How the agency model is shaking up the car retail industry

In a world where disruptive business models are ever more common, the agency retail model could forever change the way we buy cars. In the latest Autocar Business Live webinar, we spoke to Jonathan Goodman, CEO of Polestar UK; Duncan McPhee, COO of dealer group Lookers; and Tony Whitehorn, consultant and ex-CEO of Hyundai UK; about how it could transform retail in the UK. The full interview is also available in video- on-demand form. What is an agency model? JG “We don’t really call it an agency model. What we have is a new brand starting out with a direct consumer model. And when we set out how we wanted that to happen, it meant that we needed retail partners who were focused on delivering exceptional information to the customer, listening to their inquiries and helping to educate them. “Our retail partners can focus entirely on the customer while the consumer will transact online direct with us, which gives great perspective on their requirements. Everything else allows the retailer to focus on dealing with the customer in situ. “And we took out things like wholesaleing cars. So the dealer doesn’t find themselves wholesale with a number of cars they don’t want; they focus on listening to what the customer wants. And for that we pay them a healthy commission, which enables them to have a very profitable business model as well.” For Autocar Business webinars and podcasts, visit Autocar Business Insight What’s the benefit to manufacturers? TW “This agency model is being driven by the manufacturers. Why? First, for an economic reason. BEVs are about four times more expensive than a petrol vehicle, therefore the margins are being squeezed by all the manufacturers. They’ve gone to the retailers [with] about 15% [margin] that they could actually take and reduce and therefore help the margin. “Secondly, they realise that other competitors are going down this route. Because of it, rivals like Polestar can now talk directly [to customers] and do online transactions. With the franchise model, you can’t do that. “Thirdly is the direct-selling route. So they can then talk directly and sell directly on an ongoing basis to the customer and almost monetise the asset - the vehicle – over a long period of time. For instance, you might have a dog, so the manufacturer can sell a dog guard directly to [you].” What’s the dealer view? DM “[Agency is] a very simple model that’s very transparent. Customers like that ease and, importantly, this is very, very profitable.” Why isn’t everyone doing it? DM “I think agency is still yet to be fully understood in terms of the definition: some are intent on a full agency model, others aren’t intending to go anywhere near it. For me, it’s about delivering a better customer experience, reducing costs and distribution costs in the network and having a more transparent way of dealing and interacting with customers.” What does it mean for consumers? TW “Consumers like it. Let’s be honest, customers don’t really enjoy going into a dealership and haggling. You can’t buy a new car entirely online under the franchise model, because there’s a negotiation point in it. But the agency model is completely transparent. It’s the customer who will drive it.” JG “The start point for us was how you actually get a bit more fun back into buying a car, [because] I think buying cars [has] become a little bit intimidating. We’ve built these great big structures, and most of them are out of town. “We try to put our ‘spaces’ or showrooms where the customer already goes to shop, and then we wanted to work with retail partners. “The immediate thing is listening to the customer and what they want, which makes it a more enjoyable experience than where manufacturers push stock into dealers.” What happens when the days of oversupply and mass discounting return? TW “The pricing is determined by the manufacturer. So the manufacturer might say to themselves, ‘we have too much stock, we can actually give an incentive to the consumer’. “But the biggest pressure will be on the manufacturer, because they’re going to be venturing into arenas that they haven’t been to before, which is local marketing. That’s not what they’ve been good at. “So I think there’s going to be a lot of pressure on the national sales companies to try to leverage and talk directly to customers, which historically has been the domain of the dealers themselves.” From a retailer perspective, is there any benefit to this in managing the supply- and-demand issues? DM “The supply-and-demand imbalance that we’ve seen over the past 18 months has been great for the industry in terms of the margins generated. But we would all like a bit more volume. We don’t want to get back to the days when we were forcing and distressing the market, because that has the dual impact of reduced margins and increased costs.” How will it shake out over the next five years? DM “Whether it’s an agency model or a franchise model, we just need to be simpler and easier to do business with as an industry. Transparency in the way that we do things and keeping customers front and centre of everything that we do is absolutely where it needs to be.” JG “What’s going to change is that the car business is going to move online. That doesn’t mean pure online: it will, to my mind, be an omni-channel business, as there will always be a need to interact with physical property. But if anyone doesn’t believe it’s going online, they’re living in the dark ages. “So I think the big question for the industry is: how do they marry the two to enable the retailers to be focused on delivering exceptional customer care, while at the same time offering the direct interaction for the customer with the brand elsewhere? That’s the challenge that the industry has.” TW “It will be what the customer wants, because the customer is king. “It’s going to be something along the lines of a direct model that’s enabled online but with a localised facility that has that face-to-face interaction.”