EU deregulation and dealer-supplier relations in automotive distribution

EU deregulation and dealer-supplier relations inautomotive distribution

Allard C.R. van Riel

Institute for Management Research, Radboud University, Nijmegen, The Netherlands

Veronica LiljanderHanken School of Economics, Helsinki, Finland

Janjaap SemeijnFaculty of Management Sciences, Open University of the Netherlands, Heerlen, The Netherlands, and

Pia PolsaHanken School of Economics, Helsinki, Finland

AbstractPurpose – The automotive industry in the European Union (EU) faces a sharply reduced regulatory environment, with Block Exemption (1400/2002).Economists have predicted fundamental changes in the market as a result of the modified Block Exemption. In this article, the aim is to investigate howthe relationship between a car dealer and its main supplier (i.e. an OEM or its national representative), affects how the dealer perceives threats andopportunities in this more competitive environment.Design/methodology/approach – Based on relationship marketing theory, propositions about antecedents and consequences of commitment to asupplier are formulated for the changing automotive market. Data were collected from 413 car dealerships in Belgium, The Netherlands and Finland,countries without domestic automobile brands.Findings – Commitment to the main supplier is mainly driven by satisfaction and trust. The more car dealers are committed to their main supplier, thelower the threat they perceive from new intermediaries, and the lower their intention to expand their business beyond the current relationship.Commitment to their main suppliers also reinforces their confidence in the future. This confidence in the future spurs dealers’ expansion plans withintheir current relationship.Research limitations/implications – Longitudinal research would allow better inferences about market evolution and causal sequences.Practical implications – Satisfied and committed dealers seem reluctant to make radical changes in their relationships and marketing strategy,apparently being entrenched in traditional channel structures. The modified Block Exemption could increase the average size of dealerships, improvethe competitive position of large dealers, accelerate consolidation in the automotive distribution sector, and decrease competition between traditionaldealerships. Opportunities have been created by the modified Block Exemption for new entrants to capitalize on new market niches and customercategories. Multi-brand dealers could use these opportunities to create a purchasing experience that differentiates them from the traditional dealers.Originality/value – Contributing to scarce research on complex channel relationships within a captive distribution structure, this is the first empiricalstudy of the European car industry in the context of the modified Block Exemption. It is also one of the few studies that takes the perspective of thedealership.

Keywords Relationship marketing, Supplier relations, Automotive industry, Europe, Regulation

Paper type Research paper

An executive summary for managers and executive

readers can be found at the end of this article.

Radical changes in the European car distributionsector?

Until recently, the structure of the automotive industry has

remained fundamentally unchanged (Urban and Hoffer,

1999). In the European Union (EU), the distribution of

new cars and car parts was traditionally done by authorized,

single-brand dealers, appointed and controlled by car

manufacturers (OEM) or their national distributors. The

industry traditionally benefited from a regulatory regime of

vertical restrictions, which prohibited car dealers from

soliciting and selling cars outside their territory (Dutta et al.,

1994; Dutta et al., 1999). These vertical restrictions appear to

have delayed certain competitive developments (Fein and

Anderson, 1997), and hindered cross border purchases by

consumers (Goldberg and Verboven, 2001). The regime was

maintained in the early years of the EU, despite the Union’s

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing

26/2 (2011) 115–131

q Emerald Group Publishing Limited [ISSN 0885-8624]

[DOI 10.1108/08858621111112294]

Received: June 2007Revised: February 2008February 2008Accepted: September 2009

115

drive towards creating more competitive markets. During the

past ten years, the European Commission (EC), the legislative

regulator of the EU (Cini, 2002), has taken various measures

to promote more efficient and more competitive market

structures in the Union, which should ultimately benefit

consumers (EC, 2002). However, the 1995 Block Exemption

(1475/95) exempted the European car industry from these

regulations and allowed car manufacturers to create networks

of selective and exclusive dealerships.The modified Block Exemption (1400/2002), “allowing

dealers to set up secondary sales outlets in other areas of the

EU as well as (in) their own countries” (BERR, 2008), forces

car dealers to make independent strategic decisions with

respect to their future role in the market. Since 2002, car

dealers in the EU face a changed, more competitive

environment, featuring international competition from

independent repair services, other dealers, multi-brand

distributors and new distribution channels. Like distributors

in other industries, car dealers have to make strategic

decisions, such as choosing between selling cars from one or

several manufacturers, and whether or not to adopt new

distribution channels, such as the internet (Scott-Morton

et al., 2001).So far, effects of the liberalization of the car industry in

Europe have mainly been investigated from a macro-

economic perspective. Some researchers have speculated

about the long term, positive effects on competition in the

sector (Brenkers and Verboven, 2006; Goldberg and

Verboven, 2001), but little is actually known, due to a lack

of data. At the same time, there is a substantial lack of

knowledge on a micro level. Fein and Anderson (1997, p. 20)

note that “the influence of selectivity agreements on a

distributor’s business strategy has been virtually ignored in

marketing”. This oversight is partially due to the fact that

most studies in industrial marketing have focused on

industrial relations between producers or original equipment

manufacturers (OEM) and their suppliers (e.g. Claudio de

Hildebrand e Grisi and Puga Ribeiro, 2004; Kim and Michell,

1999), while relationships between distributors and their

main suppliers (the producers or OEM), as well as

distributors’ strategic decisions have been given less

attention (Fein and Anderson, 1997; Frazier, 1999). We

attempt to fill this gap in existing literature by developing an

understanding of how car dealers perceive competitive threats

and develop strategies when vertical restrictions are lifted.

The present study takes a traditional relationship marketing

perspective, but focuses on the role of the relationship

between car dealers and car producers or their national

distributors. Specifically, we investigate:. What are the antecedents of car dealers’ commitment to

their main car supplier in the European car industry?. Will dealers who are strongly committed to their current

main supplier perceive fewer threats, or perceive a

reduced threat level, and have stronger intentions to

expand their business within existing vertical networks?

The study adds to our understanding of strategic industrial

marketing decisions at the level of car dealers in a deregulated

environment, by empirically investigating the role of various

dimensions of existing supplier relationships in shaping the

dealers’ future intentions. The empirical study was

geographically limited to dealers in Finland, Belgium, and

The Netherlands, three countries unbiased by the existence of

domestic car brands.First, literature on supplier relations is reviewed and

hypotheses are formulated about antecedents and

consequences of dealer commitment in the European carindustry. Second, the dealer survey is described and the

results are presented and analyzed. The article concludes with

a discussion of the results, implications for dealers, producers,customers and the government, some limitations of the study,

and suggestions for further research.

