ACCC raises concerns over automotive franchise merger

Industry body slams automotive franchising draft
Industry body slams automotive franchising draft

AP Eagers’ (ASX: APE) proposed acquisition of Automotive Holdings Group’s (ASX: AHG) remaining shares has hit a snag, with the Australian Competition and Consumer Commission (ACCC) raising concerns over the automotive franchise merger.

On Monday, the ACCC announced that it was apprehensively assessing the automotive franchise merger’s impact on competition in new car retailing in the Newcastle/Hunter Valley region of New South Wales.

“The ACCC is seeking further feedback from market participants about this proposed transaction, in particular regarding the Newcastle/Hunter Valley region,” ACCC Acting Chair Delia Rickard said.

“A combined AP Eagers and AHG would operate 46 per cent of new car dealership sites in the Newcastle/Hunter Valley region, including those for the ten most popular brands, and runs 54 per cent of the dealership sites selling those brands. In metropolitan Newcastle alone, the combined company would operate 77 per cent of dealership sites selling the ten most popular brands.”

“We believe that local consumers generally don’t travel beyond the Newcastle/Hunter Valley region to buy new cars, and it is difficult to find out the final price for a car without visiting a dealership,” Rickard said.

The latest announcement comes after months of assessment of the proposed automotive franchise merger after details first emerged in late April.

AP Eagers and AHG automotive franchise merger

Queensland-based group AP Eagers already owns 28 per cent of Western Australian company AHG’s shares. However, an application lodged with the ASX in April saw the brand affirms its commitment to absorbing those remaining.

The proposal was big news for the franchise automotive sector. AP Eagers and AHG are the two largest automotive retailers in Australia, with AHG representing a franchise network of 179.

The automotive franchise merger was subject to authorisation from the ACCC, however, new concerns are likely to delay any such action.

ACCC’s view

The watchdog revealed that its preliminary view was that the acquisition would be unlikely to substantially lessen competition for the supply of new cars in Melbourne, Sydney or Brisbane.

That being said, regional towns ay hold the keys to this proposed automotive franchise merger.

“We are now seeking further submissions in response to the concerns outlined in our market feedback letter, and will continue to examine what effect this level of concentration would have on the size of discounts customers could obtain when buying new cars in the Newcastle/Hunter Valley region,” Rickard said.

Interested parties are be asking to provide submissions by July 3, with the ACCC’s final decision to be handed down by July 26.