The numbers of new-car dealer operations in the United Kingdom and France are falling faster than almost everywhere else in Europe, according to a new survey by leading auto industry consultancy HWB International Ltd.

Both the UK and France have around 5,000 main dealer contracts (territories) across the 39 makes surveyed, and both have seen the total decline by 10% over the last four years. But whereas France has a total of 21,662 franchised sales points, the UK has only 6,426. The main difference is in the number of sub-dealers: France has 15,656 compared to 489 in the UK.

Overall, West Europe had 54,435 main dealers in 2000, down by 1,607 from 1999 (-2.9%) and down by 5,000 (-8.5%) since 1997.

The structure of European new car dealer networks is revealed in The European Car Distribution Handbook, which analyses the dealer networks of 39 car franchises across the 16 markets of Western Europe. Additionally, the new 2000 edition covers a further 16 markets of Eastern and Central Europe which are potential future members of the EU.

Although numbers have dropped in Germany by 10% over four years, it still has the largest population of main dealers: 17,828 (33% of Europe's total). In consequence, Germany is still well down the European league in terms of average sales per dealer. Meanwhile, Ireland, Sweden, Spain and Denmark have all seen modest increases in their dealer populations.

According to the new research, the 54,435 main dealers in West Europe operate 65,605 outlets (-1.3% since 1997), including 11,133 sales and service satellites (+60%), as well as supporting 54,089 sub dealers (-5.2%). So even though the Western European new-car dealer sector still has 106,183 franchised sales points (-1.7%), these are controlled by a shrinking number of dealer operators.

Manufacturers have so far resisted moving into retailing in Europe. There are 1,647 dealerships directly operated by the manufacturers or their national distributors in 2000. These account for only 3% of all main dealers and probably less than 10% of new vehicle sales.

Manufacturers are at various stages in their plans to overhaul dealer sales networks, according to Philip Wade, director of HWB International.

He explains "Car makers and dealers are already responding to changes in consumer shopping behavior, the impact of the Internet, longer service intervals and the shift to build to order supply. Europe is moving towards building more cars to customer order and manufacturers are exploring new techniques to sustain long-term relationships between their brands and their customers.

"All of these factors are affecting the role of the dealer, who is still seen as a key component. But major network restructuring takes time and a lot of effort. Some makes are pushing ahead with established plans, a few are already taking some fairly radical actions, while others are waiting to see the outcome on the new EU (European Union) regulation."

Manufacturers face more barriers to network restructuring in markets such as the U.S.

Mr. Wade says, “In the U.S., the legal framework is based on the idea of protecting the consumer by giving dealers more independence from the manufacturer. It is hard to terminate a dealer contract and manufacturers cannot sell direct or even own dealerships. In Europe, there is currently little to stop manufacturers from getting rid of dealers altogether, if they so wished, and selling cars through their own retail outlets or over the Internet."

Contracts between dealers and manufacturers in the EU are governed by the Block Exemption, now under review by the Competition Directorate of the European Commission. The current regulation (1475/95) expires after 7 years in September 2002. Possible scenarios being considered by the Commission include requiring manufacturers to supply other types of retailers, thereby diminishing the importance of the dealer sales channel, and ending the tie between sales and service.

Mr. Wade warns, "Manufacturers in Europe are likely to resist any move that diminishes the value of their brands or their contact with the end customer, whatever the new regulation attempts to achieve.

"Strong manufacturers already own most of their national distributors. They can afford to adopt new retailing strategies to achieve their brand goals in key markets. It is the weaker makes that could suffer if the economic base of their distribution system is undermined, thereby lessening inter-brand competition and customer choice of car."

While the total number of dealer contracts (territories) in West Europe has fallen by 5,000 (8.5%) over the last 4 years, the number of physical dealerships is virtually unchanged: main dealer franchise points have fallen by only 1.3%, with the number of main dealer satellites rising by 60%. Sub-dealers (focusing mainly on after-sales servicing) continue to flourish, with a fall of only 5.2% over 4 years. Overall, the total number of franchised sales points (main dealers plus sub-dealers) has fallen by only 1.7% over the last 4 years.

The average number of new vehicles sold per main dealer contract in West Europe has risen by 30% to 307 units per year (5.9 per week) over the same period. Two thirds of the increase is due to the rise in market size, one third to dealership consolidation.

Over 80% of main dealers are exclusive to one-car makes.

Mr. Wade says, "The consolidation of car companies has not reduced the number of car brands or led to an increase in multi-franchised showrooms. Rather, the trend is in the opposite direction, as manufacturers attempt to make the customer experience in sales and service reflect their core brand values."

The best-selling car brands have European networks of 2,000 to 3,000 main dealers, while specialist brands such as Maserati , Ferrari and Porsche have under 150 dealers.

The size of each dealer network is determined by balancing geographical coverage (especially on service) against sales potential. Even so, there are large disparities between makes in their average dealer throughput at the European level -- there are larger disparities within individual markets.

Not surprisingly, weaker brands have low throughput dealers, have fewer exclusive to the brand and find it harder to fill open points. Also, the smaller makes are more likely to rely on an independent national distributor, rather than operate their own subsidiary.

Says Mr. Wade, "A recent trend is for manufacturers to combine several territories into one new market area, controlled under one dealer contract but with maybe two or three sales or service points. By rationalizing marketing costs and overheads, these dealers should be more profitable, enabling them to give higher quality support for the brand."