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Recession trumps dealen

18th September 1982
Page 44
Page 44, 18th September 1982 — Recession trumps dealen
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Which of the following most accurately describes the problem?

More closures are inevitable, says our contributor, Bob Chadwick, MIMI. He asks: Will the outcome be a haulage industry unable to meet the needs of UK industry?

THE TRANSPORT industry has been deeply scarred by the recession and very few companies have been spared the difficulties and traumas of the past 15 months of trading. Contrary to Government predictions, the economy is not picking up and reports from the Confederation of British Industry confirm that its members are indicating scant prospects for six months.

Possibly a number of companies will re-introduce shorttime working to stave off closures. This lack of output reduces transport demands and has a knock-on effect back to the manufacturer.

Manufacturers and importers must have grave doubts as to the ability or financial stamina of many of their dealers to carry on without considerable financial aid or generous credit terms.

The acceptance of Britain's application to join the European Economic Community has over the course of a short period attracted considerable competition for what was the fastest growing commercial vehicle market in Europe. Fifteen manufacturers and importers compete for domestic business, and are served by 500 retail outlets.

The sales of new vehicles and in particular the 16/32-ton segment of the market during the recession has been largely manufacturer led. Foreign vehicles have gained a substantial foothold during the price war and are unlikely to concede ground.

Before the recession most importers provided Dealer Development Packages. These packages took the form of • Low interest loans — for the development of buildings, workshops etc; • Supplying and fitting binning and racking for spares; • Sale or return — new vehicle stocks; • Extended credit — new vehicle stocks; and • Special discounts and credit — slow-moving parts.

United Kingdom manufacturers enjoying a dealer network of longer standing did not need to go to the same lengths as importers. However, they were compelled to introduce credit facilities and high discounting owing to high stock build-up.

The fall-off in sales early in the recession presented a serious problem for foreign vehicle dealers who had little after-sales parts business to fall back on. That is why some importers guaranteed their dealers a fixed profit margin after sales. They provided further financial incentives for breaking into new accounts.

Needless to say, salesmen in many cases did not exhaust their negotiating talents, and by continually undercutting competitors' prices heightened the discount war. Complaints are still being levelled at importers that the practice continues. With prospects of lower sales, this fight will intensify while stocks build up again and distressing selling is reinstated.

Volume producers totally depend on the quality of their dealer networks. No longer do manufacturers' regional sales and service companies support the manufacturers' outputs. Sales levels are now running at pre-1975 rates, and the prospects of climbing to 1978/79 record levels are remote.

Competition for the foreseeable market cannot sustain the present number of retail outlets and a slimming down of some companies' dealerships will be necessary in order to retain the viability of the remainder.

It requires considerable financial resources to provide the specialist workshop and spares staff, stock new and used vehicles and maintain spares stock levels essential in today's competitive scene, and to meet most manufacturers' terms of agreement. Sufficient income from workshops and spares can no longer be relied upon to compensate for reduced profit margins on the fewer vehicles sold.

Increasing competition comes from companies specialising in fast-moving spares, from spares factors and a number of "pirate" part dealers. None of these companies is committed to carrying the extensive parts stock and in particular the lower volume calloff spares which a customer expects the dealer to hold.

The fight for survival has been costly in labour and financial terms. Whether dealers can sustain another 12 months of recession must pose serious doubts. Some have taken on complementary franchises to increase sales opportunities.

Positive action has been carried out by some of the larger franchised groups. Faced with growing losses and a strain on capital resources, they have closed down dealerships. I suspect that more dealers will be put under the microscope and that it is likely that their asset values will be realised if the opportunity arises.

Dealerships have been profitable in the past and those offering a wider degree of specialisation are still keeping their heads above water. But quite a number who are single franchised with a more limited model range to offer are finding the going much more difficult. I believe that it is inevitable that there will be more dealer closures by both small and large concerns who are unable to retain the confidence of their bankers.

With prospects of reduced sales, manufacturers and dealers must economise. The closure of some dealers may well be taken up by a few of the large transport companies who have workshops in the right location and would not incur high costs to set up the franchise.

Assuming, as dealers must, that it will remain a buyer's mar ket for an indefinite period, ti marginal profits from sales mu

be offset by improving ar maximising profit contributior from the other dealer functior — in particular, after-sales. Con puterisation will be essential control stock and availabili. levels supported by aggressiN marketing techniques and efi cient regular delivery service.

Dealer workshops will lo geared to less labour intensi■ work, offering more speciali service by investing in speciali equipment; sales of ne vehicles will include the ii creasing use of mileage mail tenance contracts.

There is a general view hel that when we do move out of Vrecession, the prospects of e: tended periods of a stable eci nomy enabling long-ten planning with any degree of col fidence will be remote.

Over the course of time sorr companies will experienc acceptable growth prospect The lessons learned over th past 15 months will instil a caL tious approach to any planne dealership expansion move: The emphasis will be on settin up smaller satelite companiE supported from the principi dealership by linking into ii computer systems for stock cor trols, costings, and so on.

The main dealership coul provide back up for dealing wit major overhauls and maintain daily parts delivery support t ensure that labour and stoc costs are kept at stable level: While it would be an unpleasar step if business fell to unaccep able levels, at least the busines could be closed off temporaril while still maintaining servic from the main company.

The transport industry ha faced tough times. Manufactur ers have closed down factorie and dealers have been closec Haulage rates are still belov economic levels, and furthe growth in the rate of haulag, company liquidations seems in evitable.

The outcome of all this will bi a much slimmer transport indus try. The questions remainini are: Have our own manufactur ers been irreversibly damaged And will hauliers be able to res pond to meet the needs of i more competitive industria nation? This, after all, was th( original aim of the Government.


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