Former Global Sales Director at Jaguar Land Rover
Andy Goss has worked on four different continents for French, German, British, and Japanese automotive companies since the early 1980's. Goss was European Sales Director at Toyota from 1992-99 where he helped bring the Carina E and Corolla to market. He then held the position of CEO of Porsche Cars, UK for 12 years before moving to President of JLR North America in 2011 where he was respo nsible for all of the US operations. Goss was then appointed as Global Sales Operations Director in 2013 where he was responsible for global sales and customer service reporting directly to JLR CEO Dr Ralf Speth.Read moreView Profile Page
I'm curious about the organizational structure of OEMs today. From my experience, you get two types of employees: the core engineers and the sales and marketing focused employees. Is that fair? How do you look at the different units within an OEM?
I wouldn't undercut the finance function. The finance function is clearly critical as well. But, yes, at the end of the day, if you go along with the long-standing concept that product is king then engineers and designers - very much depending on the car manufacturer you're working at - are top of the tree. You can quite easily imagine that within Porsche, as an example, the vehicle line directors are effectively engineers. They had the job of working in a collaborative fashion across all the functions to effectively birth a car, to bring a car to market and then pass onto the various functions to make that happen. Realistically, I think the decision of labor is largely the engineers with the collaborative support of the designers to birth a car. Then, the commercial operation is there to monetize it through a very different system. Up to now, it has been a franchise system, which means that you’ve not got 100% control of your own destiny, which has always made life interesting in the auto industry.
Could you describe the split in channels for a typical OEM?
Realistically, one way or another, all transactions tend to go through the retailer network. Clearly, at one end of the scale is a normal retail customer going in and buying a car solely for their private use, and at the other end of the scale, you have the large blue-chip companies, the leasing companies and the large daily rental companies. The manufacturer is expected and does have an active involvement in the negotiations, and probably, to a large extent, sets the terms and conditions including the financial terms. But, even then, there is probably a financial transaction that takes place through the retail network because the cars obviously have to be prepped, receive a pre-delivery inspection, and the relationship with that end user also has to be taken account of. So, I guess that bookends the handling charge for the retailer.
So, the retailers are very much in the midst of it, but the manufacturer’s tentacles are still there. In terms of the actual relationship, it very much depends if it’s a one-man band or a retail customer versus very large corporates where there’s a huge expectation to be involved across the industry. Indeed, because of the discounts available to those large operators, the retailer could justify doing that. It’s outside their margin control anyway. So that’s the generic that takes place.
What’s the split roughly between B2B versus going through the retail network?
That depends on the manufacturer and depends on the product line really.
Is the UK mainly dominated by retail networks?
The pure retail market is a minority of the market in the UK. You’ve got the three chunks there: you’ve got Mrs McGinty who’s buying a Nissan Micra, she’s a pure retail customer; then you’ve got the large leasing companies etc.; but you’ve also got a whole bunch in the middle of that, what’s defined as ‘business.’ These are fleets of more than 5 or 6 cars, where those purchases have been made with corporate money, but the decision making as regards to which car to buy, can be made more upon a retail subjectivity aspect. You’ll find that the leasing companies play very much in that middle ground, because the smart way to buy a car now is to pay for the running costs and the depreciation rather than having your whole capital tied up between the hull of the car. The leasing companies and the financial services companies facilitate that through a variety of different products. So, there are effectively three chunks of the marketplace, I would say.
Looking at the dealer networks, what is the split between the different types of dealers in terms of exclusive versus multi-branded dealers?
For virtually every car brand, they want exclusivity. Within certain parameters, they can dictate exclusivity. There’s certain things they can't do, because European legislation and block exemption legislation leads to some shared activities back of house, that can be admin, that can be servicing, it could be parts distribution. But the retail environment can be kept very much in a brand by brand basis. If you actually look at the retailers as a whole, you've increasingly got consolidation, and this will happen even more. Some very large publicly quoted retail groups are multi-brand with way over 100 franchise points across the UK. They tend to try and work on getting a critical mass with a car manufacturer. So, within their own business plans, they have their chosen brands that they wish to work with and wish to develop a relationship with, so that they are to a large extent a preferred partner for that brand. Having that critical mass gives you a critical mass of understanding as well, of how the brand works and how the business model works in that brand. Nowadays, there are fewer and fewer situations whereby you've got a single retail point operated by another driver, because the cost of running a franchise, the profitability of running a single-point franchise, and the inability to create economy and scale are hugely restrictive. In reality, now that manufacturers can look at clicks options as well as bricks options, that there is no future for a single owner driver. You can count the days almost. Increasingly, you get a huge consolidation across the UK car industry, whereby the top 10 will dominate the marketplace, albeit the manufacturer brand is the brand that’s put forward rather than the retailer brand.
What is the typical relationship between the OEM and the dealer? How does this relationship work if the dealer is selling many different OEM brands that each have exclusive retail storefronts or footprints?
I think it starts with organization structure. You’ll tend to get a situation whereby, let’s say the CEO of that retail group has got certain cross-brand directors reporting to them, so it may be a sales director, it may be an aftersales director, certainly there would be a finance director there. Below that level or parallel with that level, you’ll have a franchise director who is responsible, for example, for all the BMW sites (of which there may be 8, 9, 10), or all the Mercedes sites, or Jaguar Land Rover sites. The job of that individual is to create that insight, that inner knowledge of that particular brand and develop the relationship with that brand so that they are increasingly part of the decision-making process with that brand, about policies and procedures that will work in the marketplace, and trying to develop a hand in glove approach.
Just going back for a second to why you need that scale, rather than a single point. There are areas of profitability and a classic one would be financial services, whereby with scale comes increased profitability and increased margins. Without that scale you tend to be uncompetitive. There is a general tendency in terms of unit revenue maximization, it comes with scale across the whole business, and the insight and feeling for the brand that comes with scale.
So each dealer group will have a point of contact for each brand inside their organization?
There are times that it may be clustered. For example, you wouldn't tend to have BMW and Mercedes under the same divisional director, but you could potentially have BMW Group outlets under one umbrella, or if you've got a proliferation of Japanese brands, that could well happen as well, under one divisional director, because getting scale there is more difficult.
I'm curious about pricing and how that leads to incentives for the dealer. How does incentivization work?
Just taking a step back there, what will happen is the OEM will develop a plan for a quarter. These plans are developed some quarters in advance. It is a coordinated plan whereby the messaging in the marketplace, the focused products and the launch and sustainability of those products, the social media activity and the incentives will all work in tandem.
When you come down to the incentive part of that, more likely than not, a target will be set by that brand for that retailer for the quarter either on a model perspective or on a group of models’ perspective. That dealer would be given a target related bonus for achieving the volume of registrations - not always sales actually - for that particular quarter. Therefore, there will be a kickback at the end of the quarter for the registrations that have taken place there. That's a generic scenario. In addition to that, there are a couple of other things that normally come into play.
Firstly, the retailer’s margin is split into different to two elements: a metal margin, which may be around 8%, which is a dealing margin, if you like, for the customer for taking a part-exchange vehicle and so on and so forth; and then there's a holdback margin, which may be up to let’s say 6%, which is the retailer’s qualitative capability of doing things in line with franchise standards.