The role of the dealer-supplier relationship

All transactions between car dealers and their suppliers, or

manufacturers, are taking place in the context of a long-termrelationship between these channel members. In this article,

we consider this relationship to be continuously evolving

(Zablah et al., 2004). There is abundant literature on supplierrelations (Hunt et al., 2006; Jap et al., 1999), but this

literature is largely focusing on relationships further upstream,

between suppliers and a manufacturer, while we investigatethe relationship of a downstream car dealer with a

manufacturer or its national representative. This type ofsupplier plays a fundamentally different role in the

relationship compared to suppliers investigated in most

previous studies, by being at the same time the mainsupplier, and the creator and promoter of the dealership’s

brand (Glynn et al., 2007). A number of concepts from

research in relationship marketing, however, can beconsidered relevant for our study. Since we are interested in

how existing supplier relations affect European car dealers’

perceptions of threats and opportunities rising in a radicallychanged regulatory environment, we first need to explore the

nature of the relationship between a car dealer and carsupplier. We address the central role of commitment in the

dealer-supplier relationship and the elements that foster it. We

then investigate how commitment to a supplier can influencethe car dealer’s perceptions of its current situation, and its

future strategic intentions.

The central role of commitment in supplier relations

In this study, we do not attempt to explain past or currentrelationship performance (e.g. Lado et al., 2008; Palmatier

et al., 2007), but we discuss factors affecting future intentions

of one of the parties, more specifically the dealer. We wouldlike to understand the changes in car dealers’ marketing

strategies, i.e. in their strategic positioning in the newlychanged market, and thus in their relationship to their main

supplier. This relationship, and particularly the commitment

to their supplier, can be expected to play a crucial role in cardealers’ reactions. Commitment is defined as an implicit or

explicit pledge of relational continuity between exchange

partners (Dwyer et al., 1987), and the enduring desire tomaintain a valued relationship (Geyskens et al., 1999;

Moorman et al., 1992). Committed parties are willing to

make investments (Anderson and Weitz, 1992), and acceptshort-term sacrifices (Morgan and Hunt, 1994) to maintain

the relationship. Commitment is generally considered a goodindicator of the resilience of working relationships (Bauer

et al., 2001; Cann, 1998; Geyskens et al., 1996; Sharma and

Patterson, 2000; Sheu and Hu, 2009; Sweeney and Webb,2007). The question is: “how will this relational bond affect

car dealers’ intentions to make changes in their relationship

EU deregulation and dealer-supplier relations

Allard C.R. van Riel, Veronica Liljander, Janjaap Semeijn and Pia Polsa


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with the supplier in the newly liberalized regulatory

environment?”.Literature about distribution channels considers

commitment to be the outcome of investments in a

relationship (Abdul-Muhmin, 2002) and of a successfulrelationship (Anderson and Weitz, 1989; Morgan and Hunt,

1994; Wilson, 1995). Historical attributes of the relationship,such as its length and quality (Jap et al., 1999), affect the

strength of commitment between partners. In view of thecentral position of commitment and its potential role as an

inhibitor or retardant of radical changes in channel

relationships, it is important to understand the historicalantecedents of commitment in this specific context. The

power of commitment to inhibit relational changes maydepend on the antecedents on which the commitment is

based. Inspired by the body of relationship marketingresearch, we develop hypotheses about the roles of

satisfaction with, trust in, and cooperation with the supplier,

but also about the roles of dependence on the supplier and thesupplier’s use of coercive strategies to influence the way car

dealers manage their business. Even though these conceptsand their relationships have been investigated before, their

relationship to commitment has not been studied extensivelyfrom a dealer perspective, nor in relation to the dealer’s

perceptions of competitive threats and future strategic

intentions.

The role of satisfaction

The car dealer’s satisfaction with their main supplier is theresult of cumulative experiences. Satisfaction is said to explain

channel relationships and channel outcomes to a large extent(Dwyer et al., 1987; Geyskens et al., 1999). Dealer

satisfaction with a supplier can be defined as an overallapproval of the relationship, taking into account relevant past

experiences with that supplier. It is an affective state, resultingfrom the evaluation of a firm’s working relationship with

another firm. Satisfaction has been viewed as a one-

dimensional construct (Jap and Ganesan, 2000), but in acommercial relationship it should reflect multiple aspects,

such as satisfaction with the supplier as a partner (Banthamet al., 2003), interactions with the supplier’s representatives,

the supplier’s services, the supplier’s communication system(MacDonald and Smith, 2004), and economic satisfaction

(Geyskens et al., 1999). In this study, we expect that dealers

who are genuinely satisfied with their cumulative experienceswith their supplier would like to maintain their relationship

with that supplier, even when economic or legislativecircumstances change:

H1. Satisfaction with the main supplier positively affectsdealer commitment to that supplier.

The role of trust

Another factor that may affect the willingness of dealers toeither change or maintain their current relationship is the

amount of trust they developed over time in the supplier.

Trust is defined as the “willingness to rely on another partyand to take action in circumstances where such action makes

one vulnerable to the other party” (Doney et al., 1998, p. 604).Trust is central to long-term relationships (Chung et al., 2008;Leonidou et al., 2008; Rousseau et al., 1998; Singh andSirdeshmukh, 2000). It is the basis for co-operation between

partners (Hewett and Bearden, 2001; Lewicki et al., 1998)

and develops over time (Wilson, 1995). Trust becomes

particularly meaningful when one party feels vulnerable in the

relationship (Singh and Sirdeshmukh, 2000). Since Europeancar dealers have been dependent on their suppliers for a long

time, it is important to investigate to what extent they havedeveloped trust in their suppliers, since this level of trust may

strongly affect their perception of competitive threats, andtheir willingness to maintain their current relationship at this

potentially critical moment. In supplier relations,

commitment is typically conceptualized as a consequence oftrust (Bantham et al., 2003; Geyskens et al., 1999; Grayson

and Ambler, 1999; Hadjikhani and Thilenius, 2005;MacDonald and Smith, 2004; Moorman et al., 1992). A

similar relationship can be expected from the dealer’sperspective. Hence:

H2. Trust regarding the main supplier positively affects

dealer commitment to that supplier.

The role of cooperation

The selective and exclusive relations that have existed for a

long time between European car dealers and their suppliers

have created a unique opportunity for extensive collaborationand cooperation. Cooperation, alternatively defined as

“situations in which parties work together to achieve mutualgoals” (Morgan and Hunt, 1994, p. 26), “similar or

complementary coordinated actions taken by firms ininterdependent relationships to achieve mutual outcomes or

singular outcomes with expected reciprocation over time”

(Anderson and Narus, 1990, p. 45), or “the joint strivingtowards individual and mutual goals” (Skinner et al., 1992,p. 177), generally improves channel relations (Anderson andNarus, 1990; De Ruyter and Wetzels, 1999; Polo-Redondo

and Cambra-Fierro, 2008; Wilson, 1995). In our view, theexistence of mutual goals, joint actions and decision-making,

and joint service development between suppliers and dealers

will lead to increased trust and commitment. This viewimplies that we conceptualize cooperation as an antecedent of

relational constructs, rather than as an outcome (seePalmatier et al., 2007). Cooperation must be considered to

be independent of conflict, since conflicts can coincide withcooperative actions (Frazier, 1983). For example, exchange

partners can have disputes about targets, but continue to

cooperate, because both parties’ relationship terminationcosts are high. In vertically integrated distribution channels,

we expect cooperation to have a positive effect on dealercommitment:

H3. Dealer-supplier cooperation positively affects dealercommitment to the supplier.

