7:42 am, December 21, 2023
Franchise car dealers absolutely ‘cannot accept’ slimmer margins when it comes to new car sales agreements with manufacturers.
That’s the opinion of Hendy Group boss Paul Hendy who says fixed-price new car sales agency agreements cannot lead to ‘lower returns’.
He is concerned that problems with the agreements may only be spotted at the last minute and says the real issue for dealer groups, like his, that represent multiple brands, is that no agency agreement is the same.
Writing in the accountancy firm BDO’s annual Motor 150 Report, Hendy explains the fact there is no ‘one size fits all’ agency model yet means he’s having to have a number of different discussions about car makers’ plans.
Hendy turned over more than £1bn last year and was the 27th most profitable in the UK according to the Car Dealer Top 100.
The dealer group represents car manufacturers including Ford, Jaguar, Land Rover, Nissan, Skoda, Hyundai, Kia, Honda, Iveco, Mazda, Dacia, Seat, MG and Lotus.
Boss Hendy said: ‘Agency isn’t the problem, it’s the complexity of having multiple agreements.
‘And this is particularly an issue when there are so many other big issues for the whole industry to tackle, particularly electrification, the state of the economy and low emission zones.
‘What we can’t accept under any model of sales is lower returns because they’re thin and fragile at best.
‘If the model changes to the extent where our returns reduce, we’re going to have to take remedial action.
‘And because of those small margins we don’t have the luxury of time to see if it works in the long run. If there’s a problem, it will come quickly.’
Agency sales, in the main, see manufacturers take control of the sales process of new cars via their website and pay their dealer networks a handling fee for handing over the car.
Where it becomes more complicated is in the detail. Some manufacturers will pay finance commission on top to dealers; some will let them take new car orders from walk in customers, some don’t; and then you get to the tricky part of dealing with part exchanges.
Mercedes and Volvo have so far moved to agency sales this year and the reactions have been mixed. Sales volumes for the former are being forced with fleet deals and heavily subsidised finance offers.
In its recent results, Sytner revealed it was making just £1,900 per Mercedes it sold compared to an average return of £4,500 for its other new cars sold the traditional way.
Despite that, Hendy said that for high end car manufacturers – the likes of which its rival Sytner has many of – the benefits of agency can still be great.
He said: ‘Agency, for high-end luxury, where the cost of running the franchise properly is higher, but where the OEM assists with those costs means we can collectively provide the level of service everyone is expecting.
‘This means it can work for all three parties. I include the customer in that. Because that’s crucial.
‘With volume brands we’ll all be delighted when the stock is off our balance sheets, but when it’s on the OEMs balance sheets, surely that’s going to add another pressure?’
In the BDO report, which you can download now from the website, Hendy added: ‘All franchise agreements have nuances. We’ve rolled with them and both us and the OEMs know where the pinch points are.
‘With the agency model there is no one-size-fits-all yet.
‘If you look at pure agency in its legal form everything is pretty clear. But of course, any variation away from the purest definition adds confusion and complexity. This is why we have terms such as “genuine agency” and “non-genuine agency”.
‘Some OEMs want to include levers along the way to influence how cars are sold, so we get this hybrid model.’
Hendy spoke about agency models at this year’s Car Dealer Live. It will be another topic of conversation with franchised dealers at next year’s event.
On stage, bosses of Swansway, Wessex Garages and Chorley Group will give their thoughts on the impact of agency sales. Tickets for dealers and suppliers are available now for the event which takes place on March 7.
Car Dealer’s research into agency sales, published in July, found some 18 car manufacturers have – or soon will be – moving to fixed-price, no-haggle agency sales agreements with their partners.
Some manufacturers have now delayed their agency model roll outs, though. BMW recently delayed its model until 2026, while Stellantis boss Maria Grazia Davino told Car Dealer it would be delaying agency sales until ‘at least the end of 2026’.
