MHA | Responsible Franchising

Responsible Franchising

Alastair Cassels · July 22nd 2022 · read

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Last week Nissan hit the headlines with its announcement regarding the implementation of the Ideal Network Plan (INP). For those that aren’t familiar with the term INP, it is the distribution blueprint that Automotive OEMs must support, by giving customers access to their products and services.

Typically, it denotes where they would optimally locate dealer points to ensure a balance of customer access and business viability. As such there is always a degree of tension around its content - OEM Sales/Aftersales Directors never want to surrender a location, the Network Director wants to improve dealer profitability and the NSC MD must broker a position somewhere between the two camps. In truth it takes a brave MD to publicly endorse a reduction in network size as often their job depends on volume delivery, and they are seldom 'in role' for long enough to see the job through.

On the receiving end is the dealer investor and it is a perilously difficult conversation for an OEM to have regarding the termination of a franchise agreement. Most UK franchise agreements operate on a rolling two-year break clause but that offers little comfort when an investor is told that their contract is being terminated and not renewed. Outside of a whole network restructuring these parting of ways can be cold and acrimonious, and is largely driven by legal process and adherence to a “termination without cause“ clause. It is often a completely inappropriate way to end a long and productive partnership between manufacturer and dealer and one that leads to unfavourable headlines in the press.

Whilst the mechanisms are legalistic vs human, the strategy of Nissan is one of a responsible partner.

Most INPs were set pre-pandemic and reflect a distribution model that was unfit for the digital era and impending migration to Agency Sales. In my opinion, UK dealer networks are at least 30% over-represented for how this sector will develop. OEMs cannot migrate to EV manufacture without reducing costs of distribution. Basically, there is not enough margin available to feed the viability of the current, largely solus dealer networks. The business of car sales has moved (partly) online and will continue to do so, necessitating a change in how we organise genuine Omni channel distribution.

In the past, dealer investors on the wrong side of the cut line would have had options to refranchise with another brand however those options are now more limited.  Every OEM is in the same boat, and few will be requiring more physical points particularly if they are located outside the most populous areas of the country. Only MG has recently been recruiting dealers at any sort of rate and even they have reached a phase in sales maturity where quality will begin to be preferred to quantity.

Dealers serving notice still have options. Aftersales customer convenience still requires sensible drivetime access and BER legislation allows for persistence of a point of representation where qualitative standards are met. However, it is seldom a long-term strategy as without vehicle sales to build a parc and the retention tools available to selling dealers it is hard to resist a dwindling customer base. Multi branded aftersales offerings that genuinely can compete with the IMT may have merit especially as the parc migrates to EVs.

Many should also consider alternative property strategies as a way of unlocking value in non-core assets. This can take time, but a two-year notice period affords investors the opportunity to explore different options.

Nissan will not be the last OEM to make such a responsible decision. They are trying to right size the business model to avoid “death by 1000 cuts” and unamortizable investments. This is part of the reason why we encouraged dealers to begin scenario planning for the future. Therefore, if investors are concerned about losing a franchise agreement or the financial implications of Electric Vehicles and Agency then please reach out to MHA MacIntyre Hudson for a no obligation confidential discussion.

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