AFI conference - July 6th 2006 1 Route to Survival & Growth RAA formation & Progress to date Philip Maskell - Chairman Route to Survival & Growth RAA formation

AFI conference - July 6th 2006AFI conference - July 6th 2006 11

Route to Survival & GrowthRoute to Survival & Growth

RAA formation & Progress to dateRAA formation & Progress to datePhilip Maskell - ChairmanPhilip Maskell - Chairman


RAA formation & Progress to dateRAA formation & Progress to date

1.1. Background & challengesBackground & challenges

2.2. Research findingsResearch findings

3.3. FormationFormation

4.4. RAA key metricsRAA key metrics

5.5. Progress 18 months in Progress 18 months in


Background – Background – Block Exemption challengesBlock Exemption challengesNew EU Block Exemption regulation effective October 2003New EU Block Exemption regulation effective October 2003

Larger Groups,PLC’s, manufacturer owned & JV dealerships, Larger Groups,PLC’s, manufacturer owned & JV dealerships, Expansion of multi-branding, improved scales of economy and Expansion of multi-branding, improved scales of economy and

critical mass leveraging increased purchasing power from critical mass leveraging increased purchasing power from manufacturers and suppliersmanufacturers and suppliers

Perception of an increase in PLC/large Groups playing ‘roulette Perception of an increase in PLC/large Groups playing ‘roulette wheel’ leveraging special terms with manufacturers (Pack Deals wheel’ leveraging special terms with manufacturers (Pack Deals etc.)etc.)

leading to ‘un-level playing field’ within franchised networksleading to ‘un-level playing field’ within franchised networks Potential of new entrants in After Market adds further Potential of new entrants in After Market adds further

fragmentationfragmentation Potential abolition of location clause in October 2005 Potential abolition of location clause in October 2005

could lead to further proliferation by expanding Groupscould lead to further proliferation by expanding Groups• Private owner operators and Groups have similar Private owner operators and Groups have similar

opportunities but lack individual critical mass and opportunities but lack individual critical mass and geographical cover - geographical cover - supplier utilisation is individual supplier utilisation is individual and fragmented and fragmented


2 2 2 2 2 2 2 2 2 2

1 1 1

0

1 1 1 1 1 1

19971998

1999 2000

20012002

2003 2004

2005 2006 Est.

MIN NEED ACTUAL AVGE.

10 year Dealer Profitability Avge. ROS% tracking

Background – Background – Dealer Profitability ChallengesDealer Profitability Challenges Volume brandsVolume brands


Background – Background – Vehicle Distribution Challenges Vehicle Distribution Challenges Current Business model – Current Business model – Production ledProduction led

REVENUE RECOGNITIONNSC PUSH PRODUCTION LED

AUTO WHOLESALE& DEALER TARGETS

CONSUMER DEMAND

TIER 1 BRANDMARKETING

DEALER MARKETING


Inappropriate production v real consumer demandInappropriate production v real consumer demand Overproduction & overstockingOverproduction & overstocking Excessive storage & distribution costsExcessive storage & distribution costs Unrealistic sales targetingUnrealistic sales targeting Distress marketing Distress marketing Unrealistic gap between RRP & transaction pricesUnrealistic gap between RRP & transaction prices Consumer confusion, Brand erosion & lost product Consumer confusion, Brand erosion & lost product

integrityintegrity Volatile market share & weak sales mixVolatile market share & weak sales mix Lower residualsLower residuals Poor retained margins & inadequate returnsPoor retained margins & inadequate returns Strained Dealer Manufacturer relationshipsStrained Dealer Manufacturer relationships

= Business model unsustainable= Business model unsustainable

Background – Background – Vehicle Distribution ChallengesVehicle Distribution Challenges Production ledProduction led - Mutual Outcomes - Mutual Outcomes


Background – Background – Vehicle Distribution Challenges Vehicle Distribution Challenges Revised Business model – Revised Business model – demand leddemand led

