Franchised retail model will see ‘unprecedented’ change in next five years thanks to new trends and agency sales

  • Traditional retail landscape likely to change dramatically in next five years
  • Cox Automotive and Grant Thornton believe changing consumer interests will be major factor
  • So too will agency sales, however ‘most’ OEMs are unlikely to adopt full agency model

Time 10:05 am, February 21, 2022

The traditional franchised retail model is set change as much in the next five years as it has in the last 50, experts have said.

The bold claim has been made by Cox Automotive and Grant Thornton, who believe changing consumer interests and the introduction of agency and derivative models will disrupt the traditional retail landscape.

Writing in the latest issue of Cox Automotive’s AutoFocus report, the firm’s insight and strategy director, Philip Nothard, said: ‘When you look at the increasing interest from OEMs in agency models, changing consumer sales trends and the recent rise in the popularity of EVs, all signs point towards huge disruption to traditional automotive retail models.

‘As a result, the next few years are likely to bring unprecedented change to the way people sell and purchase vehicles.’

One major consumer trend is the shift away from diesel to electric cars, piling pressure on carmakers in Europe and China to not only offer more EVs but also to meet meet intensifying emissions regulations or face significant fines.

Owen Edwards, head of downstream sutomotive at Grant Thornton UK LLP, said: ‘The decline in the popularity of diesel-fuelled vehicles would’ve been unthinkable just a few years ago.

‘But while the market share of BEVs continues to increase, the retail price and production costs of BEVs aren’t falling enough to improve the growth of this sector over the coming months and years, which is one of the key factors that will prevent an even faster take-up of BEVs in the short term.

‘It’s a tough period for OEMs because they’re trying to build affordable BEVs to meet consumer demand, while at the same time having to invest heavily in BEV and low-emission vehicle technology, which negatively impacts on their bottom line.

‘This leads to OEMs reviewing their costs to meet financial targets.

‘One of the areas several OEMs are evaluating is their cost base in the supply chain and the distribution and retail of vehicles.’

Full agency model ‘unlikely’

Edwards went on to say agency sales can offer OEMs a way to reduce costs, as pioneered by Tesla with its VIR (vertical integrated retail network), however most will struggle due to legacy processes.

Edwards said: ‘Stellantis, Mercedes-Benz and Volkswagen have reported that they will be implementing a direct B2C process, also known as the agency model, but it’s unknown whether this will be the full agency model.’

He went on to say: ‘We believe that the full agency model is unlikely to be implemented by all OEMs; instead, the agency derivative model will be preferred.

‘The reason for our thinking is that all OEMs and their dealer networks are different, and to fulfil the required growth strategy of each of the OEM and its dealer networks, each OEM will need a different model; there will be no single standard agency model that fits all.’

Nothard added: ‘Edwards raises the question whether OEMs could go down the direct sale route for used vehicles, a market that’s widely understood that OEMs want to play a more significant part in.

‘This would generate more profits through the sales of additional car finance and additional spare parts, which are profitable for both the OEMs and their national sales companies.

‘Presently, some OEMs already are, with one example being the used online marketplace HeyCar, currently owned by Volkswagen and Mercedes-Benz.

‘Cox Automotive and Grant Thornton both believe that the downstream industry will be affected by the rise of subscription market, which, while small at present, fits well with the agency model and omnichannel process.

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‘Customers benefit from this model by paying a monthly fee for all services for 9-12 months.

‘In addition, reports from subscription provider OnTo suggest that subscribing for a BEV can often work out cheaper than leasing.

‘It’s clear that subscription will be slow to take off, but with BEVs on the rise, it’s another way that flexible customer service can be offered by OEMs, dealers, and independent used car operators.’

James Batchelor's avatar

James – or Batch as he’s known – started at Car Dealer in 2010, first as the work experience boy, eventually becoming editor in 2013. He worked for Auto Express as editor-at-large and was the face of Carbuyer’s YouTube reviews. In 2020, he went freelance and now writes for a number of national titles and contributes regularly to Car Dealer. In October 2021 he became Car Dealer's associate editor.

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