RIGA - Honda Motors Europe has ended its business relationship with Latvian auto dealership Bensons Auto, as the cash strapped company is unable to pay debts of 1.8 million euros for cars delivered earlier this year.
Bensons Auto was handed notice on June 26 that as of Aug. 1 it will no longer represent the Honda name-plate, reports Latvian business daily Dienas Bizness.
Owner Maris Bensons was apparently unaware of the deteriorating situation.
"At a Honda Baltic dealers meeting on March 26, 2008, [Bensons Auto] was praised as the best representative in the Baltic countries," he said.
"In 2007 we were always short of enough cars to completely satisfy potential customer demand for Hondas. In the beginning of this year we received a significantly larger number of cars. In order to be able to pay the invoice on time for these received cars, I would need to sell them in 21 days time. Due to the investments made in the Bergi automobile showroom, I do not have spare financial resources [to pay the bills]," Bensons explains.
Janis Pormalis, former director of MDL Motors (which changed its name to Bensons Auto in 2005) and currently the general manager of the Motorcentrs Nissan dealer in Latvia says that Bensons probably did not consider such a strong market slowdown when planning long term investments.
The April 2008 Ernst & Young Car Dealership Report warned that "The car dealership industry is set for one of its worst periods in many years as a result of economic uncertainty, waning consumer confidence and ever decreasing disposable income."
The report continued that "the dealerships most at risk are the small to medium sized operations 's those with sales less than £100 million (126 million euros) 's as used car sales will be impacted by a consumer slow-down and by manufacturers putting incentives behind new cars, coupled with their inability to leverage economies of scale, which will squeeze profit margins to the breaking point."
Bensons complains that "In my opinion... the manufacturer should help the dealer to supply products to its customers on time, but the result has been to the contrary - the plant stopped the supply of goods completely."
Bensons said car deliveries from Honda had stopped already in February.
Honda Motors Europe is presently left without a representative in Latvia, as Bensons was its sole authorized distributor.
Bensons Auto is also listed at number 36 on Latvia's tax collection list, with an unpaid tax debt of 656,700 lats (934,405 euros).
Bensons Auto for the first six months of 2008 sold 769 new Hondas with revenue of 14.8 million lats, compared to sales of 1,235 new cars in the same period last year and revenue of 18.9 million lats.
The dealership is owned by Maris Bensons and has share capital of 230,000 lats. Bensons Auto has operated in Latvia since 1993.