NSC TIER 1 BRANDMARKETING

CREATE CONSUMER DEMAND

DEALER MARKETING

DEALERSAGREED BUSINESS PLANWHOLESALES &

MUTUAL SALES OBJECTIVES

FEED PRODUCTION


Background – Background – Vehicle Distribution Challenges Vehicle Distribution Challenges Demand ledDemand led – Mutual Outcomes – Mutual Outcomes

Appropriate production geared to real consumer demandAppropriate production geared to real consumer demand Avoid overproduction & overstockingAvoid overproduction & overstocking Reduce storage & distribution costsReduce storage & distribution costs Mutually agree realistic sales targetsMutually agree realistic sales targets Avoid Distress marketing Avoid Distress marketing Transparent consumer pricing Transparent consumer pricing Reduced variable marketing spendReduced variable marketing spend Simplify Consumer propositionSimplify Consumer proposition Enhance Brand & re-build product integrityEnhance Brand & re-build product integrity Build ‘quality’ market share & sales mixBuild ‘quality’ market share & sales mix Stabilise & improve residualsStabilise & improve residuals Improve retained marginsImprove retained margins Improve financial returnsImprove financial returns

= Robust Business model= Robust Business model


““BUT… the BUT… the move to an move to an ideal world ideal world

is unlikely in is unlikely in the short the short term so term so

what can we what can we do?”do?”


Background – Buying GroupBackground – Buying Group

• Threats to viability and survival force the need for Threats to viability and survival force the need for greater cost efficienciesgreater cost efficiencies

• Manufacturer led dealer buying pilots had mixed Manufacturer led dealer buying pilots had mixed results with low dealer participation but showed results with low dealer participation but showed promise of large savings e.g. Telecoms & Utilitiespromise of large savings e.g. Telecoms & Utilities

• Dealer’ think tank’ concluded that a more dynamic Dealer’ think tank’ concluded that a more dynamic ‘dealer led’ approach was needed to deliver ‘dealer led’ approach was needed to deliver improved cost efficiencies – particularly for Privately improved cost efficiencies – particularly for Privately owned dealer Groups in the face of the new PBE owned dealer Groups in the face of the new PBE challenges challenges

• Agreed that professional research be commissioned Agreed that professional research be commissioned to examine feasibility of forming ‘Buying Group’ to examine feasibility of forming ‘Buying Group’


Research commission:Research commission: Professor Garel Rhys & John Kiff Professor Garel Rhys & John Kiff

Cardiff Business College & ICDPCardiff Business College & ICDPQuestions:Questions:

•Is it relevant and viable to create such a new structure? Is it relevant and viable to create such a new structure? •what best practice precedents are there?what best practice precedents are there?•What structure or method of cooperation could be createdWhat structure or method of cooperation could be created•What is the potential for future individual or collective What is the potential for future individual or collective expansion expansion •How could it drive added value to individual How could it drive added value to individual and collective net worth? and collective net worth?•How best to get started?How best to get started?•What ‘critical mass’ is critical?What ‘critical mass’ is critical?•How to keep us legalHow to keep us legal•How to best position this structure with How to best position this structure with manufacturers and suppliers?manufacturers and suppliers?•Given our new PBE agreements what Given our new PBE agreements what would likely manufacturer reaction be? would likely manufacturer reaction be?


Research findingsResearch findingsBlock Exemption: Year 1Block Exemption: Year 1

So far, more VM control, not lessSo far, more VM control, not less• Standards - variable margins & higher costsStandards - variable margins & higher costs

Outlet nos. & locations still decided by VMOutlet nos. & locations still decided by VM Exclusive showrooms & brand segregationExclusive showrooms & brand segregation Authorised Repairers – available to allAuthorised Repairers – available to all PLC / large groups proliferate and mergePLC / large groups proliferate and merge

Evidence: Pendragon: 29 brands, >250 outlets Evidence: Pendragon: 29 brands, >250 outlets UK/Europe/US UK/Europe/US

VM owned dealers further proliferateVM owned dealers further proliferate Evidence: Mercedes/VW/Ford Evidence: Mercedes/VW/Ford

Pre reg & pack programmes - Accelerating reliance?Pre reg & pack programmes - Accelerating reliance?In 2004 16% of TIVIn 2004 16% of TIV

Parts Distribution: Parts Distribution: VMs - lean distributionVMs - lean distribution uncertain future uncertain future

Is this all leading to a multi layered playing field?


