BIS Select Committee: UK Retail Sector inquiry
Submission from the National Franchised Dealers Association (NFDA)
1. Background
1.1 The National Franchised Dealers Association (NFDA) represents franchised car and commercial vehicle dealers
in the UK. There are over 4700 franchised dealers in the UK, employing approximately 200,000 individuals. New car
sales in the UK annually total 2.2 million and used car sales total 6.7 million. Generating approximately £50billion
annual turnover, the motor retail sector is a significant contributor to VAT and corporation tax revenue.
1.2 NFDA welcomes this inquiry into the retail sector which will help to outline the difficulties franchised dealers
are facing. If these challenges can be overcome, the retail motor sector can fulfill its full potential in job creation
and economic output. While NFDA recognize that the automotive sector is reporting increasing sales, figures are
not yet back to pre-recession levels and NFDA is of the view that the current economic climate will prevent
investment and innovation in the wider automotive sector. The perceptions of a challenging economic climate, by
both businesses and consumers, are fuelled by the recent collapse of a number of high street retailers, including
HMV, Jessops, Republic and Blockbuster.
1.3 The skills required in the retailing of cars follow the same principles as selling fast moving consumer goods
(FMCG), but just on a different scale. The lack of consumer confidence in FMCG is mirrored in the retail motor
sector and it is therefore essential that the industry forms part of the review by the Committee. In fact, as cars are
larger scale items, current economic conditions are even more relevant to the retail motor sector than the FMCG
sector.
1.4 In our submission, NFDA outline the regulations and costs impacting on achieving optimum results from
businesses in the automotive sector as well as some analysis of the effect of online and direct sales on ‘traditional’
retailers. However, our submission will not cover the BIS retail strategy or the Portas Review as the as the majority
of the recommendations contained in the two documents are less relevant to franchised dealers, who are away
from the high street and are not responsible for exporting goods outside of the UK. However, NFDA does support
easing the burden of business rates and deregulation as outlined in the two strategies and raising the profile of
local retailers.
1.5 NFDA would welcome the opportunity to appear at any oral evidence sessions held by the BIS Select
Committee.
2. Regulations and costs affecting the sector
2.1 Business Rates
2.1.1 In 2011 and 2012, business rates rose sharply, resulting in an increased revenue for the Treasury of over half
a billion pounds. Business rates are one concern common to all retailers whereby action would support businesses
across all sectors.
2.1.2 Business rates are calculated regardless of turnover and in a climate where consumer spending is falling
these taxes are huge burdens to struggling organisations.
2.1.3 Recommendation: Given that the planned 2015 businesses rates revaluation has now been deferred to 2017,
NFDA recommends that any increase in line with inflation is cancelled until the 2017 revaluation.
2.2 PPI Claims
2.2.1 A number of NFDA members face problems regarding PPI claims.
2.2.2 Firstly, members are experiencing serious delays in the processing of claims by the Financial Ombudsman
Service (FOS). Members are reporting that nearly all claims submitted in 2012 are still to be adjudicated on and
that less than 50% of cases from 2011 are yet to be decided. These problems are compounded by the strict
deadlines the FOS imposes on dealers to respond to information requests.
2.2.4 Secondly, dealers have seen a huge increase in PPI claims generated by Claims Management Companies
(CMCs). Most of these claims are coming through with scant customer information and without rudimentary
checks to determine if there could be a valid claim. The problem then arises that any claim referred to the FOS
generates a case fee regardless of the final outcome charged to the dealer. FOS charges £500 per case plus a £350
additional charge for PPI claims. It does not take many claims for a dealer to be faced with a substantial fee for
claims even though there is no wrongdoing on their part.
2.2.5 Recommendation: Action should be taken by the FOS to ensure CMCs are not putting through invalid claims
and there is a form of redress for dealers where by CMCs reimburse the business affected.
2.3 Consumer credit regulation
2.3.1 Many franchised dealers provide financial products to assist consumers in buying vehicles. The
announcement that consumer credit regulation will be transferred from the Office for Fair Trading (OFT) to the
Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) raises concerns additional
burdens and costs will be created for car retailers in order to comply.
2.3.2 Although businesses who are not primarily lenders will be able to take advantage of a lighter touch regime
under the FCA, they will still be expected to pay higher fees and face more administrative requirements than under
the current OFT regime. The additional costs faced by businesses are likely to result in higher costs to consumers.
2.3.3 Recommendations: It is imperative that the new consumer credit regime is sensitive to the market and does
not overburden business with red tape and costs, potentially resulting in less choice of financial products for the
consumer.
2.4 Measures to combat decreased consumer spending
2.4.1 Due to high inflation and no real terms wage increases, consumers are facing rising living costs and less
disposal income.
2.4.2 Recommendation: It is imperative the Treasury consider measures that will encourage consumers to have
the confidence to spend again to help boost the retail sector.
2.5 Corporation tax
2.5.1 NFDA called for reductions in corporation tax in the last Budget and the Autumn Statement and welcomes
the Chancellor’s announcements that from April 2015 the UK will have a unified corporation tax rate of 20%.
2.5.2 Recommendation: In order to support businesses further, the Treasury need to maintain a lower rate of
corporation tax and review the feasibility of further decreases.
3. The effect of online sales on traditional retail methods
3.1 While the competition from online-only retailers is evident in the sales of lower value goods such as small
electronic goods, clothes and books, when faced with a larger purchase such as a car it is much less likely that a
consumer will commit to a purchase with no face to face contact. Resultantly, franchised dealers are unlikely to
lose a large proportion of sales to car retailers who only operate online both now and in the future. However, as
the internet becomes more trusted and if an online car retailer can establish itself as a prominent brand, then this
may start to reduce the footfall to franchised dealers’ premises.
Online presence is recognised within the industry as a powerful marketing tool and is an essential part of many of
our member’s businesses strategies, given that prior online research is now an integral part of the consumer
purchase process and is likely to facilitate the process of a sale. The ability to research online has driven down car
prices as the consumer is more equipped with the information needed to influence a dealer to offer a highly
competitive price.
4. Conclusion
4.1 Whilst the retail motor sector continues to defy the general economic trends and report year on year sales
increases, it is important to note that sales are not yet back to pre-recession figures. The right support from a
joined-up approach across Whitehall departments will help businesses in both the retail motor sector and other
medium sized businesses to maximise their contribution to the UK’s economic recovery, increase the availability of
jobs and allow higher investment in new technologies and growth.
4.2 Currently, the burdens outlined above are contributing to low confidence amongst retailers and to regain this
confidence and pass benefits on to consumers, action must be taken to ensure their concerns are adequately
addressed.
4.3 Finally, NFDA would welcome the opportunity to appear at any oral evidence sessions held by the BIS Select
Committee. If you have any further questions, do not hesitate to contact the NFDA via Rosanna Collings. Email:
Rosanna.Collings@rmif.co.uk Tel: 020 7307 3424.