It’s time for the motor trade to move beyond the ‘false dawn’ agency model – Cox Automotive – Car Dealer Magazine

Agency sales represent a ‘false dawn’ for the automotive industry and it is time for the automotive industry to move away from the model.

That’s the verdict from Cox Automotive, which released its latest Insight Quarterly report on the state of the industry.

The report said effective agency model implementation requires a focus on new vehicle sourcing, centralised dynamic pricing and local retailer agreements.

But after evaluating how the approach was adopted, Cox says the model ‘failed to meet expectations’.

This comes as more and more brands are moving away from the controversial approach, with Polestar becoming the latest to do so. U-turn as an attempt to boost sales.

While some brands are still working on this setup, others are just starting to move forward, Cox says.

The report concluded that new agency models need to be developed if this approach is to have any chance of achieving widespread success.

Philip Nothard, Insights Director at Cox Automotive, said: ‘The arrival of the agency model in the UK has been anticipated for several years, often resulting in dealer challenges and manufacturers reconsidering their approach.

‘It is encouraging to see the lessons learned and suggested changes highlighted in Insight Quarterly.’

Contributors to the latest reports include Steve Young, executive director of automotive researchers at ICDP.

Young identified several challenges associated with the current implementation of the agency model, including incomplete and missing processes, IT that does not work as intended, and uncertainty about the true definition of the agency model.

The report describes agency sales as a ‘false dawn’ and states that it is time for the automotive trade to ‘abandon’ this approach.

“There is no such thing as a false agency,” Young said. “Pricing is the key lever for balancing supply and demand.

‘In the traditional franchise model, manufacturers sell vehicles wholesale to dealers at fixed prices. Dealers then use a portion of their profit margins and OEM support to secure sales.

‘While this approach has some inefficiencies, it also has some advantages.’

Hybrid approach needed in ‘rapidly evolving’ market

One of the most controversial aspects of agency sales is the elimination of dealers’ authority to set and adjust prices.

Speaking to Car Dealer Live in 2023, MG commercial director Guy Pigounakis described the approach as follows: ‘margin grabbing’‘ Of the OEMs, then Suzuki boss Dale Wyatt said he would have to fire his entire executive team to make the model work.

However, some brands, including Stellantis, Volkswagen Group, BMW, Genesis, Honda and Mercedes-Benz, have announced plans to switch to the agency model.

On the other hand, brands such as BYD, Hyundai, Kia, Mazda, MG, Nissan and Renault say they will continue to stick to the traditional franchise retail model.

Meanwhile, JLR, Lotus and Ford also tried the agency model but later returned to it.

If the agency has any chance of succeeding, Young says, OEMs need to take a more flexible approach to pricing.

“In theory, a central dynamic pricing tool should replace dealer price negotiations, but in the near term, some flexibility is needed based on a hybrid model where OEMs can make rough adjustments to reflect market conditions and dealers can apply a final discount when necessary to close a deal,” he said.

Nothard added: ‘The market is evolving rapidly. By 2030 the vehicle mix will be very different from today.

‘With consumer spending under pressure and demand for a seamless buyer journey increasing, the agency model needs to evolve to meet these needs.

“Flexibility is key, allowing OEMs and dealers to adapt and maintain alternative models if they are more suitable. This will lead to greater efficiency and improved experiences for all stakeholders.”

You can see the full report Here.