8:21 am, June 16, 2023
Mercedes UK CEO Gary Savage has spoken exclusively to Car Dealer about the firm’s switch to an agency model at the start of this year.
In a wide-ranging interview he revealed that agency had been introduced at the request of dealers looking to make greater profits from new car sales, disclosed that he had toured retail sites asking sales teams for direct feedback, most of which had been ‘overwhelmingly positive’ and revealed that profitability is already ahead of where it was pre-pandemic despite a slow start as new processes were embedded in retail teams.
Are you achieving your sales goals?
Yes. Sales figures are still front and centre of minds, but we are less obsessive about volume and where we stand versus the opposition. Our luxury strategy is well known, and the agency model is part of how we will leverage that to earn more profit from fewer sales; it is about upping the value of sales for the OEM, retailer and customers.
Is profitability up where you want it to be?
At the end of Q1 it is in the same place it was in 2021 and 2020 and better than it was in 2019, 2018 and so on. It’s not where it was in 2022, but for us – and I think for most people – last year was an aberration that was always going to be hard to repeat.
In terms of network profitability it was clear that new car sales were becoming less and less of a feature of the franchises; the profitability was not commensurate with the volume. The networks came to us and said, ‘We need to stem this decline in profitability.’ Agency was the answer to their provocation.
Critics point to your high level of self-registration this year as a sign of a struggle for sales?
As part of agency, we now provide demonstrators and other showroom vehicles, therefore it’s only natural that the numbers will have gone up, especially compared to 2022, when the supply shortage meant we were laser focused on delivering every car we could to customers.
On January 3 we went from a standing start, with no order bank, no demo cars and so on and therefore we had to register quite a considerable number.
If you want to look at a different measure, look at retail sales. Last year we took 26 per cent of the retail share between the three German manufactures, this year, so far, we are at 30 per cent. Agency certainly hasn’t harmed our retail standing.
Even your critics admire your implementation of agency. How did you do it so seamlessly?
It’s down to the strength and depth of the collaboration with our retail partners throughout the two-year implementation period. We have 18 investors who we have built up goodwill with over the years, and we have worked tirelessly with them to make it work, including paying for a specialist in each group to act as their expert, reporting directly to us and vice versa on anything needed.
Even so, there are grumbles from dealers and customers on forums about the model, and especially the fixed pricing?
Are there? I’ve not encountered any negativity. It’s important you don’t call it fixed pricing; it’s consistent across the country, but we do have many offers that we promote.
We’re now almost six months in, and we have a lot of insight and data, so I decided to get in the car and go round showrooms and meet sales executives to get an unfiltered view of what it’s like for the to operate under agency – I was overwhelmed by positivity, some of which were even unintended.
Now everything is off one sales platform, with one sales process, with one way to set up an order and more. The administrators love it too, as the sales executives can’t find shortcuts anymore!
Then, from the customer side, they consistently say they are enjoying the fact you don’t have to negotiate. The sales executives like that too; they aren’t getting to the end of a sale only for the customer to wheel out a broker deal anymore. They have the confidence to say, ‘This is the process, we have to follow it.’
This year, 98 per cent of our customers have lived within 20 minutes of the location they have bought from. Last year it was 76 per cent. Customers are confident that the price will be the same and happy to shop locally.
That’s positive, but customers rarely like paying more for a product than they once did?
We are providing the customer with a more contemporary buying experience – and all our research shows that our customers like that. They have rated us at 4.7 out of five to date, for instance.
It’s easy to lose sight of the fact that customers didn’t always enjoy the older process of buying a car. There were geographical pricing variations, the time of the month could dictate if there was a discount available, as could the amount of inventory on site at a particular location.
Now, that worked, and I’m not here to knock the distribution model, but we’ve moved to provide a better customer experience and improve the viability of the dealer network. So far, all the metrics suggest we are achieving both.
Customers are buying our cars, and the feedback is overwhelmingly that they are enjoying the process.
How long should we wait before judging agency?
Certainly not yet, but I can say that all the signs are positive, and all the metrics are getting better month by month.
It’s true, January and February were nowhere near; it did take time to build momentum despite all the good work we did to prepare.
I guess the first indication will be at the year-end, when we can look at the network performance and viability. We are very confident we have built strong foundations. We’ll continue to build on them relentlessly.
As an example, we launched with a platform and sales process we were confident was as good as it can be. Well, we’ve made 333 changes to the process since then, not because there was anything wrong initially, but because we learn, we adapt, we change and we constantly look to finesse the product and make the sales process as frictionless as possible.
When do you think this scrutiny on you will stop?
I don’t feel under scrutiny. I get that it is inevitable that the press will look at us, and I guess that will be less prevalent as others follow suit, but ultimately this is our approach and we will see it through.