Research findingsResearch findings Block Exemption: Years 2/3 …Unknown Territory, Block Exemption: Years 2/3 …Unknown Territory, Location clause abolition – Oct 2005Location clause abolition – Oct 2005

Experiments will emergeExperiments will emerge Further proliferation PLCs / large groups?Further proliferation PLCs / large groups?

Inevitable takeovers and mergers Inevitable takeovers and mergers VM owned dealers further proliferate?VM owned dealers further proliferate?

Depends on dealer network success/failureDepends on dealer network success/failure DV & ‘pack deal’ programmes: accelerating DV & ‘pack deal’ programmes: accelerating

reliance ?reliance ? Parts distribution - uncertaintyParts distribution - uncertainty

…..Increasing danger of multi layered playing field?


Research findings Research findings What can private dealer groups do?What can private dealer groups do?

ICDP Study: Route to Survival & GrowthICDP Study: Route to Survival & Growth

Regional / local scale countsRegional / local scale counts Although good small dealers can buck the trend…Although good small dealers can buck the trend… More regional control & sources of profit is betterMore regional control & sources of profit is better Brand focus and dedication is strong advantageBrand focus and dedication is strong advantage Strong customer loyaltyStrong customer loyalty

But future viability and growth depend on: But future viability and growth depend on: Acquiring purchasing scale but not just cars & partsAcquiring purchasing scale but not just cars & parts Developing a better operating formula (Lean!)Developing a better operating formula (Lean!) Multi-brandingMulti-branding

Source: ICDP


Research findings Research findings Buying groups in other industriesBuying groups in other industries

Buying Groups in UK: Buying Groups in UK: • Many sectors, for years, and recently in non-OE car partsMany sectors, for years, and recently in non-OE car parts• Over 20,000 outlets; >33% of some sectors (1993)Over 20,000 outlets; >33% of some sectors (1993)• Some regional groups, some national, varying sizesSome regional groups, some national, varying sizes

Buying Groups in FranceBuying Groups in France• Supermarkets evolved from BGs. CAPA (parts) - 195 membersSupermarkets evolved from BGs. CAPA (parts) - 195 members• Dealers – sourcing (some) used cars via BGsDealers – sourcing (some) used cars via BGs• Carouest website co-operative used car ads 100 dealers involvedCarouest website co-operative used car ads 100 dealers involved• Parts wholesalers: Autodistribution et al.Parts wholesalers: Autodistribution et al.

Buying Groups in GermanyBuying Groups in Germany• EDEKA food co-operative retail / wholesale EDEKA food co-operative retail / wholesale

• Techno-Germany and Tecar – non-OE parts etc. sourcingTechno-Germany and Tecar – non-OE parts etc. sourcing


Summary of ConclusionsSummary of Conclusions

““Yes, but…”Yes, but…”


Research findings Research findings Getting Started, Keeping GoingGetting Started, Keeping Going

Advice from those with experienceAdvice from those with experience Set aside differences for common goodSet aside differences for common good

• Achieve consensus re objectivesAchieve consensus re objectives Set policy to match goals & agree distribution of benefitsSet policy to match goals & agree distribution of benefits Decide branding: is an umbrella brand needed?Decide branding: is an umbrella brand needed? Ensure have members can work together Ensure have members can work together

• Openness and trust are vital componentsOpenness and trust are vital components• ““Don’t be afraid of kicking out the wrong onesDon’t be afraid of kicking out the wrong ones

