Virgin puts a spoke in car retail’s wheel

Though new EU rules have freed car dealerships from the manufacturers’ control, few show signs of ditching the one-marque showroom. But will a new multibrand outlet from Virgin force the industry to change? asks John Stones

Virgin, the original maverick that has a knack for shaking up the markets it enters, is now turning its attention to the car retailing sector, opening a showroom that sells different brands alongside each other and allows consumers to compare competing models.

True to form, this is radical stuff for car retailing, which operates through firm links between car manufacturer and distributor. However, the European Union (EU) has ruled that this arrangement must end and the revised Motor Vehicle Block Exemption Regulation uncouples the link, allowing dealerships to sell any marque.

Virgin is first to enter these pastures new with its Virgin Cars Salford Quays showroom, which opened last week. The company, 70 per cent owned by Virgin Group, has been selling cars online since May 2000 but it is now taking the concept to bricks and mortar and has appointed advertising agency RPM3 to promote it.

Under the old block exemption rules, normal competition rules were effectively waived within the car industry. Manufacturers controlled distribution and pricing, at a national if not European level. The new rules are intended to liberalise car retailing, and will take effect this October, when the manufacturers’ grace period of a year ends.

The rules enable dealers to operate multibrand showrooms and subcontract after-sales (servicing). This should encourage new entrants. Currently, 833 out of 5,182 dealers sell more than one brand, though these are usually very different marques with little cross-over.

EU commissioner Mario Monti, who has presided over the changes to the block exemption, makes no bones about why the changes are needed. In a recent speech he said: “[The new rules] reduce the opportunities for car manufacturers to abuse their powers, [which] as we know has occurred in the past. Up to now consumers have had little say in the way they can buy their vehicle.”

Now Virgin, armed with the legislation changes it has successfully fought for, is throwing down a challenge for the industry. Virgin Cars chief executive Ian Lancaster says it is an anachronism to have to trek from dealer to dealer to compare models. “Consumers don’t understand why a car should be different from a washing machine or a fridge,” he says.

The various areas of the Virgin showroom are themed to reflect the various classes rather than brands of car. It ditches industry jargon, such as MPVs, calling those vehicles “crowd pleasers”. The showroom also has a separate information area where consumers can access What Car road tests to research their choices while drinking coffee.

So far, Virgin has only been able to arrange a direct supply agreement with Rover. Lancaster says he is in discussions with others, describing the French and German manufacturers as the most reluctant to agree to a deal. However, he claims to be able to source any new car through diverse channels.

Another dealership that has opened in nearby Bolton shows a different approach. For the first time, General Motors has assembled its three UK brands – Vauxhall, Saab and Daewoo – under one roof but in the hands of a franchised dealer.

However, the idea behind the dealership is not to create a new retail environment, according to Jonathan Browning, vice-president of sales, marketing and aftersales for General Motors Europe. It’s more about the efficiency and cost-cutting that can be achieved in the UK and across Europe by sharing some behind-the-scenes functions for GM brands – including marketing. One of these costs is media buying, which the group is currently reviewing.

However, the GM brands themselves are sacrosanct. There are still – quite literally – walls separating the value Daewoo brand, mainstream Vauxhall and premium Saab brands. And Browning says there can be no question of a single advertising agency across the GM brands,

Daewoo managing director Andy Carroll says the rule changes have made recruiting dealers complex as dealers eye up the new opportunities that will be available. Like other manufacturers, Daewoo works closely with dealers, offering support in marketing its cars.

Virgin is so far the only household retail brand to enter the market, but Tesco has declared an interest, publicly welcoming the changes to the block exemption.

“Cars make up the biggest single retail market,” says Professor Garel Rhys, of the Institute of Automotive Industry Research at Cardiff Business School. “It is an oddity that supermarkets are not involved, but that is because they weren’t allowed to [by the manufacturers].”

He says other likely entrants are the largest dealer networks, such as Reg Vardy and Pendragon. While they have the clout to stand up to the manufacturers and offer genuinely multibrand dealerships, they will need to establish themselves as genuine retail brands, he adds.

Monti has denied that the new rules favour larger dealerships, but it is unclear how smaller outlets will be able to take advantage of the new rules. Car retailing, says Browning, is not only about what the consumer wants but what is commercially viable for dealers.

Alan Pulham, franchise dealer director for the Retail Motor Industry Federation, believes the margins are too low to attract new retail players. He says less than five per cent of new cars in the UK come from outside franchised dealers, and suggests that Virgin’s move into bricks and mortar is a result of the poor performance of its internet offering. The website has sold 12,000 cars so far.

Being able to split the service and retail operations could lead to companies such as the Automobile Association and Halfords developing their own service brands, or existing dealers concentrating on the more lucrative after-sales provision.

The manufacturers with most to lose from the new rules are those with high-volume brands, believes Peter St-Amour, an account manager for Ford at Ogilvy & Mather. “The mass-market products have become much more commoditised in recent years, and people are now prepared to shop around for the best prices – it’s a real challenge for the brands.” In a multibrand showroom, smaller more distinctive brands or those sold at the cheapest prices are likely to win out.

Manufacturers have been used to carefully guarding their brands right across the distribution chain. PSA, for example, has a strict policy of selling its Peugeot and Citroëmarques separately in the UK despite selling them together in France. Peugeot head of public affairs Robert Browett accepts there is not much it will be able to do to stop Virgin selling its cars alongside each other, but has no intention of abandoning its policy of separation.

Rhys says that Mercedes has taken a defensive position ahead of the forthcoming rule change – it sacked much of its dealer network and now owns 42 per cent of its UK distributors. But he says any further ownership of distribution could result in criticisms from the European Commission. In the past, it has handed out hefty fines for competition infringement to Volkswagen – £90m and £31m; General Motors – £43m; and DaimlerChrysler, which makes Mercedes – £52m.

While the car manufactures may not like the changes ahead, they could face further fines if they are seen to drag their feet.

Latest from Marketing Week


Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now


Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.


From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.


Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3703 or email

If you are looking for our Jobs site, please click here