Car makers still dream of move to agency sales model

Car makers haven't given up on the dream of selling cars direct to customers, even as the number actually doing so has dwindled to just four. Currently Mercedes-Benz, Volvo and Mini are the only car makers of any scale in the UK using the so-called agency model of selling directly to customers via their network of dealers, who get paid a flat fee per sales as the car maker’s agent (hence the name). Tesla also sells directly but owns its dealer network. Other car makers, including Stellantis, Ford, JLR and Polestar, have decided to reverse earlier plans and continue with the wholesale model, in which they sell cars to dealers who then sell them to customers. In this system, the dealer assumes the responsibility of sale and so can pull all kinds of levers to close the deal, including giving away their profit margin in the form of discounts. But the impetus to overhaul a system that often works against the customer remains. “One of the big problems that we've got as an industry is we really want to be consumer-centric but the majority of manufacturers are operating on legacy systems that were built for manufacturing cars, not for dealing with consumers,” Steve Catlin, managing director of Vauxhall, told Autocar. The Stellantis brand has no plans to move to the agency model after initially planning to in 2023, delaying until 2026 then cancelling altogether. But Catlin’s experiences working for Volvo Car Financial Services has persuaded him of the benefits. “There are some principles in the agency model that I think we would continue to try and bring into our business within the franchise model,” he said, citing a flatter pricing system on cars like the new Frontera that reduces the need for haggling as an example. Car makers’ move to take over control of the sales process was born of a desire get closer to customers, standardise pricing and save money. Many agency model plans were conceived directly following Covid, when shortages of stock meant it was easy to fix no-haggle prices. When the regular production flow started to come back two years ago and new Chinese brands added to the competition, car makers returned gratefully to the selling ability of dealers. “It's not a natural skill set [for us],” Catlin said. “You can write a system plan for what we would call the happy path, but in reality 99% of consumers aren’t on the happy path. There are nuances that at the moment the retailers deal with, because they're expert in being able to do.” It pays to work through those nuances, argues Steve Young, managing director of dealer consultancy ICDP and head of an Omoda and Jaecoo dealership that has a traditional wholesale relationship. “Agency done well works for everybody,” he told Autocar. “In the long term, we will end up with both agency and true manufacturer direct sales.” For one thing, agency forces car makers to become better, said Young: “The manufacturer becomes directly responsible for the consequence of their own actions. For example, if they decide to push stock into the market, then it's something that they are directly exposed to. In the franchise system, they dump it on the dealer, turn their eyes away and ignore the chaos.” Agency done well enforces discipline, he believes, saying: “Ultimately it is for the benefit of everybody, dealer and customer." However, many brands pivoted too fast with too little understanding of the consequences, Young argued, even those that are persisting. “I would say that Mercedes struggled a lot with it,” Anthony Pordon, head of corporate development at premium specialist dealer group Penkse, recently told the US Annual Automotive Symposium. Penkse, trading in the UK under the Sytner brand, operates around a third of Mercedes dealers here and has been on the journey with the German brand since it switched to the agency model in 2023. “[There have been] hundreds and hundreds of additional changes that they didn't anticipate that we had to help them out with,” said Pordon. “One of the big voids was lack of used cars in the marketplace, and we still struggle with that today.” Under a direct sales situation, the car maker should take care of all the marketing expenses, but that’s not exactly what happened in this case, revealed Pordon. “When sales weren't materialising, they came back to us and said: ‘We need your help to sell more cars. We need you to go to the market, discount some cars.’ And we kind of went: ‘Sorry, this is what you wanted. You guys have got to figure this out. We will help you, but you cut our margin.'" Penkse has previously said that the agency fee paid by Mercedes is 5% of the sale price, with 1% extra added for electric cars. Despite the glitches, it's happy with the deal financially. “We're making more per car on a net basis under agency for Mercedes than we were when we were selling the car ourselves,” Pordon said. Penkse is also now on a journey with Mini, which switched to agency in March. The transition has “bedded in well”, Mini said in a statement to Autocar, while acknowledging “early challenges” including some around invoicing on financing. “Those issues have largely been resolved and we have seen finance penetration increase over time,” Mini said. It claimed that dealers are happy with the arrangement, including getting access to Mini’s entire new and used stock; and that customers like not having to haggle under the fixed-price scheme. Mini's UK sales so far this year are up 13%, at 38,521, while Volvo's are up 4.3% at 57,287 and Mercedes' are down 11% at 79,004, according to figures from the Society of Motor Manufacturers and Traders. Another advantage is that customers deal with only one organisation, theoretically making communication a lot easier in the buying process for a new car. “Don't forget that in a customer journey, there's the manufacturer involved, there's the retailer involved and then most times there's also the finance house involved,” Vauxhall’s Catlin said, highlighting an issue that Autocar has also raised. “At that moment, there are three sets of systems, three entities trying to talk to a consumer, and it's not particularly joined up. Agency tried to do that, but it tried to run before it could walk.” Volume brands remain wary as they lean on dealers to push sales in the battle against Chinese brands as well as the need to hit ZEV mandate targets on electric cars. But as a way to try to differentiate themselves with a more customer-focused approach, direct sales could be back on the table in the ever-fiercer battle for loyalty.

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Car makers still dream of move to agency sales model

Agency model means car makers sell directly to drivers, paying dealers a flat fee for each sale handled

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Car makers still dream of move to agency sales model

Agency model means car makers sell directly to drivers, paying dealers a flat fee for each sale handled

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