Prepare Now for Chinese Franchise Laws
The buzz among Chinese dealers and automaker associations is that China is considering implementing dealer franchise laws. In China, pent-up market demand and the desire to increase market share drives OEMs to appoint and open dealerships as fast as they can, sometimes with limited network planning. The new dealer franchise laws, which will be designed to protect the franchisee and its investment, will limit the flexibility automakers currently have when it comes to location selection. Whether the laws are location/distance-based like the United States or standards-based as in the case of European Block Exemption Laws, long-term network planning will be necessary for OEMs to figure out how many dealers are needed, and where and when to place them within their network.
OEMs must find the optimal number of dealers - enough to support the brand and service the consumer, but not so many that the investment becomes unattractive for franchisees. In order to monitor the health of the brand and the dealership network, OEMs will also have to work with franchises to set and track standards for financial and sales performance.
Interestingly, these same laws will likely have an impact on dealers who have set up second- and third-tier networks of their own. Currently the OEMs have little or no control of these additional networks and, as a result of the new franchise laws, the dealers may lose control of them as well.
While the potential laws may restrict OEMs, if dealt with in a planned manner, they will allow both the OEMs and dealers to have some certainty regarding their locations and investment. If OEMs take this as an opportunity to plan out their locations for the long term, (i.e., taking the time needed to determine what areas make the most sense considering vehicle registrations and future growth patterns), the OEM, dealer and consumer should all benefit.
To begin planning your optimal dealer network in China, contact us at insights@urbanscience.com.
John Frith, vice president of emerging markets, is an expert on the changing retail landscape in China. He has coached automakers on how to ensure their brands will remain successful as market forces shift, and is a resource on effective operator agreements and customer lead tracking.
