7:52 am, September 23, 2024
Agency sales represent a ‘false dawn’ for the motor trade and its time for the automotive industry to move on from the model.
That is the verdict of Cox Automotive, which has published its latest Insight Quarterly report into the state of the industry.
The report found that effective agency model implementation requires a focus on new vehicle supply, centralised dynamic pricing and local retailer deal-making
However, after assessing how the approach is being adopted, Cox says that the model is ‘failing to live up to expectations’.
It comes as more and more brands turn away from the controversial approach, with Polestar the latest to U-turn in an attempt to boost sales.
Cox says that, while some brands are ploughing on with the set-up, several others are now starting to pull away.
The report therefore concluded that new agency models will need to be developed if the approach is to have any chance of widespread success.
Philip Nothard, insight director at Cox Automotive, said: ‘The agency model’s arrival in the UK has been anticipated for several years, often met with dealer challenges and manufacturers reconsidering their approach.
‘It’s encouraging to see the lessons learned and the proposed changes that are highlighted in Insight Quarterly.’
Among the contributors to the latest reports was Steve Young, managing director of automotive researcher, ICDP.
Young identified several challenges associated with the agency model’s current implementation, including incomplete and missing processes, IT that doesn’t work as intended, and ambiguity regarding the true definition of an agency model.
The report goes on to describe agency sales as a ‘false dawn’ and says that it is time for the motor trade to ‘move on’ from the approach.
‘There is no such thing as a non-genuine agency,’ Young said. ‘Pricing is the key lever for balancing supply and demand.
‘In the traditional franchise model, manufacturers wholesale vehicles to dealers at fixed prices. Dealers then use some of their margins and OEM support to secure sales.
‘While this approach has its inefficiencies, it also brings certain advantages.’
Hybrid approach is needed in ‘rapidly evolving’ market
One of the most controversial aspects of agency sales has been the removal of dealers’ ability to set and adapt prices.
Speaking at Car Dealer Live in 2023, MG commercial director Guy Pigounakis described the approach as a ‘margin grab‘ from OEMs, while then-Suzuki boss Dale Wyatt said he would need to fire his whole leadership team to make the model work.
However, several brands, including Stellantis, Volkswagen Group, BMW, Genesis, Honda, and Mercedes-Benz, have announced plans to transition to an agency model.
On the flip side, the likes of BYD, Hyundai, Kia, Mazda, MG, Nissan and Renault say they remain committed to the traditional franchise retail model.
Meanwhile, JLR, Lotus, and Ford have experimented with the agency model but have since reverted.
Young says that that if agency has any chance of succeeding, OEMs need to adopt a more flexible approach to pricing.
He said: ‘In theory, a centralised 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 the coarse adjustments to reflect market conditions, and dealers can still apply a final discount where needed to close a deal.’
Nothard added: ‘The market is evolving rapidly. By 2030, the vehicle mix will be vastly different from today.
‘With consumer spending under pressure and demand for a seamless buyer journey on the rise, the agency model must evolve to meet these needs.
Flexibility is key, allowing OEMs and dealers to adapt and retain alternative models if better suited. This will lead to greater efficiency and improved experiences for all stakeholders.’
You can see the full report here.