Dealer dependence and supplier influence strategies

Dealer dependence and supplier influence strategies are

crucial for understanding channel relations (Chung et al.,2008; Dapiran and Hogarth-Scott, 2003; Kumar et al., 1995;Lai, 2009). In a franchise distribution system, it is usually thefranchisor that exerts power over the franchisee (Quinn and

Doherty, 2000). In general, car dealers are dependent on their

main suppliers, although some large dealers have shown topossess substantial negotiating power (Kumar et al., 1998).Even in trusting, cooperative relationships suppliers mayattempt to change or modify dealer behaviors, and dealer

dependence can therefore co-exist with trust (Kumar et al.,




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1995). We first explore the way in which European car dealers

have come to depend on their main suppliers.

Dealer dependenceDespite the need to cooperate, many channel relationships are

adversarial (Dwyer et al., 1987; Jap and Ganesan, 2000). In

the European car distribution system, the dealers have

traditionally been highly dependent on their main supplier

(Pfeffer and Salancik, 1978), to the extent that:. a very substantial part of the dealer’s sales used to come

from a single supplier (El Ansary and Stern, 1972), i.e. the

national representative or distributor of the dealer’s brand;. the national representative or distributor used to have

complete discretion over the dealership; and. the dealer used to have very few, if any, alternative

suppliers.

Economic dependence also existed, and may continue to

exist, as a result of important differences in bargaining power

(Crook and Combs, 2007). Dependence on a supplier, in this

context, increases dealer commitment to their suppliers

(Andaleeb, 1996; Carr et al., 2008; Chung et al., 2008;

Kumar et al., 1995). The prospect of losing their main

supplier, their dealership of this particular brand, or the

relatively high outcomes of the relationship with their supplier

reduces their intentions to make radical changes (Anderson

and Narus, 1984; Frazier, 1983). Economic dependence was

found to negatively influence adoption of technological

innovations from a supplier (Hausman and Stock, 2003). It

may, however, not be possible to generalize this finding to the

context of European car dealers and their main suppliers.

Despite economic dependence, adopting innovations from the

supplier is an important means to show commitment to the

relationship in this context. We therefore propose that:

H4. Economic dependence on the main supplier positively

affects dealer commitment to the supplier.

Influence strategiesPower presents a potential for influence (Frazier, 1999; Payan

and McFarland, 2005). Influence strategies may positively

affect supplier relationships (Frazier, 1999), when the

strategies help dealers to make decisions with positive

consequences. In general, however, influence strategies have

negative connotations and do not foster cooperation (Benton

and Maloney, 2005; Kumar, 2005; Lai, 2009). Through

coercive influence strategies suppliers attempt to make dealers

comply with their plans. In cases where a dealer does not

comply voluntarily, suppliers may use sanctions and

references to legal contracts, or try to influence the dealer

by promising rewards (Payan and McFarland, 2005).

Intermediaries often imitate the behavior of suppliers.

McFarland et al. (2008) found that influence strategies used

by suppliers may evoke similar behavior in dealers towards

customers. This finding implies that coercion strategies at the

level of the supplier could have very negative effects at the

market level. In a study of car dealers, Frazier and Summers

(1984) found that information exchange was the most used

influence strategy, followed by requests, recommendations,

promises, threats and legalistic pleas. However, in practice

threats and legalistic pleas are rarely used to exert influence

over distributors (Payan and McFarland, 2005). Non-

coercive tactics, such as information exchange,

recommendations and requests typically characterize

cooperative relationships (Benton and Maloney, 2005). We

expect that:

H5. The use of coercion by the main supplier has a direct

negative effect on cooperation.

Competitive threats and confidence in the future

Competitive threats can be defined as actions from new

entrants, competitors, suppliers, or customers, and substitute

products or services that negatively influence theattractiveness of the current economic activity (Porter,

1980; Porter, 1985). “Threat is distinct from opportunity in

that threat has a negative connotation, and it is associated

with lack of control and the expectation of loss” (Jackson and

Dutton, 1988, p. 387). Under the new EU regime, car dealers

will face competitive threats from other brands and new

distribution channels, such as multi-brand dealers,

supermarkets, leasing companies, outlets owned andoperated by their current supplier, and the Internet. As a

result of these threats, dealers can no longer make the

assumption that their current service territory, or their current

range of economic activities, will continue to generate

profitable sales in the future. The more committed the

dealer is to the supplier, however, the less ominous these new

threats are likely to appear. Dealers expect benefits from their

continued relationship with the supplier, in the form of

reduced costs, increased profits and benefits with respect todifferentiation (Ghosh et al., 2005). They would therefore

expect that their commitment to their supplier would

strengthen their competitive position. Hence:

H6. Increased car dealer commitment to the main supplier

reduces the dealer’s perception of competitive threats.

Dealers who trust their current supplier and are committed to

the relationship, are likely to perceive less of a threat, and are

thus more likely to feel confident about the relationship and in

control of their dealership’s future, despite the changing

environment. We define confidence in the future as the

dealer’s attitude towards the perceived future viability and

continuity of the firm (see Anderson and Weitz, 1989;Gundlach et al., 1995). Hence:

H7. Increased car dealer commitment to the main supplier

positively affects the dealer’s confidence in the future.

Expansion

Under the new EU regime, manufacturers must choose

between either exclusive or selective distribution systems,

although they still have the freedom to implement selective

distribution in one market and exclusive distribution inanother. These options create expansion opportunities for the

dealers. Dealers in a selective distribution system are now

allowed to open additional sales outlets for the distribution of

new cars in all markets where selective distribution is used.

When an exclusive distribution system is chosen,

manufacturers or their representatives may prohibit dealers

to open additional outlets, but must allow them the sales of

new vehicles to all customers, including unauthorizedresellers, such as supermarkets, or internet resellers. On the

one hand, the old regulation protected car dealers from

competition within their territories, while on the other hand it

kept successful retailers from pursuing additional business

with other brands and in other markets or territories.




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In general terms, dealers may expand their business by

becoming a product or brand specialist, by consolidating with

other dealers, and/or by expanding into new channels and

regions. From a relationship process perspective, commitment

to the current supplier, driven by trust in the supplier and

satisfaction with the current relationship, is expected to affect

dealers’ future strategic intentions as follows:

H8a. Commitment to the main supplier positively affects the

dealer’s strategic intention to expand the dealership

with the current supplier.

In the liberalized European car market, dealers are now

permitted to build relationships with suppliers of other car

brands. Strategic choices, such as expanding sales to include

other car brands could jeopardize the dealers’ established

relationship with their supplier and could result in negative

consequences, such as a reduced availability of popular models.

The dealer’s past investments in brand-specific repair and

maintenance equipment often cannot be redeployed to other

brands. Commitment to a supplier will make it exceedingly

difficult for the dealer to engage in business with other,

competing suppliers, or to end the relationship altogether

(Andaleeb, 1996; Giller and Matear, 2001; Kumar et al., 1995).Second, no first-hand information is available about the

practices and services of competing suppliers. The

unavailability of this type of information would increase the

perceived risk related to expansion beyond the current

relationship. With dealers having limited information about

other suppliers and brands, and in the possession of full

knowledge about their current relationship, commitment to

the current supplier is expected to affect dealers’ future

strategic intentions as follows:

H8b. Commitment to the main supplier negatively affects

the dealer’s strategic intentions to expand the

dealership with brands from a different supplier.

