JLR’s decision to cancel its planned move to the so-called agency model of direct selling to customers is the clearest sign yet that car makers are rethinking their shake-up of their distribution system amid a return to discounting.
Car makers that have pushed back their announced agency switchover include Mini, which reportedly moved its planned UK rollout date from October to 2025, and Vauxhall-owner Stellantis, which announced last year it was delaying its UK changeover to 2026.
The agency model – in which car makers sell to customers via their dealer ‘agent’ in return for a flat fee – was born of a desire by the car brands to get closer to the consumer as they go through the increasingly online process of buying a car.
Agency was also seen as a way to control the high cost of getting cars from the factory gate into the hands of the consumer, estimated by one analyst to be around £7500 or 30% of the cost of an average family car.
Many agency plans were conceived in the atypical period directly following Covid, when shortages of stock meant it was easy to fix a ‘no-haggle’ price across all platforms, including online and at the dealer.
However, those car makers that have switched discovered the realities of stimulating sales in an increasingly competitive market required access to time-served dealer sales methods that the agency model stripped away.
“The problems that have been experienced, particularly since the return of normal supply conditions, have included poor process and IT readiness, and an incomplete understanding of the complexities of retail and the customer journey,” wrote Steve Young, head of automotive retail consultancy ICDP, in a report published in February.
The need to shift metal – especially electric cars under VETS (the vehicle emissions trading scheme) – as demand plateaued was more easily met by the car makers that still operated a traditional relationship with the dealers. In this so-called ‘wholesale’ model, the dealers buy the cars from the manufacturer and, if necessary, sacrifice their profit by discounting them in order to hit monetised sales targets.
Under agency, that flexibility had been removed. “Pricing levers have been too limited in their effect, resulting in using blunt instruments such as turning the demonstrator fleets faster and even pre-registration of cars through dealers to generate 'nearly new' used cars,” said Young.
While smaller car makers such as Volvo switched, Mercedes-Benz was the brand everyone watched after it became the first sizeable player to move to the agency model at the beginning of last year.
Mercedes initially paid a 5% agents fee to dealers on each car sold, before increasing that to 6% on EVs, we learned from US giant Penske, which owns premium dealer group Sytner.
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