Can Centrica fulfil its AA promises?

The Automobile Association’s 4.6 million members will decide within the next week whether they think the motoring organisation would be better off under the ownership of British Gas Trading parent Centrica.

Simon Waugh, Centrica marketing director, has spent the summer defending the &£1.1bn acquisition in the face of suspicion about Centrica’s motives. Critics of the sale say Centrica would neglect the breakdown service, and ceaselessly bombard members with direct mail for the other services it offers.

The deadline for postal votes falls this week, with a final opportunity to vote at a special general meeting on September 16. If two-thirds of members vote in favour, the AA will drop its mutual structure and pass into the hands of Centrica’s shareholders.

Waugh accepts that takeovers have been given a bad name over recent years, associated with cost cutting, redundancies and putting the interests of shareholders above those of customers.

But this merger will be different, he claims. “So many businesses have tried to generate shareholder value through cutting costs. We are determined to build a company with outstanding customer service. If we downgrade that, we will destroy the brand,” he says.

So has Centrica already been interfering with AA operational matters before the votes have been counted, as the media has speculated? “We are not taking the vote for granted – we will await the result,” Waugh replies.

And will the AA drop its “unitary” pricing policy if the deal goes through, as many members fear? Waugh says “categorically” no decisions have been taken on charging customers according to how old their car is, or how likely it is to break down. But he adds that one uniform price means many who do not make use of the service pay the same as those who use it often, and may think this is unfair.

Will the AA still be the campaigning voice of the motorist? Waugh’s reply is well practised. “We are absolutely committed to maintaining that voice and will continue to take stances on issues.”

And he rejects the notion that the deal would lead to AA members being inundated with “junk mail” cross-selling Centrica’s other services. “That is ridiculous. The AA has 4.5 million members – and 85 per cent of these are already on the British Gas database. The logic is not to do with flogging direct mail, but with being one of the great service providers by sharing back office and logistics.”

However, AA’s circular sent to members to persuade them to vote in favour of the merger contains a long list of offers available to AA customers promoting Centrica’s other services. These would surely need to be promoted through direct mail. Waugh says this will be limited to “just one piece” of direct mail.

Centrica’s vision is of a company which takes care of many of life’s dull necessities such as plumbing, fixing car breakdowns and providing insurance and home energy.

Essential to this vision is the efficient delivery of these services, along with a recognisable set of brands stretching from British Gas Trading and the Goldfish credit card to financial services and the AA. Waugh relates how British Gas had “hellish problems with service five years ago”, before he joined Centrica in 1997. But these have been turned around, and the company claims there have been less complaints than ever to gas watchdog the Gas Consumers Council.

The day will come, according to Waugh, when customers buying all three services – gas and electricity, AA breakdown cover, and the Goldfish credit card – may be charged through a joint bill. This could lead to Centrica building an over-arching brand to unify them all, though this would not happen for at least three years.

Waugh says: “In future it is possible there will be a single bill. If there are multiple products, we could save costs by sending one bill rather than four or five. We may possibly need to review our strategy to see if there is some way of unifying the brands.”

But he assures the marketers of all three divisions that his role is strategic and he will not be interfering on advertising agency appointments and other tactical moves.

An essential element of the AA brand is the fact that it is a mutual organisation, it is owned by its members and is not answerable to shareholders. Interbrand Newell & Sorrell’s Raymond Perrier says this brand position could be diminished by the effective privatisation of the AA. “It could be undermined. Centrica needs to be very careful to ensure things it does as a commercial company are what one expects from a ‘fourth emergency service’. It is a very high level promise, punchy and confident, and there is the possibility of a failure to live up to it,” he says.

Perrier says Centrica should go through all the scenarios of what might undermine the promise and prepare for those eventualities – “otherwise that valuable asset could go up in smoke”.

The roadside activities of the AA are what interest Centrica least in this deal. In 1998, the AA turned over &£435.2m on member services, yet made a surplus after exceptional items of just &£4.3m on these. By contrast, its insurance services turned over &£105.7m, bringing in a surplus of &£9.1m and financial services turned over &£52.3, with a surplus of &£11.6m.

Centrica says the fit with AA’s financial services is a prime reason behind the deal. Centrica’s newly established financial services division turned over just &£2m last year, and lost &£12m on start-up costs. Financial services are an unproven quantity for Centrica, although no figures are available for the performance of Goldfish, the joint venture with HFC Bank. Goldfish has 935,000 cardholders, although there are no figures to show if it makes a profit.

Close scrutiny of the deal will continue for years to come if members vote yes. Any complaints about customer service or the AA’s public role will end up on the desk of Simon Waugh.

His categorical assurances about how Centrica will treat the AA – and its customers – could soon come back to haunt him.