News that Peugeot and Holden, among others, are in the process of reducing their dealership numbers may come as no surprise to the industry given the announcement last week of a new distributor for Peugeot-Citroen, the declining fortunes of Holden and the challenging conditions facing the industry in general.
Peugeot-Citroen, distributed by Inchcape Australia from June 1 after Sime Darby Motors Group ceased importing vehicles, was contacted yesterday by GoAutoNews Premium and told there were no current plans to reduce dealer numbers.
But we know of at least two that have been told they are no longer required. Inchcape Australia has already mentioned that it plans to sell Peugeot and Citroen through a new network that, for the first time, includes its own retail group, Trivett.
One Peugeot dealer said losing Peugeot would be “bitter-sweet”, remarking that it is a “great brand” but that it was “very difficult to sell in this market”.
Holden too paired back its 230-strong new-car network – which supports a further 22 service and parts outlets – by a significant amount. No one at Holden would comment on the specific dealers affected or the exact numbers involved, however GoAutoNews Premium understands that about 30 outlets will no longer be selling Holdens in 2018.
Industry sources have indicated that Nissan and Mitsubishi have quietly embarked on a similar re-evaluation of their network requirements although both companies have denied this when approached by GoAutoNews Premium.
Australian Automotive Dealer Association (AADA) CEO, David Blackhall, said he was not too surprised by the change in franchise numbers.
“We have a major shift in the dynamics of the car retail industry over the past five years and increasingly since the news of the demise of local manufacturing,” he told GoAutoNews Premium.
“If you look at VFACTS, there are brands that are doing very well and increasing market share at the expense of other brands.
“As the market share of brands falls, importers – and manufacturers – have to look at their network and the return on the investment.
“Importers have a clear responsibility to maintain a healthy, profitable network and may have to make some very hard decisions,” he said.
The Holden dealers not having their agreements renewed have been selected at least in part by geographical location, not on performance. This has angered some owners, especially those who have recently spent tens of thousand of dollars upgrading their facilities.
One Holden dealer who was not on the list said he would be concerned about Holden’s status in rural areas.
“If one town loses a Holden dealer, including parts and service which is part of the franchise agreement, then it’s very unlikely a buyer would travel to another town to buy a Holden,” he said without publicly identifying himself.
“They will buy a brand that’s staying in the town. To family-run dealerships, as most rural businesses are, it wouldn’t cost Holden anything to keep them onboard. I can understand that many metro dealers are close enough (to each other) so some can be closed, but not in rural areas.”
Holden’s six-month notice to terminate some of its dealers comes two months after the company’s sales director, Peter Keley, moved to another division within Holden, sparking rumours that he was against the way the network reduction would be carried out.
Mr Keley has effectively been replaced by Peter Jamieson who is the executive director of customer experience at Holden. Mr Jamieson spoke exclusively to GoAutoNews Premium just as this issue closed for publication.
“It is a comprehensive process that we are undertaking at the moment,” he said.
“Every five years we go through the process of renewing our dealer agreements so we have been at this for a number of months now.
“As part of the process, obviously taking account of all the relevant market factors, of which there have been many changes over the past few years, including in the past 12 months, (we have been) assessing where we need to have our dealer points going forward to ensure maximum convenience for customers and maximum opportunity for us to be available when customers want to purchase (as well as) ensure we are where customers need us to be for convenience of servicing.
“Assessing all those factors, we have undertaken a very strategic review of the footprint requirements for the next five years and, as part of that, have identified a number of dealer points that we don’t believe are required going forward.
“We have just been through the process of advising those dealers that we are not intending on renewing post-2017.
“As you can imagine it’s a very difficult process both for ourselves and the impacted dealers. In many cases this involves dealers who have been with Holden for many years and been very loyal to the Holden brand over many decades – and with employees in the same boat,” he said.
“We are treating this with the respect you would expect of us in making difficult decisions like this – working through it face-to-face with each dealer that is impacted by a non-renewal decision and supporting them with a whole range of things to help (them) through this transitionary period.”
GoAutoNews Premium was handed a letter written by Mr Jamieson to a Holden dealer, showing how the news of dealer rationalisation was communicated to the remainder of the network.
In his letter, instructing confidentiality, Mr Jamieson said the current Dealer Sales and Service Agreement would expire on December 31, 2017 “and notification of renewal or non-renewal must be provided by June 30 2017”.
