Gearing up for a vehicle retailing revolution

British supermarket chain Sainsbury is adding cars to products, intensifying the competition in the car market at a time of unprecedented change for the motor industry.

Private car buyers who opt not to go to their local dealer can already choose instead from specialised importers and online retailers, or even go direct to the manufacturer. Now they will be able to order their new model along with the week's groceries.

The car-selling scheme, operated through the Sainsbury's Bank division, has been on trial since last September at 60 stores. The initiative has proved so popular that the group is to launch the scheme nationwide through its network of 432 supermarkets.

There will be 3500 models on sale, with stores promoting the service and customers placing their orders by phone.

The buyer will pay a deposit and then pay monthly over two or three years. After that, they can return the car, trade up to a new one or buy outright for a pre-agreed sum. In that sense, the initiative is merely a car-financing scheme.

But it does show how far British car retailing is being revolutionised in the face of consumer demand for lower prices and Government action to give car buyers more choice.

From next month, manufacturers will by law have to offer private car buyers the same discounts as those offered to fleet clients. They will also be unable to discriminate against dealers who opt not to advertise makers' recommended retail prices or who buy at lower prices through distributors on the Continent.

In anticipation of the market's loosening, showroom prices have begun to fall by as much as 10 per cent in some cases. But the combined impact of the internet and further liberalisation of the market, allied to the sheer buying power of some of its players, is set to drive down prices further.

The key to liberalising Europe's car markets lies in dismantling the European Union Block Exemption allowing car makers to dictate who may sell their product, where, at what price and in what quantities.

The exemption runs until 2002 but already the new breed of online car retailers are doing their best to scupper it.

In the past six months, the number of net retailers has mushroomed, with Virgin, jamjar.com, Autobytel and OneSwoop, a startup backed by Andersen Consulting, BP Amoco and Credit Suisse, all joining the action.

Jamjar.com, which has teamed up with Dixons Motors, is using buying power to cut prices and is offering the Nissan Almera 1.5 at £8229 ($27,430) - a saving, it says, of £2470 on the list price.

By contrast, Carbusters.com, a non-profit-making service launched by the Consumers' Association, is exploiting the difference between pre-tax prices on the Continent and in the UK to save car buyers' money.

By importing right-hand-drive cars through continental suppliers, it says it can save the average buyer £3000 to £5000. Traditional dealerships are hitting back with their own online sales service. Pendragon, one of the largest UK car dealers, has launched a chain of internet "car cafes" through its tins.co.uk subsidiary. Next month third-biggest dealer Reg Vardy will launch a website for fleet and retail clients.

But chief executive Peter Vardy says it is the group's buying power (it sells 155,000 cars a year), not the power of the net, that is the key. He said, "We are already knocking more off in our showrooms than some of these internet-based retailers and from September, when we will be allowed to buy cars for the same price as the big fleets, nobody will need to bother going over to Europe for a car either."

Mr Vardy detects a sea-change as car retailing increasingly comes to resemble the food sector.

"The big will get bigger and the small will get smaller so you will end up with Tescos, Sainsburys and Asdas of the car world on the one hand and the corner shops selling more specialised models on the other."

Some makers are pre-empting the changes. Last November, Vauxhall became the first UK car firm to launch its own online sales operation. But the dealer network has been kept in the loop as the ultimate sales contract remains with a franchised dealer.

Reports of the death of the traditional dealer have been exaggerated. But to prosper, they are going to have to adapt a lot.