The succession plan squeeze

During the July the staggering and subsequent collapse of Unipart Automotive have made uncomfortable reading, especially if you were one of the 1800 staff connected to the company. Of course we now know that a rescue plan couldn’t be enacted, that part of it has been sold off to competitors Andrew Page and The Parts Alliance and that the rest is in administration. At the same time Euro Car Parts, having once been a front runner in the rescue/chasing pack, has announced it is creating 1500 jobs in parallel – presumably to pick up the floating workers shipwrecked when the great ship Unipart Automotive hit it very own iceberg (click here for complete coverage of this news and its implications on the sector).

While this company clearly supplies some of the biggest tyre retail chains in the business (not least KwikFit) and while many in the tyre trade will have direct or indirect connections with this business, you may be asking what this has got to do with you. This whole saga offers to important words to the wise. Firstly that markets with great consolidation potential (which means the tyre business as much as the wider aftermarket) can experience massive change in relatively short periods of time and secondly that the lack of proper succession planning will only accelerate this.

The tyre business, especially in the UK and especially in tyre retail, presents significant consolidation opportunities. Have a think about the numbers. Roughly a quarter of the market is controlled by the top 20 companies and the vast majority of this is controlled by the top three of four chains. Beneath the top 20 you have hundreds if not thousands of single depot dealers or very small chains. A number of these are so well run and so well positioned that they are virtually automatic acquisition targets for a large chain that wants to expand when the time is right; for a medium size chain that wants to grow up a level through a merger; or for a wholesale operation that wants to build a chain. At the same time large numbers of online, mobile and traditional tyre shops are starting up. According to the software companies, when these firms are born they begin at a technologically more advanced point than the average pre-existing dealer, which further complicates market dynamics. Beneath this there are large number of businesses that may or may not be as professional as the growing number above it. For these kinds of companies market shaking moves such as the collapse of Unipart Automotive in the aftermarket sector make a big difference. Indeed such ructions in the intra-segment job market can have an impact on everyone involved.

While many were speculating what was going to happen next in case of Unipart Automotive, some were thinking of the human angle. At the time recruiter Cathy Richardson wrote: “There is always a war on for talent, but supply and demand needs to be managed as in any other market. 1,600 desperate job seekers flooding in will immediately drive salaries down, increase the cost of administration and totally de-stabilise the market. It will also protract the current skills shortage, in the long term.” She continued identifying another feature that the wider aftermarket has in common with the tyre sector: “The industry has an aging population and not much appetite for trainees when there are ready-skilled people available to hire. My concern is that hiring will take place willy-nilly, plugging current gaps but causing a bigger succession problem in the future.”

Which brings us onto our second point – succession pressures. Many that have built their own business report that they don’t have any family to pass it on to and don’t really have a succession plan at all. This leaves the hope of being bought out at the right price as the best exit for many. But when you put this desire into the context of a consolidate market with some owners looking to extent in a market that is not rife with succession plans combined with the growing quality and quantity of businesses entering the market, it all serves to drive further consolidation pressure in the middle.

God forbid that anything the size of Unipart Automotive went into administration in the tyre sector. But if you are asking yourself the question “are we about to experience a consolidation phase?”, look back a few years and recall the Central Tyre sale, the KwikFit purchase the growth of National Tyres, the rapid expansion of the whole Malvern Tyres entity. The reality is we are already in it.