Drivers' champion in the big league: The AA's billion-pound business extends beyond roadside rescues. Roger Trapp reports

THE Coast Guard begs to differ, but there is a ring of truth in the Automobile Association's claim that 'to its members it is the fourth emergency service'.

The 3,500 patrols scrambled to the aid of last year's 5 million roadside breakdowns must have seemed as welcome as the police, fire or ambulance services. But - valuable as it is - this is only the tip of the iceberg as far as the organisation's activities are concerned.

What began as a body to champion the cause of motorists in the early years of this century is still a formidable pressure group. In addition to sending millions off on their holidays with green cards, yellow headlamp covers and sound advice, it also has the ear of government when it comes to plans for motorways, dealing with drunken drivers and the like. For example, it recently published proposals aimed at reducing accidents among newly qualified drivers.

It is also one of Europe's largest insurance intermediaries, a leading international publisher of maps and guidebooks, a driving school second in size only to the British School of Motoring and a travel agent.

As a result, it is a substantial business that last year had gross income of pounds 1.3bn, 7.5 million members, nearly 4 million customers and more than 14,500 staff. As Simon Dyer, director-general, acknowledged, 'an organisation of that dimension must be run in a businesslike manner'.

This means that, although it is outside the ambit of the Companies Acts as an unincorporated members' club, it seeks to apply the best standards and has, for instance, adopted the Cadbury Code of Practice on corporate governance and introduced remuneration and audit committees.

Equally, being a non-profit-making organisation means it has no shareholders to satisfy. But Mr Dyer insists that giving members 'good-value-for-money services' is a top priority. 'In the ultimate analysis, our members are our shareholders,' he said.

Like any business, it has not had a smooth ride of late. Depressed new and used car sales contributed to the number of members falling slightly from the year before. Increased competition, including the provision of breakdown services by car manufacturers and link-ups such as that between Prudential, the insurance company, and National Breakdown, also had an effect.

Mr Dyer said the AA was not averse to providing manufacturers with breakdown cover - its 17- year-old arrangement with Rover was one of the first such links. But it saw its main role as serving individual members.

That at least was the motivation behind the meeting at the old Trocadero restaurant in London's West End in June 1905 that established the AA as a protective organisation aimed at countering the widespread suspicion and prejudice encountered by motoring pioneers.

One of the earliest tasks was to help motorists combat police speed- trap 'fever'. 'Hiding behind hedges, the police timed unsuspecting motorists, often by the means of cheap and inaccurate stop watches and over distances which proved to be yards short of the required furlong,' relates the official history published to mark the organisation's 80th anniversary.

The solution to the problem was the longstanding patrol's salute to the passing member. As a courtesy, patrols would salute motorists - but if a police trap was looming they would not salute. This was seen as a clever move because, while a clear signal could be construed as obstruction of the police, an act of omission could not.

As the number of cars on Britain's roads rose to more than 130,000 by the beginning of the First World War, the AA saw its membership grow to more than 80,000. And it transformed itself from the motorists' protector to promoter.

It became responsible for the first comprehensive system of signposting in the country, began inspecting hotels, started publishing route maps and offered advice to those travelling overseas. As the century progressed, it developed close links with its namesake in the United States and joined the collection of national motoring organisations, Alliance Internationale de Tourisme, of which Mr Dyer is this year's president.

Such expansion led the AA 20 years ago to move its headquarters from Leicester Square in London to a purpose-built office in Hampshire in an effort to improve the administration.

Now a new HQ is under construction, while a keenness to focus on motoring is partly behind the restructuring introduced at the end of last year that created four distinct divisions.

These are membership, which incorporates roadside services and sales and marketing; commercial services, including publishing, legal services, the driving school and the travel business; insurance and financial services; and the corporate group, which as well as housing the central functions includes market research, public policy and the Foundation for Road Safety Research.

As part of the renewed emphasis, AA Business Travel was sold to Portman Travel last year. Like the decision four years previously to close the chain of retail travel agents, this is portrayed as allowing the organisation to concentrate its attention on assisting members to take motoring holidays.

Such concerns about sticking to the knitting do not appear to apply to the financial services business, though. Here, the requirement of the Financial Services Act that intermediaries either be officially recognised as independents or become tied agents for an insurer led to Eagle Star taking a 25 per cent stake in this division. This arrangement applies to the life and savings side, but leaves the AA to operate a panel system of insurers on the motor and household insurance side.

In the annual report, Mr Dyer said the insurance company had celebrated its 25th anniversary by 'continuing to grow and to contribute significantly to the AA Group's bottom line, in a market where huge premium increases undermined customer loyalty'.

However, the financial services arm did attract adverse comment over some of its loan schemes, with commentators suggesting that the practices threatened to tarnish the organisation's cherished brand.

Mr Dyer says that since the loans were unsecured they were never going to carry interest rates comparable to those on overdrafts offered to known customers. 'Some of the criticism is ill-informed,' he said. 'In the recession, many financial companies are making losses. We're remaining profitable. You have to balance the rates against profit.'

The scheme, which had seen pounds 300m lent to 1 million customers, had been a success, he added.

One step it does not appear prepared to take is a merger with the Royal Automobile Club. Founded in 1896 and with 5.6 million members, this organisation has similar concerns to the AA, but Mr Dyer insists it does not offer such a broad range of services.

Acknowledging that there are few countries in which two non-profit-making organisations are competing head-on, he said approaches had probably been made in the past but nothing was planned for the present. Besides, any link-up might attract the attention of the Monopolies and Mergers Commission.

What the future does hold is more attention to the brand. Whether accompanied by the copy line 'The fourth emergency service' or 'I know a man who does', market research suggests it has a high public awareness and an image akin to that of Marks & Spencer. There will also be continued efforts in the areas of 'assistance, advice and information'. And this, Mr Dyer said with a hint of contradiction, 'certainly extends further than motoring'.

The AA already runs help lines for household insurance, has recently introduced an emergency telephone under the name Callsafe and is about to join up with British Airways to offer a telephone answering service for timetable inquiries.

An attempt last year to acquire BT's domestic alarms business, Telecom Security - seen as complementary to its emergency telephone and household insurance services - failed. But the organisation has successfully expanded into Europe via ARC Transistance, billed as the only patrol force service across the Continent offered by a breakdown organisation, and Mr Dyer can see many other opportunities.

'There's a very large field in which we can expand,' he said, pointing out that in Britain alone 40 per cent of cars on the road are not covered by any breakdown service.

(Photograph omitted)