Figure 1 visually represents the proposed relationships in a

conceptual model.

Methodology

To validate our conceptual model, an empirical study was

designed, based on past research on channel relationships and

extant literature on the expected changes to car distribution in

the EU.

Measures

Most items used in our study were adopted from existing

literature, sometimes with slight modifications to suit the

specific car industry context, and the relationship between a

main supplier and a car dealer, while a few new items were

developed specifically for the purpose of this study. Existing

scales were identified through a review of prior studies in the

domains of industrial and relationship marketing. Dealer-

supplier relationship constructs were measured with measures

from past research (Anderson and Narus, 1990; Frazier et al.,1989; Ganesan, 1994; Geyskens et al., 1999; Kumar et al.,1995). Commitment was measured with five items, based on

the scale developed by Anderson and Weitz (1992) and

refined by Day (1995), Moorman et al. (1992) and Geyskens

et al. (1996). Satisfaction was measured with five items, based

on the scale developed by Ganesan (1994) in a similar

context. We measured trust with five items based on the scale

developed by Dwyer et al. (1987), and refined by Wilson

(1995). Cooperation was measured with six items based on

the scale developed by Anderson and Narus (1990). Wemeasured coercion with three so-called threat-items based on

a scale developed by Katsikeas et al. (2000). Katsikeas et al.(2000) developed their scale taking into account the work of

Boyle et al. (1992), Frazier and Summers (1984), Frazier et al.(1989), and Gaski (1984, 1986). The dependence construct

was measured with two items measuring economicdependence as the suppliers’ share in the total business (e.g.

Frazier et al., 1989).The confidence in the future construct was measured with

three items based on dealer interviews. These items are basedon both the sentiment in the market, as expressed by the car

dealers during personal interviews (e.g. “Dealerships with a

close relationship with the importer are going to do well”), aswell as on what EU regulators expected to happen as a result

of the new regime. The questions on perceived competitivethreats and dealer expansion strategies were developed in a

similar way, based on personal interviews with car dealers. Tomeasure the perceived competitive threat, respondents were

asked how they expected various threats (e.g. “supermarketswill become a competitive threat (cars, spare parts,

accessories, servicing and financing)”) to materialize in theirregion within the next five years. In order to measure their

strategic intentions, they were then asked how likely it was

that their dealership would react within the next five yearswith any of a number of possible marketing strategies (e.g.

“expanding your dealership to sell and service brands fromother importers”). Items related to the dealers’ perceptions of

competitive threats and their strategic intentions, as well astheir average values in the three territories, are listed in Table

I. Items used in the PLS analysis and their descriptivestatistics are presented in Tables AI-AII in the Appendix.

Measurement

All items, with the exception of the two items measuringeconomic dependence as the suppliers’ share in the total

business (percent), were measured on seven-point Likert type

scales as self reported attitudes towards a range of statements.The scales were anchored at the extremes and went from

“strongly disagree” (1) to “strongly agree” (7).

Data collection

Data collection was executed in two phases. Phase one

consisted of a pre-test of the measurement instrument. Weasked several car dealers in two countries (The Netherlands

and Belgium) to review our questionnaire. These dealersidentified potential problems regarding the wording of some

of the items and the structure of the questionnaire. Severalchanges were made to the survey instrument, based on the

comments of these reviewers. The definitive questionnaire

contained approximately 110 undisguised, topically organizedstatements (Judd et al., 1991). The survey was then sent to

dealers in Finland, Belgium and The Netherlands. These areall small European countries without domestic automobile

brands. The national importers of the brand are thus theirsuppliers. A cross-sectional design was used. The

questionnaire was constructed in English and thentranslated into Finnish and Dutch. Single back translation

was used between the English and the foreign languageversions to assure equivalence of meaning between the three

versions.




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Table I Perceived competitive threats and strategic intentions, country comparison

Finland

(n 5 129)

Belgium

(n 5 102)

The Netherlands

(n 5 178)

ANOVA

F-valuea

Perceived competitive threatsSupermarkets will become a competitive threat 2.36 2.93fh 2.25

Multi-brand dealers will become a competitive threat 3.16 3.75f 3.43 3.762

Leasing companies will become a competitive threat 3.83 4.07 4.02

Outlets owned by the current importer will become a competitive threat 2.78h 3.74f 3.47 9.705

Car sales over the internet will become a competitive threat 3.35b 2.97 3.07

Other dealers will start selling your brand 3.06h 3.74h 3.41 4.918

Independent repair services will perform maintenance and repair services

on new cars of your brand 3.53 4.09hf 3.54

Fast service outlets will seriously compete with your dealership for simple

but profitable maintenance and repair services 4.26 4.31 4.47

Dealers’ strategic intentionsExpanding your dealership to sell and service other brands from your

current importer 3.61h 3.75h 3.26 7.074

Expanding your dealership to other regions 4.21 3.46f 4.22b 8.148

Expanding your dealership to start selling cars via the internet 2.66 3.00 3.15 3.149

Expanding your dealership to start selling in other countries/markets 1.98 3.71f 3.94f

Expanding your dealership to sell and service brands from other importers 1.70 2.76f 2.97f

Change your core business to servicing cars of all brands 5.12bh 4.25 3.88

Set up a cooperative with other dealers 6.05bh 5.23 5.08

Continue working as you do now 5.80bh 4.56 4.94

Notes: aReported for variables with homogeneous variances between all countries (Levene’s test); f, b, h ¼ Significantly ( p , ¼ 0.05) different fromf ¼ Finland, b ¼ Belgium, h ¼ The Netherlands

Figure 1 Conceptual model




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Sample

To obtain a representative sample, mailing lists were obtained

from the national car dealer associations in the respective

countries (Autontuojat r.y. in Finland, FEBIAC in Belgium

and BOVAG in the Netherlands). In Finland, the

questionnaire was sent to 700 dealers, yielding 129 usable

responses, and a response rate of 18 percent. In small

countries with a dispersed population, such as Finland,

dealers have been allowed to represent more than one brand.

Where this was the case, i.e. in case of multi-brand dealers, we

followed Frazier and Summers (1984), to the extent that data

were only collected for the dealer’s primary brand. The

questionnaire was sent to dealer principals, who represent the

dealership in its contacts with other organizations. In

Belgium, 1,000 of the 3,164 dealers (32 percent) were sent

questionnaires, of which 107 were returned and 102 retained

for analysis, resulting in a response rate of 10 percent. In the

Netherlands, 1,500 of the 3,228 dealers (46 percent) were

sampled. Fifty-nine questionnaires were returned as

undeliverable and 178 yielded responses, resulting in a

response rate of 12 percent. A total of 413 usable

questionnaires were thus received. The response rates are in

line with other studies directed at people in managerial

positions. To check for late response bias, early responses in

each country were compared with late responses in the same

country (Armstrong and Overton, 1977). Differences

between early and late respondents were not found to be

significant (significance varied between 0.304 and 0.938).