- even if they are the biggest!” - even if they are the biggest!” Commitment Commitment vitalvital or no power vs supplier or no power vs supplier

• Each own business to run, BG comes secondEach own business to run, BG comes second• Evolve with market but keep admin ‘light’Evolve with market but keep admin ‘light’• Meetings vital, ideas, meet suppliers. Meetings vital, ideas, meet suppliers. • Elect members to exec team to drive groupElect members to exec team to drive group• Appoint a General Manager & supportAppoint a General Manager & support

“…“…surprisingly hard work running a buying group”surprisingly hard work running a buying group”


RAA formation timetableRAA formation timetable

29th July 2004 Legal due diligence ‘Retail Automotive Alliance’ name is born

11th August 2004 RAAL incorporated as Private Ltd Company £500k Share Capital

18th November 2004 Retail Automotive Alliance Ltd. - Completion Meeting

24th January 2005 RAA launch in London




209


Retail Automotive Alliance JVCRetail Automotive Alliance JVCPurpose of JV:Purpose of JV:

“ “ The JVC has been established by like minded The JVC has been established by like minded car, van and truck retailers in order to create car, van and truck retailers in order to create a critical mass which should lead to greater a critical mass which should lead to greater efficiencies than would otherwise be possible efficiencies than would otherwise be possible as individual entities by (without limitation):-as individual entities by (without limitation):-

creating a buying group co-operative in order to creating a buying group co-operative in order to leverage economies of scale in purchasing leverage economies of scale in purchasing power for core business related supplies; andpower for core business related supplies; and

generally interfacing within the JVC on industry generally interfacing within the JVC on industry challenges and opportunities, where relevant, in challenges and opportunities, where relevant, in order to share best practices for the order to share best practices for the furtherance of customer care and financial furtherance of customer care and financial viability”viability”


KEY DATAKEY DATA::

Turnover £2.41bTurnover £2.41b

209 outlets 209 outlets

14 brands14 brands

57% Ford 57% Ford

43% Multi-brand43% Multi-brand

8750 Employees8750 Employees

230,000 Vehicle sales230,000 Vehicle sales


RAA Franchise Mix March 2006

Ford57%

Iveco7%

Mazda11%

Honda0%

Fiat2%

M/bishi0%

Seat1%

Skoda2%

Kia4%

Other9%

Citroen2%

Peugeot1%

Toyota2%

Subaru2%


RAA New Vehicle Annual Sales VolumeTotal 109,333

Car Retail41%

Car Fleet22%

Motability9%

All CV28%


Top 6 Ford Groups in UK The RAA as combined JV Buying Group becomes Number 1. based on combined number of Ford outlets

Group AM 100position

T/0 £m

Ford Main

Geographiccoverage

RAA 2 2400 117 National

Pendragon 1 5000 60 National

Ford Retail 9 800 50 SE, N & Mids

Hartwell 11 715 15 N & Mids

Camden 5 1100 11 SE/Mids


UK UK Top non-VM owned Groups by turnoverTop non-VM owned Groups by turnover

Nam BrandsNam Brands Outlets T/O Outlets T/O

1.Pendragon1.Pendragon 20 20 337 337 £5000m£5000m

3.A.Clark3.A.Clark 20 20 120 120 £1700m£1700m

4.Sytner4.Sytner 2020 86 86 £1700m £1700m

5. Lookers5. Lookers 2424 100 100 £1400m £1400m

6.Inchcape6.Inchcape 2222 77 77 £1400m £1400m

7.Camden7.Camden 55 22 22 £1265m £1265m

8.D/Chrysler 18.D/Chrysler 1 30 30 £1265m £1265m

9.Ford Retail 19.Ford Retail 1 44 44 £800m £800m

10.Lancaster10.Lancaster £800m £800m

2. RAA 14 209 £2410m2. RAA 14 209 £2410m


RAA initial Board structureRAA initial Board structure

22SHAREHOLDERS

CHAIRMAN CHIEF EXECFINANCE DIRECTOR

DIRECTORS


RAA Joint VentureRAA Joint Venture

Trust

immensely strong OR

…extremely fragile


So 18 months in…..So 18 months in…..RAA strategy & ProgressRAA strategy & Progress


