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Business

Car Makers Scale Back German Dealership Networks

In a bid to cut costs, car manufacturers are making drastic reductions to their networks of affiliated dealerships and increasingly setting up regionally based distribution centers.

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Competition among car dealers is vicious

The number of car dealerships and workshops in Germany continues to decline as smaller firms flag under growing price pressure and intense competition.

At the same time, car manufacturers are increasingly moving toward the creation of regionally based distribution centers with affiliated branches in a bid to cut costs, and experts believe this trend will continue in the coming years.

Last year, almost 1,500 dealerships and workshops closed down in Germany with the loss of 12,000 jobs, and the ZDK main car retail federation forecast that networks will shrink still further.

But it is mostly dealerships and workshops with direct links to car manufacturers that are affected by this trend.

Among independent retailers, the situation is relatively stable, said ZDK spokesman Helmut Blümer. The fact that some 385 independent firms in this sector shut down last year was a "totally normal development", he said.

But the drop in the number of car manufacturers' affiliates is far more drastic. Nearly 1,000 dealerships went out of business last year, some 4.6% of the total 22,600 affiliated dealerships.

The sector is alarmed by this high percentage, which has surpassed anything seen in the previous years.

Eckhard Meyer, head of VW's and Audi's dealership association, confirms that the trend towards reducing the number of affiliated dealers "has been going on for years".

Adam Opel AG cancelled the contracts of all its affiliated dealerships last week.

The car maker has set itself the target of cutting its dealership network by half from the current 1,000.

Although VW's Meyer is certain that his group does not plan to take measures as drastic as those taken by Opel, he said it will become difficult for those dealers who "drop out of the network".

These moves are the manufacturers' response to the high costs of maintaining a dealership network. Estimates vary but most manufacturers put the cost of distribution at 25–30% of annual group sales.

By streamlining the network, the manufacturers can expect to reduce this percentage. Thus manufacturers are pushing for dealerships in individual regions to merge to form larger units.

The aim is to create single companies that will bring together activities such as administration and paint shops.

Only the central office of the regional dealership is to offer the full range of services. Smaller branches will no longer carry out all repair work or offer every new model.

Fiat has reduced the number of its German dealerships from 1,200 to 800 over the past few years; and the president of the Fiat and Lancia dealership association, Klaus Fricke, said that further reductions are to follow.

Experts estimate that up to 40% of all current dealerships could go out of business. A decline in sales has added to the pressure on the sector.

2002 is expected to see a reduction in deliveries for the third year in succession.

Only dealers of premium brands like Mercedes or BMW can take a relatively relaxed view of the developments. Their sales figures continue to rise and their future prospects are seen to be much stronger than those of Opel or VW. "With our brand, of course, we are at an advantage," said Peter Enders, spokesman for BMW's German dealerships.

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