Table II provides relevant demographics on the car dealers in

the sample.

Analysis and findings

First, the data were screened for missing values. There are

several options for dealing with missing values. The simplest

option is to delete the cases list-wise. This approach leads to

unbiased parameter estimates, but it reduces the statistical

power of the tests. To maintain the statistical power of our

tests, and only in cases where this had little consequence – i.e.

when only one or two values of randomly distributed

independent variables were missing – missing values were

substituted by the means (Hair et al., 2007). This was the case

in less than 1 percent of the data points. Using mean

substitution produces a very small change in the correlation

coefficients and no changes in regression coefficients

(McKnight et al., 2007). Furthermore, the distributions of

all variables were checked for normality, but no extreme cases

were found.Data from three different countries were used in the study,

collected by means of a single-back translated measurement

instrument. However, there are significant cultural differences

between the three countries, and thus it was considered

necessary to establish construct or structural equivalence

across the three sub-samples (Van de Vijver and Leung,

1997). The procedure we used is an exploratory factor

analysis, followed by a so-called target rotation, as described

by Wrigley and Neuhaus (1955). In essence, factor analyses

were conducted on the three subsamples, and the resulting

solutions were tested for equivalence. This procedure

produces a value of Tucker’s coefficient of agreement, or

Tucker’s Phi for each factor. Tucker’s Phi values higher than

0.95 are considered to point at full structural equivalence

(Van de Vijver and Poortinga, 1994), where values lower than

0.85 indicate non-negligible problems (Ten Berge, 1986). In

our data set, the values for the comparison between the Dutch

and the Belgian samples were all higher than 0.95. For the

comparison between the combined Belgian-Dutch sample

and the Finnish sample, most of the values were higher than

0.90, with a few values as low as 0.87. This means that we can

conclude that the cultural differences between the Finnish

and the Belgians and the Dutch, although present, do not

compromise the structural equivalence of our measurement

instrument.Since measurement instruments from different studies were

combined, exploratory and confirmatory factor analyses

(CFA) were performed on all items. An exploratory factor

analysis, using maximum likelihood (Fabrigar et al., 1999)

and direct oblique rotation, to avoid loss of valuable

information, and to obtain a reproducible solution (Costello

and Osborne, 2005) was used to verify if the items and

sometimes rephrased wordings successfully reflect the same

factors as intended in the original articles (see for example,

Thompson, 2007). Through these analyses, a few items that

exhibited low communality (,0.40), high levels of cross-

loadings (i.e. loaded on more than one component with values

.0.30, a value that is commonly used in the literature) or did

not load highly (.0.70) on the expected factors were dropped

from the analysis, while maintaining at least three strong

(.0.50) loading items per factor (Costello and Osborne,

2005). The purification of the scale was done with a strong

focus on face validity of the factors (Preacher and

MacCallum, 2003). A list of the retained items after CFA

in SmartPLS (Ringle et al., 2005), their means and standard

deviations, as well as factor loadings and t-values for the total

Table II Dealer demographics

Percentages

Dealer characteristics Finland Belgium The Netherlands

Number of cars sold per year<120 19.7 36.0 19.5

120-279 20.5 25.0 31.1

280-649 22.8 28.0 24.7

650 > 37.0 11.0 24.7

Number of employees<9 14.5 49.5 16.9

9-19 18.6 22.8 31.7

20-42 25.0 19.8 26.5

43 > 41.9 7.9 24.9

Number of years of dealer relationship with distributor<10 32.3 21.6 19.3

10-21 23.3 38.4 26.7

22-32 18.6 26.5 28.4

33 > 25.8 23.5 25.6

Number of years of personal relationship with distributor<6 32.0 15.7 22.9

6-12 28.9 24.5 24.0

13-20 19.6 34.3 29.7

21 > 19.5 25.5 23.4

Notes: The cut-off point is based on a division of the total sample intoquartiles




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sample are presented in Tables AI-AII in the Appendix1. As

can be seen from this table, all remaining items load highly

(.0.70) and significantly on their respective constructs, while

composite reliability measures largely exceed 0.70 for each

construct (Nunnally and Bernstein, 1994), warranting

convergent validity of the factors. To warrant sufficient

discriminant validity between the factors, the square root of

the Average Variance Extracted (AVE) of each factor should

exceed the correlations between that factor and all other

factors (Fornell and Larcker, 1981). This was the case for all

factors in our study. A matrix containing correlations between

the factors, and the square root of the AVE on the diagonal is

presented in Table III.Partial least squares (PLS) path modeling (Chin, 1998), a

prediction oriented variance-based approach (Henseler et al.,2009), was used to simultaneously estimate all relationships

put forward in the conceptual model (the inner model) and

the relationships between observed and latent variables (the

outer model). The objective of PLS is to maximize the

amount of explained variance in the dependent variable(s)

(Streukens et al., 2005). There are various reasons to opt for

PLS. In the first place, our sample, consisting of three sub-

samples from different countries was not homogeneous. PLS

is known to be particularly robust in the case of heterogeneity

among observations. PLS estimates for factor loadings are

often overestimated while path coefficients may be

underestimated (Hsu et al., 2006). We attempted to counter

these potentially negative effects by maximizing the sample

size and the number of indicators per construct (Chin and

Newsted, 1999). Given the exploratory nature of part of the

study and our emphasis on theory development, rather than

theory testing, PLS was particularly useful given its

prediction-oriented nature (Barclay et al., 1995; Fornell and

Cha, 1994).We investigated the effects of satisfaction, trust,

cooperation, coercion, and dependence on dealers’

commitment to their supplier. We also examined the effects

of this commitment on perceived competitive threats and

confidence in the future, and the association with expansion

within and beyond the existing supplier relationship. The

results of the estimation of the model are visualized in

Figure 2.Most of the hypotheses were confirmed in the empirical

study, with one notable exception. No direct effect was found

between cooperation and commitment. This effect was fully

mediated by satisfaction. H3 is therefore not confirmed by the

data. In addition to the hypothesized direct relationships, a

number of interesting mediation effects were found. We have

tested these mediation effects for significance (see Shrout and

Bolger, 2002) and reported the results in Figure 3. From

Figure 3, it becomes clear that the relationships between

commitment and expansion within and beyond the existing

relationship are partially mediated by confidence in the future

and the perception of competitive threats respectively.

Commitment thus has both direct and indirect effects on

future strategic intentions. Partial mediation was also

confirmed for the relationships between coercion and

satisfaction (via cooperation), cooperation and satisfaction

(via trust), and between trust and commitment via

satisfaction).The PLS analysis, conducted in SmartPLS (Ringle et al.,

2005), shows that commitment of the dealers to their supplier

is largely determined by their trust in, and satisfaction with,

the relationship on the one hand, and dependence on the

supplier on the other. No strong direct effects were found

between cooperation and commitment. Satisfaction was

found to be an outcome of both trust and cooperation.

Coercion, as expected, affects cooperation negatively.

Commitment appears to explain the dealers’ confidence in

the future development of the dealership2, as well as the

perceived severity of threats. However, the expected direct

effects of commitment on expansion within and beyond the

current dealership were not found.

