For a few years now a new approach has beckoned that is set to change the way vehicles are sold. It is called ‘the agency model’ and could mean that soon if you buy, finance or lease a new car the experience could be quite different. In fact some manufacturers have already moved into agency relationships with their retailers. We cover what the agency model is and the potential pros and cons to buyers. Please let us know what you think at the bottom of this post.
How does the current franchised car retail market work?
Every franchised car retailer in the UK is a business in it’s own right. It is franchised by a car manufacturer to sell its cars. To win a franchise the retailer must demonstrate various standards and meet targets set by the manufacturer. Many franchised retailers are groups that operate a number of forecourts. Some are franchised by only one brand like BMW or Mercedes-Benz to sell their cars. Others hold multiple franchises with a range of manufacturers.
How does a franchised sales relationship work?
Beyond the manufacturer setting and monitoring standards the franchised dealer holds all the cards. They can set the price of the vehicle, determine stock levels and pre-register vehicles. They would typically own all the vehicles stocked at their sites. When they sell a vehicle to you they have flexibility to change the price and build a sales package. If you go through with the sale you are buying the vehicle from the retailer.
What is the agency model?
It is a different approach to the way vehicles are sold. The retailer acts as an ‘agent’ for the manufacturer. Rather than buying the car from the retailer you will be buying it directly from the manufacturer. The retailer only serves as an ‘agent’ who helps to arrange the deal. The manufacturer will set the price and handle the sales process. There is no haggling, only a fixed price like most other retail products.
Why introduce the agency model?
The main factors are two-fold. Surveys have consistently shown that 80% of consumers would like to see vehicle prices fixed and the sales process simplified. To achieve this manufacturers would need to control the retail price centrally. There is of course more revenue and profit potential for manufacturers with the agency model too. Holding a direct relationship with the customer allows manufacturers to take advantage of a data driven sales process. So manufacturers are essentially looking at cutting out the middle-man from the sales process. But use the retailer’s expertise to present and deliver vehicles to customers.
Pros and cons to customers
Pros
- Fixed consistent price – under the agency model the manufacturer sets the price which will not vary across it’s network. This provides consumers with the confidence that what they are paying is fair and provides a better indication of value.
- Improved buying process – since the retailer will no longer be handling the sales transactions it will focus on becoming the primary source of vehicle expertise. This means you should receive better information about the vehicle before you buy it.
- Greater choice of used cars – retailers partaking in the agency model could have a greater choice of used cars for you to view. This is because manufacturers will seek to use their retailers (and power in the market) to retain used vehicles within their forecourts. Hold on to the stock, rather than selling on through other channels.
Cons
- Inability to haggle – while fixed prices benefit most customers, this does mean that if you like to negotiate and you get a good deal when doing so this will not be possible under the agency model.
- Sales process carried out without human involvement – it is unlikely that there will be a manufacturer representative at each retailer who carries out the sale process. Instead you will probably need to plug-in your details into an online form either at the retailer site or at home on a device. This may not suit everyone given how costly a vehicle is and you may not be able to go into the dealership for assistance regarding the payment process.
- Uncertainty around how the model will evolve – not every manufacturer is likely to adopt what the industry term the ‘pure agency model’. This means there is still likely to be a lot of variation in the market and there will remain inconsistencies for consumers. It is uncertain how particular parts of the vehicle buying process will work too, such as part ex-changing your vehicle. If the retailer is likely to value the car you part-exchange then this can also lead to variation in the overall cost of buying a new car compared to another retailer.
What does the industry think?
It is safe to say that not all retailers are that keen on moving to the new model. The Retail Motor Industry Federation has recently highlighted competition law issues with the move, linked to new EU regulations, along with other concerns. Although retailers would be off-loading a lot of their risks to manufacturers, they would also lose control and ownership over many aspects of their business and potentially the extent to which it can grow.
Most manufacturers deem the move to be part of the future of automotive, but they want to ensure that the retailers they work with buy into the model and continue to provide the key physical channel for consumers.
We would like to know what you think….
