Automotive Dealer Support

Current Situation New retail sales under pressure – no signs of improvement • New car registrations to private buyers fell by 4.4% in 2011 (SMMT) • New car total registrations in 2011 1.94m units (SMMT) • It is estimated that UK new car registrations for 2012 will be 1.84 million, and “could even fall as low as 1.80 million”. (PWC) • The market is 20 % lower than pre-recession levels and the SMMT said the latest forecasts for the UK economy and concerns over the Eurozone were unsettling. Availability of quality early used 0-5 years old vehicles – bread and butter • The Vehicle Remarketing Association (VRA) has warned franchised dealers that the current shortage of used stock will accelerate in 2012. • Car parc reduced from 12.4m in 2005 to 10.4m in 2010 • Impact of lower new registrations in current and prior years

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Current Situation Service Income & Margins • Increasing length of service intervals – more reliable engines; • Reducing car usage as costs of ownership continue to climb (Just Car Clinics) • Increased service competition to main dealer – Halfords, Tesco, bodyshops; independents; etc. Dealer finance – income and penetration • 57.9% of new retail cars bought using forecourt finance (FLA) – increasing PCP (24%) and leasing (38%)

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Current Situation 2011 Demand • Early signs of improvement, but from June onwards the market declined and that situation remains. • Margins under pressure, GP down 1.2% – (BDO) • Prestige sector increased registrations by 7.9% to 30.4% • Prestige gains at the expense of notable double digit decreases, Ford, Fiat, Toyota and Honda. • Economy brands such as Hyundai and Kia appear to be maintaining market share. Diversify and de-risk • Parts distribution and after-sales focus. Lookers have extended banking facilities by £115m for parts distribution business.

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A potential “Cloud on the Horizon” Block Exemption rules (BER) will change in June 2013. •

Non compete clause – Manufacturers will be able to block multi-franchising and require sole representation. • Termination – the two year minimum notice period will end with no obligation to explain terminations. • Vet clause – manufacturer approval will be required when selling dealerships. • Location Clause – Manufacturer authorisation of location will be required. Retailer Concerns • Will manufacturers become more prescriptive and enforce standards? • Will BER extend to other areas such as used cars? • Will dealer contracts be renegotiated? • Will underperforming and lifestyle businesses be in a weaker position than cash positive large dealer groups? • Will manufacturers offer attractive and or sustainable franchise packages? • Will dealers look to exit before BER comes in and drive down the sale price of transactions?

(BER regarding after-sales will stay as they are until 2023) www.trevparker.co.uk

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Automotive Dealer Support • Aside from the shareholders an automotive dealer is structured in such a way that there are normally 3 major funders of the business. – Automotive Franchise – this franchise will be subject to very strict performance conditions and many competitors will be looking to get the franchise. – Stock Funder – the stock funder will have security against the stock. – Clearing Bank – debt is usually secured against property, parts stock and largely goodwill.

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Automotive Dealer Support In this situation, a clearing bank may be at significant risk of losing its security if: – the manufacturer gives notice on the franchise awarding it to a competitor. – The importer or manufacturer goes bust. – The stock funder decides to reduce or withdraw stock funding facilities in order to reduce their exposure.

At this point goodwill starts to erode. www.trevparker.co.uk

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Automotive Dealer Support I provide independent specialist support and advise to funders and Stakeholders. The aim of this support is to provide a solution that will help reduce the banks risk to an acceptable level, and both the customer relationship and the dealer come out from the process stronger …” • I can help de-risk and diversify revenue streams • I can help avoid further increase in the Bank’s risks • I can avoid precipitous action from a stock funder or manufacturer. • Timing is key for a successful business restructuring • Experience is essential to be able to manage the different expectations raised by the Bank, the manufacturer and the stock funder during difficult times • The more time goes by, the less the potential options there may be and the more likely one of the parties is to take precipitous action.

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My Approach I work to identify areas of risk and opportunity and then look to create a plan to overcome and exploit. Working before, during or after a traditional IBR to help accelerate management action. • I liaise with: – Manufacturer – support, relationship, territory plans, national composite performance, standards – Stock Funder – support, retail contribution, audit performance, stock profile, standards. • Because of experience and relationships, build credibility and trust across parties • All parties will have their view and are more likely to work with an experienced operator. www.trevparker.co.uk

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Automotive Dealer Support A positive outcome is greatly dependent on the ability to: – Identify the risks to all parties and create a joined up co-operative approach. – Start dialogue across all parties before one party takes independent action in their own interest. I do this in three ways: – Automotive Dealer Review. – Interim Leadership and Management. – Performance monitoring as a NED.

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Automotive Dealer Support • Automotive Dealer Support is a means for stakeholders to get an objective view of a dealers risk and ability to deliver a plan through the eyes of an independent automotive expert • Dealer support specifically deals with the risks and opportunities associated with Automotive Dealers in stressed situations.

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Automotive Dealer Support

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Automotive Dealer Support •

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My review process meets the needs of banks and company stakeholders who are looking to identify profit issues and opportunities and focus the effort of the management team where it is most likely to have the best effect. I look under the bonnet of motor dealers to see whether profit generation strategies, cost bases, structure, processes, system, people and culture are aligned for maximum productivity. Unlike a traditional accountancy based IBR looking to provide reports, I will either validate the existing plan, “flag” over optimism and/or point to clear profit improvement opportunities. Given I am an operating executive I can assess not just the validity of the numbers but the ability of the business to deliver the plan. I have considerable distressed environment experience, I am able to support the current management team to deliver a result, or act as an interim executive on behalf of stakeholders. The review also provides an accurate baseline for customising a profit improvement plan for the company.

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Summary Specialist Automotive Dealer Support can: • Help avoid further increase in the Bank’s risks • Protect the current security • Reduce the bank’s exposure • Identify Revenue opportunities and issues • Avoid precipitous action from a stock funder or manufacturer. • Timing is key for a successful business restructuring • Ensure early detection of problems Automotive Retail Experience is essential to be able to manage the different expectations raised by the Bank, the manufacturer and the stock funder during difficult times The more time goes by, the less the potential options there may be and the more likely one of the parties is to take precipitous action.

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