With good stock choice and sharp prices they could achieve velocity,” he said.
“A Holden used-car specialist with massive Holden service capability would be a goldmine.
“This is especially the case for a dealer who has multiple Holden dealerships.
“Just shut the new-car sales outlets. Try to build a massive Holden service business because there is huge money to be made in that in the next 10 years because there is no expectation for Holden dealers to be running a loss-making new-car sales business anymore.
“There is no expectation to take cars that are not selling, no expectation to carry stock beyond the natural market demand and no expectation to carry expensive salespeople on overcapitalised premises
“There are going to be plenty of Holden used cars around for a long time. GM would be happy because the brand is being supported and parts are being sold.
“This is the Holden silver lining to the astute dealer. But to do that they need to get fair dinkum about the business of servicing. It is not going to be the thing that sits out the back of the dealership anymore.
“It will be the entire focus of the business. It will be all they do. And selling quality used Holdens at volume because of their value (at low margins) will be the activity that lines up their service customers for them.”
Mr Pearson said it would be essential to get hold of mailing lists of Holden service customers as well as focusing on the CRM of their Holden service customers.
“They can divert all the attention they have paid to marketing the dealership as a new-car operation into taking on the local independents and become extremely good at service marketing to make sure that their hoists are fully booked every day,” he said.
“And those Holden dealers who take this on, and throw all the customer recruitment, customer retention and customer management tools at this, will steal a march on the rest of the network.
“Their future is to become an exceptionally efficient, highly customer-centric, CRM-driven service operator running an exceptionally profitable workshop operation. You still have your parts business that will last 10 years and parts beyond that will be available through recycling and additive manufacturing.
“They need to get out of the car sales business and into the car service business in a proper manner. But they need to look in detail at their service operations so they really get their processes right.
“You can’t keep the cars all day. It has to be while you wait. You can sell the service packages online so you don’t need frontline service staff. There is a whole way of doing this in a cost-effective manner and the smart guy, especially if he gets his hands on the mailing lists, could end up controlling their whole market.”
By John Mellor
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