Saturday 18 November 2017

Running out of road

For decades, the golden few exploited their car franchises from the major car makers. But now the car manufacturers have slammed on the brakes and are hijacking this lucrative niche. Bill Cullen and Renault are just the latest on the assembly line to have the steering wheel removed, and follow Volkswagen, BMW, Audi and Skoda.

Joe Brennan

Manufacturers edging in on lucrative car franchise niche

Tim Mahony, the 76-year-old boss at Toyota Ireland, cuts a lonely figure these days.

News that his rival Bill Cullen will not have his Renault distribution agreement for this country renewed, when it expires at the end of 2008, is the latest example of a major car manufacturer cutting out the middle man. Cullen is set to get a multi-million euro 'golden handshake' - despite the French not being contractually obliged to do so - and continue to operate Ireland's largest Renault dealership, but the move will slash the profitability of yet another Irish motor empire.

BMW was the first to wield the axe four year's ago when it cut ties with Frank Keane, who had held the rights for the luxury German marquee for 35 years.

Meanwhile, Ireland's largest car importer Motor Distributors Limited (MDL), owned by brothers Michael and Nigel O'Flaherty, are set to hand the importation and distribution rights for Volkswagen, Audi and Skoda back to Volkswagen this October.

"These developments are a direct result of the breaking down of trade barriers across the EU. The lifting of the block exemption in 2003 has also opened up the industry across Europe to much greater competition," said Alan Nolan, deputy chief executive of the Society of the Irish Motor Industry (SIMI).

The block exemption was an unwritten rule which prevented dealers from selling outside certain zones set by carmakers. "While it was crucial at one stage to have a local distributor, manufacturers are now approaching the EU with a single strategy," said Nolan.

Pearse Flannery of motor consultancy Pragmatica said that the growing importance of the Irish market has prompted a number of car-making giants to do a rethink.

"About 180,000 new cars expected to be sold this year alone. So, it is increasingly making sense for the big manufacturers to take direct control of distribution here," said Flannery. "It all helps to shore up their own profits in an increasingly competitive environment."

Gemma Maughan, the majority owner of Gowan Group, which holds the Irish distribution rights for Citroen and Peugeot, must be watching developments nervously.

Carmakers like Geely and Chery don't have much resonance in Ireland at the moment - but they soon will

However, Toyota is said to be keen to maintain the status quo in Ireland - for as long as Dr Mahony is around, at least.

The Japanese have much to be grateful for. Back in the 1973, when Dr Mahony bought the franchise from the O'Flaherty brothers' father, Stephen, Toyota was selling less than 150 cars a year in this country - with a measly market share of 0.2pc.

Toyota is now the Ireland's leading car marque, with 24,704 of its shiny new vehicles flogged in this country last year alone, giving it an almost 14.2pc share of the new cars market.

Dr Mahony, a marketing supremo, who bought the Toyota franchise from the O'Flaherty brothers' father Stephen in the early 1970s, once described selling as an art form in itself. "I was taught when learning salesman ship you have to have two ears and one mouth and use them in that proportion."

While the changing fortunes of his peers in Dublin have undoubtedly piqued his interest - it's been developments further afield that have had ringing in his ears of late.

China, for so long been something of a backwater of the auto world, is on the verge of becoming a global giant in this sphere.

Carmakers like Geely and Chery don't have much resonance in Ireland at the moment - but they soon will.

Producing over 7m of the 50m cars manufactured globally in 2006, China now ranks third in the world - behind the US and Japan, having taken out Germany last year.

Looking ahead, there are credible predictions that China will become the world's largest car producer by 2012, by which stage the industry is forecast account for 15pc of the country's gross domestic product (GDP).

Still, rapidly growing demand in the home market has meant that only 325,000 vehicles were exported last year.

"The Chinese car manufacturers are struggling to meet domestic demand at the moment, but they have the global market in their sights," said a seasoned industry player in Ireland.

Leading international marques such as VW, General Motors and Toyota have all had to strike joint ventures with local partners to gain access to the Chinese market. Experts say that the Chinese are gaining experience these partnerships, which will stand to them when they go about dominating the global market.

"Carmakers like Geely, Nanjing Automobile and Chery are already working on plans to launch into the European market. You can be sure that they are going to go after the Irish market in a big way," the industry player said.

The current export drive among Chinese automakers is aimed other parts of Asia, Africa and the former Soviet Union. This strategy is helping them cut their teeth in less competitive emerging markets before launching in the more discerning western markets.

Some are pursuing merger and acquisitions to get a foothold in developed economies. Nanjing, China's oldest carmaker, snapped up UK-based MG Rovers' assets in 2005 for a reported £54m (€79m) three months after the company went into receivership. It sold on the rights to the Rover marquee to Ford last year. Unlike the entrants to the Irish market of yesteryear, the Chinese are likely to follow in the recent footsteps of Korean manufacturers Kia and Hyundai, who have made huge inroads here in over the past decade while maintaining control over local distribution.

"The industry is in a state of flux. The days of a handful of Irish distributors creaming it are numbered. They are being squeezed out of the game, one by one," the senior industry player said. The families that have controlled the industry for decades have long been diversifying.

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