Perceived competitive threats and intended strategies

in the three countries

One-way ANOVAs were performed to test for country effects

on perceived competitive threats, and strategic intentions (see

Table I). They reveal a country effect regarding the threat of

multi-brand dealers, outlets owned by the current importer,

and the threat of other dealers starting to sell their brand.

Belgian dealers perceived, on average, the highest levels of

threats. Finnish dealers perceived car sales over the Internet

as a larger threat than Belgian and Dutch dealers. Fast service

outlets were perceived as most threatening in all three

countries, with scores above five. In addition, the threat of

leasing companies and independent repair services were

Table III Pearson correlations between factors. AVE (average variance extracted) is reported on the diagonal

n 5 413 Mean Std (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Satisfaction (1) 4.41 1.28 0.83

Trust (2) 4.25 1.19 0.784 * * 0.80

Cooperation (3) 3.88 1.27 0.748 * * 0.778 * * 0.80

Coercion (4) 3.70 1.55 20.313 * * 20.260 * 20.264 * 0.89

Economic dependence (5) 71.00 24.53 0.227 * 0.251 * 0.174 0.006 0.90

Commitment (6) 5.54 1.08 0.688 * * 0.689 * * 0.624 * * 20.149 0.365 * * 0.77

Confidence in future (7) 4.93 1.15 0.434 * * 0.426 * * 0.435 * * 20.164 0.085 0.452 * * 0.79

Competitive threats (8) 2.79 0.95 20.324 * * 20.245 * 20.214 * 0.237 * 20.076 20.348 * * 20.259 * 0.61

Expansion beyond (9) 3.04 1.14 20.259 * 20.279 * * 20.210 * 0.242 * 20.168 * 20.239 * 20.120 0.350 * * 0.56

Expansion within (10) 4.47 1.02 0.276 * * 0.229 * 0.263 * * 20.051 0.080 0.322 * 0.394 * * 20.167 20.071 0.66

Notes: *Correlation is significant at the 0.05 level (two-tailed); * *correlation is significant at the 0.01 level (two-tailed)




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Figure 2 Empirically validated model

Figure 3 Mediation effects




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relatively high in all countries compared with the other

options. In general, most threats were perceived as moderate.Some country specific effects were found for expansion

alternatives with the current importer, including other brands,

other regions and the Internet. Dutch dealers were less likely

than the Belgians and the Finnish to expand to other brandsof the same importer. Belgian dealers were less likely to

expand to other regions, and Finnish dealers had the lowestmean for starting to sell cars over the Internet. Expanding to

other regions, or starting to service all brands, showed higher

means in relation to other options in all three countries, butthe most likely strategies were “setting up a cooperative with

other dealers”, or “continuing to work as we do now”.We also compared relationship constructs in the three

countries. Due to space limitations, we do not present

detailed results. We observed that Finnish dealers perceive

higher satisfaction, trust and cooperation and lower explicitinfluence strategies than their Belgian and Dutch

counterparts. No significant differences could be discerned

between the Belgian and Dutch means of these constructs, orbetween the three countries regarding implicit influence

strategies, dependence, or dealer commitment to the supplier.

Discussion and conclusion

The overall aim of this study was to investigate dealers’

current supplier relations and their effect on perceived threats

and anticipated marketing strategies in light of the new EUregulation. Dealer commitment was expected to play a major

role in the perception of threats from the competitiveenvironment, and to influence expansion intentions within

and beyond the current supplier’s network.The results show that Finnish, Belgian and Dutch dealers

are highly dependent on their main supplier. Average

percentages of annual sales and profits generated by

business with their main supplier currently exceed 70percent of their total business. Dependence on the supplier

contributes to the dealers’ commitment to their main supplier

in all three countries, whereas cooperation does not have adirect effect on dealer commitment. Trust directly influences

commitment, in line with our expectations, but we also founda strong and very significant indirect effect of trust on

commitment. In our view, this result could be explained by

assuming that in this specific context, commitment is stronglydriven by satisfaction. Trust with respect to the main supplier

appears to increase car dealer commitment. The effect of this

trustful relationship on their satisfaction with the relationship,however, is even greater.It seems that dealer commitment is largely calculative and

based on perceptions of dependence. Dealers have invested inshowrooms, sales training and brand-specific repair

capabilities. These investments create strong bonds with thesupplier (Liljander and Strandvik, 1995; Wendelin, 2004) and

enforce commitment. In long-term relationships, unrealistic

expectations or feelings of being taken advantage of maydiminish the effects of trust (Grayson and Ambler, 1999).

This may well be the case for car dealers. In addition,

Anderson and Jap (2005) have reported cases where closerelationships have led to opportunistic behavior by both

suppliers and buyers, negating the expected positive effect of

trust and a close personal relationship. More research isneeded on the development of relationships, in particular on

the negative effects that they may have on business.

Our hypothesis that coercion strategies negatively affect the

level of cooperation was supported, in congruence withHausman and Stock (2003), who found that coercion

negatively affects cooperative innovation. Furthermore, wefound that relationship satisfaction strongly and positively

affects commitment.Car suppliers, who may feel confident about the

relationship with their dependent dealers, must therefore

remain cautious regarding exercising their coercive power.Keeping car dealers satisfied in the relationship by helping

them to create value for the end consumer (Gronroos, 2008)appears a logical strategy to follow.Regarding dealers’ perception of threats and their strategic

intentions to expand, we observed that the mean scores were,

in general, low for all three countries. The largest threat, justabove the middle of the scale, were fast service outlets

performing simple but profitable maintenance and repairservices. These outlets, however, already existed before the

new regulation. More complex repairs, involving proprietaryand security systems, were already the exclusive realms of

official dealers. Thus, dealers appeared to perceive fewimmediate threats based on the new regulation. This

perception may be related to their confidence in the futuredevelopment of their business.Although the new regulation allows dealers to offer

additional brands and to actively market their current brand

in other territories, structural changes in dealer networks arelikely to be slow: Manufacturers are likely to remain restrictive

regarding their choice of distributors. High investment costswill also impede dealers in expanding their business. For

example, the premises would have to be adapted to diversebrands in the way department stores have created “stores

within the store” for designer brands. Economies of scalecannot be easily achieved. Investments in new inventories,

equipment and personnel may outweigh the economicbenefits of offering a wider selection of car brands to

customers. In practice, exceptions to single brand dealershave been made in small markets with a low population

density, such as Finland and Scandinavian countries, where

multi-brand and multi-manufacturer dealers are alreadycommon. Of the reactive strategies, setting up a cooperative

with other dealers was the most likely strategy in all threecountries, followed by starting to service cars of all brands,

and expanding to other regions.

Managerial implications

The findings of our study have implications for car suppliers

and dealers, but also for customers, governments and new

entrants. The new regulation will reduce the power ofsuppliers, but it may not substantially change the dependency

between dealers and suppliers. Relationship structures basedon one brand or supplier tend to lead to a unilateral

dependency structure, capturing the weaker member in thestructure. Dealers may even perceive the current structure as

rewarding and sustainable: They have so far adaptedthemselves to the situation, which partially explains their

reluctance to further change. The effort historically made bysuppliers in building a complex network of dealers, promoting

and selling their unique brand, cannot easily be undone.Suppliers are cautioned not to use coercion to influence the

dealers. Instead, they should focus on facilitating the dealersto become a better supplier to consumers (Gronroos, 2008),

i.e. car brand buyers.




