The ongoing deregulation of the European car retail sector has attracted a myriad of new entrants into the UK market, as the barriers to entry erected by manufacturers come tumbling down. The main driver has been the campaign against "rip-off Britain", the notion that we pay more for commodities than our mainland European cousins.
The car has taken centre stage in this campaign with the internet as the weapon of choice in the battle for lower prices. This helped UK car sales surge by 10.7% to a record 2.45 million in 2001, surpassing the previous record of 2.3 million sales in 1989.
As a result, hundreds of online car importers have emerged, established high street names as well as brand new internet-only operators, looking to cash in on the price differentials between mainland European and British models.
Not only are list prices generally lower in Europe as a rule - sometimes by as much as 60% - they only invoke VAT once imported into the UK, as local tax on the vehicle is waived.
In April 2000 the DTI ordered car manufacturers to begin lowering UK prices, but compliance has been slow so far. As such, mediating companies such as Chesterfield-based showroom4cars.com have entered the ongoing power struggle between producer and consumer. Entrepreneurial brothers Darren and Mark Duesbury established the online car importer in March 2000, as a spin-off from their already successful internet-based mobile phone retail and e-commerce services holding company, Talking Point.
"At Talking Point we saw we had more capacity and knowledge to move into another market on the internet," recalls Tony Butterfield, business development manager at showroom4cars.com. "The car retail industry was very much behind at the time, so we opted for it. 'Showroom4' would become the umbrella name for all the things we wanted to retail over the web." This includes exclusive Mazda car dealership showroom4 mazda.com, and plans for a showroom4bikes.com. It will also expand into selling light commercial vehicles to small and medium businesses as well as franchising the brand on the high street.
With an initial investment of £500,000, showroom4 cars.com began by offering up to 40% discount on UK list prices for some of the most popular cars in the UK, with home delivery within a week. The company visits European suppliers to negotiate discounts on bulk purchases of vehicles, and secure consistent supply. Since a site revamp last June, buyers pay in sterling, obviating the need to purchase euros and incur commission charges arising from currency conversion.
According to Butterfield, the company "became profitable" last April. The turnover targeted for March 2002 alone is £2.2m, based on sales of between 125 and 150 cars a month, at an average price of £18,000 per car.
Butterfield concedes this projection is higher than for bricks-and-mortar dealers, but insists that showroom4 cars.com customers are generally "early adopters and the south-east affluents" interested in higher-priced models such as the Saab convertible and Audi TT sports car. He adds that such targets are met with almost negligible marketing. "We're very careful in the way we acquire customers. Compared to the likes of Virgin Cars who do offline marketing and sponsorships, we don't get a direct return from this. Because we are privately funded, we need to make a month-to-month profit."
As demand for imported models steadily increased, proof of the increasingly blurring line between internet and bricks-and-mortar businesses emerged for showroom4cars.com last year, as it literally had to pay the price for expansion. In October it was compelled to open a high street showroom at a cost of £500,000.
"We had to begin pre-ordering and delivering our own European stock in order to keep lead times down and retain flexibility of orders," says Butterfield. "For customers who want their cars ASAP through forward ordering, a lot of new problems emerged, but with no established rule book to counter them with."
Along with previously nonexistent inventory costs, came considerations such as the cost and size of car transporters that could literally deliver to the customers' door. But while addressing these new challenges, the older battle with manufacturers raged on as they did their utmost to prevent the arrival of cars that would sell at below their recommended price.
Last year, showroom4 cars.com went head-to-head with Daimler-Chrysler and Porsche, after the manufacturers allegedly raised the surcharge for right-hand drive vehicles, extended delivery times and demanded VAT payments upfront, in a bid to discourage individuals and companies from importing. Although the manufacturers denied such acts when confronted by showroom4cars.com, the importer testified to the European Commission during its investigations into car retail.
By October, the UK government will begin implementing subsequent changes to the so-called block exemption rule - the protective policy that shields car manufacturers and distributors from normal EU anti-competition law. UK dealers will not only be able to source cars from wherever they wish, but also sell different makes under the same roof. This will in turn encourage even more players into the marketplace, and bring the price of UK-sourced cars down further. However, showroom4 cars.com is insistent it will not be adversely affected by the inevitable shakeout. "Showroom4cars.com will be able to negotiate even lower prices with its network of European dealers, as they'll be able to supply to whichever retailers they wish, without the threat of losing their franchise."
And what about the fact that UK car prices will eventually fall into line with their European counterparts anyway, due to the active role of the EU and UK government in lowering car prices? Pre-emptively, showroom4cars.com now sources cars in the UK to ensure it is not caught out should importing become less attractive.
Butterfield is not sure it will ever come to that. "Each country will still have its differential, just as we in the UK have our north-south divide," says Butterfield. "And we'll still be able to use our infrastructure to import at a lower price."