Potential Buying Opportunities for RAA:Potential Buying Opportunities for RAA: New vehicles New vehicles

• Storage & prep. services Storage & prep. services Used cars Used cars

• WholesalingWholesaling • VM branded purchases VM branded purchases • Group stock shareGroup stock share• Preparation servicesPreparation services

Parts & accessoriesParts & accessories• Wholesaling: IMT & body-shopsWholesaling: IMT & body-shops• Logistics / central stockingLogistics / central stocking

Accident RepairsAccident Repairs• National chain?National chain?• Paint & consumable suppliersPaint & consumable suppliers

Oils & consumables Oils & consumables Retail paper & InsuranceRetail paper & Insurance Money/banking Money/banking Tools & equipment Tools & equipment Advertising & MarketingAdvertising & Marketing IT hardware/systems/data basesIT hardware/systems/data bases H.R. services & employee benefitsH.R. services & employee benefits Training Training Office equipment & services Office equipment & services Building servicesBuilding services

• Energy, Water, TelecomsEnergy, Water, Telecoms• Planning, Rates etc.Planning, Rates etc.The list is

endless!


RAA Supplier StrategyRAA Supplier StrategyAGREE PREMIUM APPROVED

SUPPLIERS

MEMO OF UNDERSTANDING

IDENTIFY & RELEASE DATA

GLOBAL SUPPLY PROPOSAL TO RAA

RAA DECISION


RAA Business MandateRAA Business Mandate

“ “The RAA Company’s main purpose is to act as a central The RAA Company’s main purpose is to act as a central conduit for the coordination of purchase projects and supplier conduit for the coordination of purchase projects and supplier contracts. contracts. The resulting supply agreements and The resulting supply agreements and financial benefits are ultimately transacted directly financial benefits are ultimately transacted directly with the individual shareholder members.”with the individual shareholder members.”



TECAR TECAR International Trade GmbHInternational Trade GmbH

© 2004 TECAR International Trade GmbH

Largest automobile dealer cooperative in Europe – formed 1992Largest automobile dealer cooperative in Europe – formed 1992

OOver 12,000 members in Europe and North America, TECAR represents ver 12,000 members in Europe and North America, TECAR represents the largest international organization of procurement centers for the largest international organization of procurement centers for automotive accessories, shop equipment, chemicals/oil, tires/wheels and automotive accessories, shop equipment, chemicals/oil, tires/wheels and all make spare partsall make spare parts

RAA : Affiliations internationallyRAA : Affiliations internationally

AFI conference - July 6th 2006AFI conference - July 6th 2006 3636© 2004 TECAR International Trade GmbH

Leader Auto Resources (LAR Inc.)Leader Auto Resources (LAR Inc.) Largest automobile dealer cooperative in North America – formed 1979Largest automobile dealer cooperative in North America – formed 1979

”Buying coop is

buying smart!”

RAA : Affiliations internationallyRAA : Affiliations internationally


Summary of strategy so farSummary of strategy so far

Attack the cost base through better buying Attack the cost base through better buying efficienciesefficiencies

Sharing best practices to become better Sharing best practices to become better retailers for revenue growth retailers for revenue growth

Maintain and enhance relationships with Maintain and enhance relationships with suppliers – Win-winsuppliers – Win-win

Enhance relationships with manufacturersEnhance relationships with manufacturers Network internationally Network internationally

Not only survive …

Not only survive …

but prosper and grow

but prosper and grow


Thank you and any Thank you and any Questions?Questions?

Documents

AFI conference - July 6th 2006 1 Route to Survival & Growth RAA formation & Progress to date Philip Maskell - Chairman Route to Survival & Growth RAA formation