Can Constellation reach the stars with its Marshall purchase?

Constellation has gone from simple auction company, in the form of BCA, to Europe’s largest vertically integrated digital used car marketplace in record time. MotorPro talks to Professor Jim Saker about what’s in store now it’s buying Marshall Motor Group

Constellation Automotive Group will soon have to change its own description. Currently, Constellation claims it’s “the largest vertically integrated digital used car marketplace in Europe, combining the leading digital brands across the segments of consumer to business, business to business and business to consumer”.

But it’s surprise acquisition of Marshall Motor Holdings PLC which is expected to be completed at the end of the first quarter of this year in a bid that values the dealer group at £323 million adds a new dimension.

The acquisition raises a host of questions, with the two main ones; why would Constellation want to add a traditional dealer group to what it claims is a digital business? And, what will the franchise-providing car manufacturers make of this move?

IMI president Professor Jim Saker, director of the Centre for Automotive Management at Loughborough University's Business School believes you need to take a step back to understand the motives for the purchase.

The takeover is “part of a bigger picture trend that's taking place with big data, and companies taking a software first approach. Basically, the world is changing and there's a power struggle going to go on to determine who actually owns the customer and who owns the vehicle,” he says.

This industry-wide manoeuvering is being caused by the introduction of agency agreements and the reduced profitability of electric vehicles.

Saker explains: “The agency model is one which is attractive if the manufacturers decide they actually want to gain control of the sales side of the process. It’s primarily driven by the fact the value chain doesn't work for electric cars.

“You'd have to have one and a half purchase cycles in a conventional retailer set up to actually make any money. What you end up doing is trying to keep the product in the franchise to get one, two, three and four cycles. That then makes the franchise network or the existing network profitable.”

With every franchise agreement containing a clause that allows the manufacturer the option to terminate if there’s a change of ownership, there’s a risk to Constellation that if they upset the manufacturers it could lose some parts of the Marshall business.

However, alongside economies of scale such as making sure all Marshall’s auction business is with BCA, the addition of the dealer group would give Constellation a bigger bite of consumer data. In turn, this would mean a lift in the value of the Constellation business.

Saker added: “Marshall gives them access to new cars which they could sell through Cinch. But that then becomes an issue for the manufacturer because the one thing the they want to keep hold of is obviously brand, brand perception and brand experience with the interaction with customers.

“To me it's a case of saying, ‘Right we're going to terminate contracts with Marshall full stop, if they don't toe the line.’ Or you go down the agency route and say, ‘Okay, fine, we're happy with you. But we sell the new vehicles. They don't go through Cinch’.”

There’s one huge gain in purchasing Marshall for Constellation; the addition of an aftersales operation, something that would further enable it to keep control of its customers.

“At the moment, to me, it seems to be a Titanic struggle that's going to go on. This is the watershed moment whereby people are going, ‘okay, we're going to go over the next two or three years to an agency model’.

“And if that‘s the case, then the nature of the business changes. The way the role of the retailer changes, the type of people you employ in the retailer changes, the whole dynamic is altered and that's where, to me, this is one of those times when we go in one direction or the other.

“I think that the Constellation takeover has focused people's minds. And the manufacturers are saying, ‘what do we need to do to protect our brand, our image?’. “And that's the thing which the manufacturers are precious about.”

The sale of Marshall to Constellation is seismic, and the way the market is heading it won’t be the last big story that we all need to keep our eyes on.