SOME of the Hunter's biggest new car dealerships are likely to be offered for sale if if a proposed $2.3 billion merger of Australia's two biggest auto groups is to succeed.
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As the Newcastle Herald reported on Tuesday, the Australian Competition and Consumer Commission raised "preliminary concerns" the previous day about the concentration of dealer ownership in Newcastle and the Hunter Valley that would arise if the Queensland-based AP Eagers was allowed to take over its larger rival, Perth-based Automotive Holdings Group.
The largest shareholder in Eagers is longtime Sydney Roosters chairman Nick Politis, who controls 124.5 million shares - 37.5 per cent of the company - according to a notice lodged with the stock exchange on June 12.
Both AP Eagers and Automotive Holdings have grown rapidly in recent years, and the ACCC says that a merged company would have almost 300 car, truck and bus dealerships between them, or 13 per cent of the national market. Their nearest rival would hold just three per cent.
In the Hunter, the ACCC says that Eagers and AHG have the two largest networks of dealerships, and are also each other's most significant competitor.
Together, they would own 36 of 78 Hunter dealerships, giving them 46 per cent of the market. For the top 10 brands, the ACCC says the two companies own 54 per cent of the dealerships across the region, while in metropolitan Newcastle, they operate 17 of the top 22 dealerships, giving them 77 per cent of the market.
Eagers was the first to move into Newcastle in a big way, buying the Klosters group in 2007 for $29 million, with AHG following suit in 2014 when it bought the network of franchises built up by industry legend Theodore "Boy" Bradstreet, who began his business with a Cessnock car yard in the early 1950s.
AHG said yesterday that its Hunter businesses employed the full-time equivalent of 740 people, while Eagers put its Hunter workforce at 410.
Monday's 16-page summary by the ACCC shows Eagers and AHG are especially dominant in the "auto alley" strips of Hamilton's Tudor Street and Hannell Street at Maryville, as well as Cardiff, Glendale, Maitland and Rutherford.
While the ACCC says it is "unlikely" to have concerns about the merger nationally, or in capital city markets, it says a lessening of competition in Newcastle and the Hunter is "likely to result in increased prices paid by consumers, resulting in consumer harm".
"Many dealer groups continue to use the names of the previous owner of a dealership (such as Klosters), creating the illusion of separate ownership and competition," the ACCC said.
"Consumers only visiting two dealerships may think they are shopping around to get a better price without realising that they have visited commonly owned dealerships."
Eagers, which was already AHG's biggest shareholder with almost 29 per cent of the stock, launched a takeover bid on April 5, seeking ACCC approval later that month.
"The ACCC's preliminary view is that the proposed acquisition is likely to substantially lessen competition in the retail supply of new cars in the Newcastle and Hunter Valley region," the regulator said.
"The ACCC considers that the likely public benefits of the proposed acquisition are unlikely to outweigh the public detriment from any likely substantial lessening of competition in the Newcastle and Hunter Valley region."
"The ACCC is seeking further submissions regarding the number of (and which) AP Eagers and/or AHG dealerships in the Newcastle and Hunter Valley region that would potentially need to be divested . . . to avoid a substantial lessening of competition," the document said.
With the AHG board backing the merger, and with the family of founder the late Syd Wheatley agreeing to sell, ACCC approval appears to be the only obstacle to the deal's success.
The takeover bid has lit a flame under the share prices of both companies, with AP Eagers going from $6.23 at the start of the year to more than $9.80 this week.
Target AHG has virtually doubled in price from $1.48 in January to $2.75 this week.
Eagers told the stock exchange on Monday it believed the merger would "not substantially lessen" competition in the Hunter, but it said it was assessing options to "maximise" the prospects of a tick from the ACCC.
In a note to investors, stockbrokers Morgans said it expected Eagers would be willing to "divest its or AHG's Newcastle business as part of this transaction, given it was always an obvious impediment".
Analysing the market, the ACCC said it seemed few Hunter new car buyers looked outside the region.
"Submissions suggest that pricing for new cars is opaque," it said.
"While the manufacturers' recommended retail prices are transparent, submissions were consistent that virtually no cars are sold at this price. Prices are almost always discounted and the extent of the discount appears to be dependent on a range of factors and variables."
The Herald's Opinion: ACCC's concerns over Hunter impact of motor group merger
Read the ACCC's report here
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