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To reduce dependency on a single supplier, dealers could

aim at diversifying their business relationships. However,diversification is inhibited by past financial and contractual

agreements (leading to inertia), or past investments (leadingto a lock-in). Since most dealers cannot afford contracts with

various car suppliers, an option could be to source parts andaccessories from different suppliers. This option is made

possible under the new regulations, and may reduce thedependence of car dealers on a single supplier.The expected competition from Internet brokers or

supermarket sales appears to present little risk to the

dealers. Dealers seem to think that cars will continue to beperceived by consumers as high-involvement products, i.e.

difficult to buy over the Internet. In that view, the Internetwill mainly be used as an information channel. Even the

actual occurrence of car-sales through supermarkets does notappear to be a realistic threat yet. Few supermarkets seem tobe ready to conform to the contractual agreements required

by suppliers, and a few try-outs have not led to a continuationof the initiative. However, car department stores are

emerging. For example, in Sweden, the first car departmentstore (Holmgrens AB, 40,000m2) was opened in Jonkoping

(Sweden) in December 2005, selling new and used cars ofdifferent brands side by side. Cardoen in Belgium takes a

similar approach, and since 2007 the Finnish dealershipLansi-Auto opened two such stores in Finland, albeit on a

smaller scale (Magneetti). The German retail chain Lidlrecently (spring 2009) included VW Polo among its non-food

offerings.A likely development is that the density of dealer networks

will gradually decrease. This development implies that smallerdealers may disappear, which would lead to a thinner network

of larger dealers. This evolution could improve the largerdealers’ individual position. Larger dealers have greaterbargaining power, especially in a more liberal market.

Consequently, the present tendency of the dealers to stay intheir relationship structures could help to improve their future

power position in the relationship, by gradually gainingadditional autonomy in the relationship. Since currently no

urgent need appears to exist for the dealers to act in arevolutionary manner, a more subtle strategy, following the

evolution of the market, is more likely.Since the dealers’ strategic intentions appear not to be

directly influenced by commitment to their main suppliers, anincrease in perceived threats, or a reduction in confidence in

the future, driven by developments in the market, might haveconsequences that are only indirectly countered by their

commitment to their main suppliers. A sharp increase incompetitive threats in the market could thus drive dealers to

change their policy towards less expansion within the existingrelationship, and more expansion beyond that relationship.Customers may be able to take advantage of the changes, to

the extent that they can more easily compare competing

models from different brands in multi-brand showrooms. Italso appears that the predicted increase in competitionbetween single brand and multi-brand dealers, despite the

possible reduction in the total number of dealerships will leadto lower prices.Government bodies, including the European Commission

that wish to increase competition by relaxing legislation in an

industry should be aware of the fact that industry structurescannot be changed overnight. As a result of specific,

historically grown, relationship structure in an industry,

policies may not immediately lead to desired results, and may

even lead to the opposite of intended results. Existing

structures are often quite resilient as a result of strong

historical relationships between major players in the industry.

Existing structures should therefore be well understood and

taken into account, when developing industry-wide policies.New entrants could take advantage of the present disorder

in the industry. This appears certainly to be the case for multi-

brand dealers. The novelty of their approach seems to appeal

to certain market segments. Much depends, however, on how

they will be able to position themselves as new and interesting

alternatives to the old ways of selling cars. While car dealers

have not fundamentally changed their practices for decades,

opportunities have been created to capitalize on new market

niches and customer categories. New entrants could use these

opportunities, created by the modified Block Exemption, to

create a purchasing experience that differentiates them from

the traditional dealers.

Notes

1 Although, from a methodological point of view it would be

interesting to also include deleted items, this would make

the table very long. The researchers are happy to share all

information about the data with interested researchers.2 The perception to be in control was measured with three

questions, not reported in the results section. For

example, on the questions “The future success of our

dealership is within our control” and “We have strong

confidence in the future of our dealership whatever

happens on the market”, Finnish dealers had a mean score

of 5.12 and 5.56, which were significantly higher than the

scores of the Belgian (4.37 and 4.95) and Dutch (3.97 and

4.96) dealers.

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Appendix

Table AI Relationship constructs and items

Mean Std Load t

Satisfaction (Composite reliability (CR) 5 0.94)Overall, we are very satisfied with our importer’s services 4.34 1.48 0.895 60.058

We feel that the importer perceives us as an important partner rather than just a

dealer 4.21 1.72 0.883 51.101

We have a good working relationship with the importer’s representative 4.91 1.44 0.864 32.841

We have a close personal relationship with the importer’s representatives 4.81 1.49 0.790 18.770

Overall, we are very satisfied with our importer relationship 4.40 1.60 0.928 77.138

Financial returns our firm gets from the importer’s product line are satisfactory

compared to what we would get from alternative car brands 4.22 1.56 0.719 15.574

Financial support (e.g. promotion, advertising, service allowances) we get from the

importer is satisfactory compared to industry standards 3.93 1.46 0.733 17.188

Cooperation (CR 5 0.92)You and the importer cooperate on setting sales targets 3.62 1.72 0.700 14.863

You and the importer cooperate on developing better customer services 4.65 1.53 0.736 14.858

When some unexpected situation arises, you work on solving it together 4.30 1.56 0.827 29.981

Importer adapts its strategies to your dealership’s specific needs 2.92 1.45 0.787 22.049

In general, the importer takes into account your opinion when making important

decisions that affect your dealership 3.44 1.64 0.863 40.082

Overall, the relationship is harmonious 4.36 1.55 0.890 61.659

Trust (CR 5 0.92)The importer can be relied upon to keep its promises 4.68 1.56 0.788 19.665

You can rely on the importer’s competence in making sales predictions 4.55 1.37 0.718 16.851

When making important decisions, the importer is concerned about your dealership’s

welfare 3.99 1.60 0.889 52.800

You can rely on the importer to consider how its decisions and actions will affect your

dealership 3.86 1.49 0.894 53.139

When you share your dealership’s problems with the importer, you know that it will

respond with understanding 4.00 1.50 0.876 44.980

You can rely on the high quality of delivered goods and services 4.82 1.30 0.623 9.196

Coercion (CR 5 0.92)Importer suggests you would receive poorer service/less cooperation from importer if

you did not comply with their requests 3.40 1.74 0.895 10.575

Importer suggests that you will receive better service and cooperation if you comply

with their requests 3.86 1.76 0.900 18.730

Importer mentions that your contractual agreement requires that you comply with

importer’s requests 3.82 1.73 0.868 18.013

Economic dependence (CR 5 0.90)Percentage of total annual sales that comes from your main brand (new cars, spare

parts and accessories) 74.52 23.96 0.880 22.014

Percentage of your annual profits that comes from your main brand (new cars, spare

parts and accessories) 71.23 26.20 0.925 43.979

Commitment (CR 5 0.88)We are very committed to continue carrying current car brand 5.88 1.26 0.645 7.071

We believe that in the long run our relationship with the present manufacturer’s

products will be the most profitable for the dealership 5.59 1.21 0.782 16.952

We would be willing to put more effort and investments into selling the present

manufacturer’s products 4.87 1.45 0.717 9.673

We expect our relationship with the present importer to continue for a long time 5.46 1.55 0.857 38.013

We want to remain a member of the present importers network because we genuinely

enjoy working with them 4.95 1.67 0.815 22.828

Notes: Measurement items, means and standard deviations for the complete sample (n ¼ 413)




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Corresponding author

Allard C.R. van Riel can be contacted at: [email protected]

Executive summary and implications formanagers and executives

This summary has been provided to allow managers and executives

a rapid appreciation of the content of the article. Those with a

particular interest in the topic covered may then read the article in

toto to take advantage of the more comprehensive description of the

research undertaken and its results to get the full benefit of the

material presented.