“This process included a strategic review of the dealer network footprint, which is now concluded.”
Citing the need to maximise sales, maintain convenience and capacity for service customers as well as ensuring a profitable and sustainable Holden network in the long term, Mr Jamieson said “it has unfortunately become necessary to reduce the size of Holden’s dealer network”.
“Over the past few weeks discussions have taken place with all dealers whose DSSA will not be renewed in 2018. These discussions have now been completed.”
Holden has a year to date (YTD) market share to the end of May of 7.1 per cent, down from 7.8 per cent a year ago, and it has sold 32,840 units.
But 33.5 per cent of the sales were for vehicles that before the end of this year, will be either discontinued or in the case of the Commodore, replaced by an imported model. These are the Commodore (8889 sales YTD), Ute (1441), Cruze (386 units and no longer produced), and Caprice (274 units).
A decade ago, Holden had a market share of 14 per cent (2007 calendar year) and in 1997, its passenger cars had a 20.7 per cent share of the Australian market.
The market share tumble is considered the key reason for the dealer retraction.
Asked by GoAutoNews Premium who was involved in making these decisions that have such broad and far reaching consequences, Mr Jamieson said: “It is quite a small but senior group of the Holden leadership team”.
“As you would expect we go through a very disciplined process taking into account all relevant factors including market dynamics, our product mix going forward, volumes, demographic shifts across the country and where we believe we need to be located.”
GoAutoNews Premium understands that many well-performing dealers will not be continuing with Holden as a result of this review.
Asked how much of a role a good track record played in the selection process, Mr Jamieson said: “It is not a performance-based assessment.” Mr Jamieson said.
“It is a strategic review of where we require dealer points going forward. It is not about performance. The reality of this is that some dealers will be performing in their area at the moment but we don’t believe it is a required area going forward. It is about where we believe we need to be located.
“It’s about setting the network up for the future. It’s about making sure we are located in the right places to ensure a sustainable, profitable Holden dealer network going forward, and that means difficult decisions have had to be made.
“We acknowledge that they are difficult decisions, particularly for those very loyal Holden dealers that are impacted by these decisions.
“Even after these changes we believe we will be the second largest dealer network across the country”
“Even after these changes we believe we will be the second largest dealer network across the country,” he said.
Asked by GoAutoNews Premium what level of market share Holden was assuming as a baseline for its dealer network review, Mr Jamieson said: “I won’t go into the actual market share but we are hopeful and confident that we can continue to perform well in this market.
“We haven’t performed up to expectations over the past few years, and we acknowledge that, but we are very confident about continuing to grow. We have a good product road map going forward so we believe that these changes will set us up for a healthy network to support the growth that we intend.”
Asked, given the significant reduction in dealer numbers, if Holden was contemplating a further reduction of market share, Mr Jamieson did not agree.
“We are anticipating growth going forward but we have had to, as we do every time we renew our dealer agreements, look at whether we are in the right places to capture the growth we believe is in the market going forward and that is what this is about.”
Asked if one of Holden’s goals from this exercise was to improve throughput at their remaining dealers so that more profitable dealers would allow the brand to enhance customers’ experience, he said: “Absolutely, we need to ensure that our dealers are performing and generating profits that enable them to get return on investments that we are asking them to make.
“We have plans for creating a new dealership look and feel and we would like our dealers to be able to invest in that.”
“We have plans for creating a new dealership look and feel and we would like our dealers to be able to invest in that.
“We need to ensure that the dealer network is confident and profitable and prepared to invest to improve the experience of our customers going forward.”
Asked how much will the remaining Holden dealers be expected to invest and when, he said: “We will be looking to all of our dealers to upgrade their facilities to make sure they have the look and feel we want going forward.
“There will be branding and CI internally, and that’s part of the reality. Yes, we need to increase the throughput, increase the profitability of the existing network so that they are prepared to invest in what we require going forward.”
Mr Jamieson said that it was important to acknowledgement of the human factor involved in network rationalisation.
“This is about people first and foremost, and our primary consideration is for the people impacted by these decisions. There are dealer employees that have been in the network for a long time, so we are absolutely committed to helping every dealer impacted by these decisions to look after their teams.”
By Neil Dowling and Daniel Cotterill
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