Manufacturer control creates an ‘upside down’ market

Pulham acknowledged Roger King’s contention that there was a “high degree” of competition and choice in the market, but he said that this competition has not affected prices. And that, he said, is because the market is “upside down” – it is controlled by manufacturers rather than retailers.

For example, he said, benefits such as free insurance are offered by car makers and “you get them whether you want them or not”. Dealers, he said, have little or no room to vary from what is dictated by the car makers they represent.

Critically, he said, the “unique” UK company car market has distorted competition and is a key factor in keeping UK prices higher than they are on the Continent. Because manufacturers control fleet sales and fleets get discounts of up to 35 per cent, which dealers cannot get, dealer margins have been squeezed to half their 1990 level and retail buyers subsidise fleet discounts. The result, said Pulham, is that car makers have cut dealers’ ability to compete “in a fierce manner”.

Fleet sales have risen from less than 15 per cent of the market in the 1970s to half or more of the market today, said Pulham, and that growth is not possible without “somebody paying for it.”

Consumers pay for fleet market growth, he said, because second hand values are established with reference to the heavy front-end discounts fleets get, not the list prices which are much closer to what retail buyers pay.

“It’s nice,” he said, “to think of dealers as an extension of the manufacturers.” But with margins having been halved in recent years, it is clear that brand building has been done at dealers’ expense.