"Sales Agenda 2009/2010": How automotive OEMs can raise their sales profits by hundreds of millions

• Germany still faces a 25% fall in demand in 2010 without the scrappage bonus/BRIC states can only partially offset this
• Increasingly tight liquidity heralds the threat of bankruptcies along the entire automotive value chain
• More than 30,000 jobs in automotive retail are at risk in Germany
• Falling demand primarily threatens the strategically important big dealer groups
• Seven actions can raise profits by hundreds of millions and need to be taken now

The global economic downturn has hit the already troubled automotive industry particularly hard. The scrappage bonus has artificially inflated demand for cars in Western Europe in 2009; 2010 may see demand slump by up to one quarter. The search for a way out quickly leads to Sales. In Europe alone, Sales and Service cost almost EUR 100 billion per year and account for around one-third of the vehicle price. Roland Berger Strategy Consultants worked together with experienced sales managers from the industry and representatives of selected dealership groups to develop the Sales Agenda 2009/2010. The Agenda identifies actions in seven key areas, which can increase profits in Sales by hundreds of millions in the near term.

"Once the scrappage bonuses run out, the risk of bankruptcy for German car dealerships is somewhere in the region of 30% to 40%," says Ralf Landmann, Partner in the Automotive Competence Center at Roland Berger Strategy Consultants. "From the OEMs' perspective, it's mostly the 'wrong' ones that are being hit. The big dealer groups in particular, those that made investments in the past, are suffering under the burden of falling returns." The Roland Berger experts expect demand in Germany to fall by up to 25% next year following the artificial boom resulting from the 2009 scrappage bonus. Dealership networks are massively overstaffed. The discounts of up to 30% on new cars are taking the dealerships' already marginal returns below zero. A total of more than 90,000 jobs in the German automotive industry are at risk.

Dealer network consolidation costs up to 500 million

"The search for a way out quickly leads to Sales. In Europe alone, Sales and Service cost almost EUR 100 billion per year and account for around one-third of the vehicle price," says Landmann. "Under normal conditions, costs in Sales can be reduced by up to 12% through greater efficiency and sales themselves can be increased by about 11% at the same time. So the total potential is in the order of hundreds of millions. In the current crisis, this potential is absolutely essential for survival." In most markets, the network density among dealerships is too high and the dealers' average returns too low. Instead of leaving the dealer networks to their own devices, now is the time to increase the efficiency of dealership networks. Helped by the necessary equity from OEMs, healthy dealership businesses should be in a position to take over and restructure their troubled colleagues of the same brand. In the European networks alone, OEMs need to raise EUR 300-500 million for this purpose, money they will be compelled to save elsewhere – even delaying new models if required.

Sales Agenda 2009/2010

The Sales Agenda 2009/2010 identifies seven actions in automotive sales that point the way out of overproduction and overstaffed dealership networks:

• Reduce new car inventories
• Professionalize the used car business
• Reorganize the dealership network
• Expand the service and spare parts business
• Professionalize sales at the point-of-sale
• Consolidate the wholesale stage
• Position and developed the brand

By taking these actions, European OEMs can increase their profits by at least EUR 200 million. This is assuming that only half of the Agenda will be implemented and that the bottom-line effect will be shared between OEMs and dealers.