Car manufacturers and retailers have traditionally been separate entities in South Africa, but is DaimlerChrysler’s acquisition of a majority share in top-rated Mercedes franchise Sandown Motors a taste of what’s to come?
In an attempt to gain a direct interest in the retail of its products, US-German manufacturer DaimlerChrysler has bought a 75 per cent stake in the Sandown Motor Group, which incorporates top Mercedes Benz, Chrysler and Colt franchise Orbit Motors.
This development comes against the backdrop of a court case in the United Kingdom. DaimlerChrysler UK wanted to do away with the franchise system and set up its own directly controlled regional sales centres. Some dealers opposed the move, saying DaimlerChrysler was in breach of contract.
The case was settled out of court, but the move by the manufacturer remains unconventional. The manufacture and retailing of vehicles have traditionally been mutually exclusive due to different approaches in doing business and potential conflicts of interest.
For a manufacturer, retail “requires a different skill centre and a different culture. In retail you have a strong operational focus, a wheeling-dealing culture in which you have part exchanges and trade-ins. In the world of manufacturing you dictate: this is my product, this is what I sell,” McCarthy Group chief executive and former managing director of Toyota SA Marketing Brand Pretorius told CAR magazine recently.
Orbit Motors managing director Eric Scoble says the deal with DaimlerChrysler presents both companies with a golden opportunity.
“By gaining a controlling interest in Orbit, DaimlerChrysler aims to get to know the customer better and gain an insight into the world of retailing,” said Scoble.
“The manufacturer’s input will help cut distribution costs, increase productivity, introduce new technology and guarantee the supply of high-quality parts.”
“The deal is very positive for Orbit Motors because we will have access to greater funding and it is a bonus to have DaimlerChrysler underline our status as the top-rated Mercedes Benz, Chrysler and Colt dealers in the country in this way.”
However, some franchised dealers are against the idea of DaimlerChrysler generating revenue – on the parts of distribution and retail – at their cost.
“Some dealers are indeed unhappy with the situation and there is a high level of uncertainty on their part,” said Scoble. “Those dealers reckon that Orbit Motors will receive preferential treatment with regard to distribution of stock and parts, but that is untrue”.
“We do not get better terms from DaimlerChrysler. The manufacturer has undertaken to continue its services to all dealers and all dealers will be treated in the same manner,” he added.
In the CAR interview Pretorius expressed uncertainty as to whether the move by manufacturers to get more involved in retail would be a growing trend, but added “that it could happen”.
“Manufacturers are under pressure,” he said, “the distribution element represents 25 and 40 per cent of the total vehicle price. They’ve done whatever they can to make designs more effective and the production processes efficient so the next focal area is distribution”.