In an effort to open up the business of how cars are sold, the

European Union changed rules which had allowed

manufacturers to dictate who sold their products, to prevent

distributors from selling automobiles made by rival

companies, and to nullify warranties if the work was not

carried out by one of their distributors.It was a change, which got plenty of potential buyers

excited, with greater competition expected to bring about

better deals for the customers. Indeed, many envisaged that

within a short time you would be able to pop down to the

local supermarket and pick up an automobile for a bargain-

basement price.

But, while few would argue that the EU initiative to

increase competition and price transparency and to reduce the

manufacturers’ stranglehold over suppliers, was not to be

welcomed, the change was not as revolutionary and swift as

some would have hoped.This is hardly surprising. Although the new regulation

allows dealers to offer additional brands and to actively

market their current brand in other territories, structural

changes in dealer networks are likely to be slow:

Manufacturers are likely to remain restrictive regarding their

choice of distributors. High investment costs will also impede

dealers in expanding their business. For example, the

premises would have to be adapted to diverse brands in the

way department stores have created “stores within the store”

for designer brands.Economies of scale cannot be easily achieved. Investments

in new inventories, equipment and personnel may outweigh

the economic benefits of offering a wider selection of car

brands to customers. In practice, exceptions to single brand

dealers have been made in small markets with a low

population density, such as Scandinavia, where multi-brand

and multi-manufacturer dealers are already common.In an effort to understand how car dealers perceive

competitive threats and develop strategies when vertical

restrictions are lifted, Allard C.R. van Riel et al. investigated

the role of various dimensions of existing supplier

relationships in shaping the dealers’ future intentions. They

Table AII Strategic constructs and items

Mean Std Load t

Confidence in the future (Composite reliability (CR) 5 0.62)The future success of our dealership is within our control 5.12 1.41 0.738 6.303

We have strong confidence in the future of our dealership 5.13 1.26 0.738 5.980

Dealerships with a close relationship with importer will do well 4.44 1.67 0.861 6.303

Competitive threats (CR 5 0.70)Supermarkets will become a competitive threat (cars, spare parts, accessories,

servicing and financing) 1.70 1.20 0.664 4.070

Wholesalers will become a competitive threat 2.39 1.43 0.662 4.240

Independent repair services will perform maintenance and repair services on new cars

of your brand 3.37 1.64 0.647 4.488

Fast service outlets (no appointment required) will seriously compete with your

dealership for simple but profitable maintenance and repair services 3.69 1.67 0.535 3.133

Confidence in the future (CR 5 0.83)The future success of our dealership is within our control 5.15 1.43 0.782 11.711

We have a strong confidence in the future of our dealership whatever happens on the

market 5.14 1.30 0.785 14.621

In the long run, dealerships that have a close relationship with the importer are going

to do well, whatever happens on the market 4.49 1.65 0.794 14.055

Expansion within existing relationship (CR 5 0.65)Expanding your dealership to sell and service other brands from your current importer 3.58 1.88 0.448 2.200

Continue working as you do now 4.22 1.83 0.644 4.359

Conducting your own service quality policy 5.62 1.22 0.757 7.111

Expansion beyond current relationship (CR 5 0.75)Expanding your dealership to sell and service brands from other importers 3.29 1.73 0.614 4.400

Expanding your dealership to start selling in other countries/markets 2.66 1.76 0.701 6.231

Change your core business to servicing cars of all brands 2.93 1.59 0.742 6.984

Set up a cooperative with other dealers 3.29 1.86 0.560 3.093

Notes: Measurement items, means and standard deviations for the complete sample (n ¼ 413)




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limited their study to dealers in Finland, Belgium and TheNetherlands – three countries unbiased by the existence ofdomestic car brands.While new regulation will reduce supplier power, it may not

substantially change the dependency between dealers andsuppliers. Relationship structures based on one brand orsupplier tend to lead to a unilateral dependency structure,capturing the weaker member in the structure. Dealers mayeven perceive the current structure as rewarding andsustainable: They have so far adapted themselves to thesituation, which partially explains their reluctance to furtherchange. The effort historically made by suppliers in building acomplex network of dealers, promoting and selling theirunique brand, cannot easily be undone.To reduce dependency on a single supplier, dealers could

aim at diversifying their business relationships. However,diversification is inhibited by past financial and contractualagreements (leading to inertia), or past investments (leadingto a lock-in). Since most dealers cannot afford contracts withvarious car suppliers, an option could be to source parts andaccessories from different suppliers. This option is madepossible under the new regulations, and may reduce thedependence of car dealers on a single supplier.The expected competition from internet brokers or

supermarket sales appears to present little risk to thedealers. Dealers seem to think that cars will continue to beperceived by consumers as high-involvement products, i.e.difficult to buy over the internet. In that view, the internet willmainly be used as an information channel. Even the actual

occurrence of car-sales through supermarkets does not appear

to be a realistic threat yet. Few supermarkets seem ready to

conform to the contractual agreements required by suppliers,

and a few try-outs have not led to a continuation of the

initiative. However, car department stores are emerging.A likely development is that the density of dealer networks

will gradually decrease. This development implies that smaller

dealers may disappear, leading to a thinner network of larger

dealers. This evolution could improve the larger dealers’

individual position. Larger dealers have greater bargaining

power, especially in a more liberal market. Consequently, the

present tendency of the dealers to stay in their relationship

structures could help to improve their future power position

in the relationship by gradually gaining additional autonomy

in the relationship.Since currently no urgent need appears to exist for the

dealers to act in a revolutionary manner, a more subtle

strategy, following the evolution of the market, is more likely.New entrants could take advantage of the present disorder

in the industry. This appears certainly to be the case for multi-

brand dealers. The novelty of their approach seems to appeal

to certain market segments. Much depends, however, on how

they will be able to position themselves as new and interesting

alternatives to the old ways of selling cars.

(A precis of the article “EU degregulation and dealer-supplier

relations in automotive distribution”. Supplied by Marketing

Consultants for Emerald.)

To purchase reprints of this article please e-mail: [email protected]

Or visit our web site for further details: www.emeraldinsight.com/reprints




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