8:23 am, June 16, 2023
Mercedes-Benz UK CEO Gary Savage has insisted the brand’s swap to haggle-free agency sales is working and the move came about because it was what dealers wanted.
In an exclusive, wide ranging interview with Car Dealer, Savage hit back at critics of the brand’s new sales tactics and refuted allegations the model is about driving profits rather than supporting customers.
In the interview he covers a variety of topics, including:
– Explains Mercedes introduced the agency model in response to requests from dealers to boost new car profits
– Explains why the firm has made so many self-registrations this year
– Denies there have been customer complaints as a result of the switch
– Stresses the move is not about fixed prices, as there are now ‘special offers’ available for customers nationwide.
Mercedes was the first mainstream UK car manufacturer to switch to agency sales.
This sees customers purchase cars directly from the manufacturer and dealers are paid a hand-over fee for delivering the car.
The schemes are designed to keep prices fixed across all outlets and take away the need of customers to haggle.
Many other brands are introducing similar schemes. Volvo went live with its version this week, while VW Group and Stellantis are planing to roll out their schemes soon too. JLR said its dealers will move to agency agreements late in 2024.
That’s meant all eyes have been on Mercedes’ performance so far this year with commentators pointing to their falling market share and the rise in the number of cars they have registered themselves as indications it simply hasn’t worked.
To date, Society of Motor Manufacturer and Traders (SMMT) figures show that the UK market has risen 16.8 per cent this year as a whole, but that Mercedes’s registrations are down 11.5 per cent.
One managing director of a car dealer group, who spoke on condition of anonymity, said he felt the move to agency was simply ‘motivated by profits’.
He highlighted Mercedes’ falling market share and high level of demonstrator and rental registrations. Both of which points Savage responded to in our exclusive interview.
The dealer boss said: ‘It would appear to be a slower run rate to market for Mercedes in 2023.
‘I think all we have learned so far is that the so-called “transparent and fixed pricing” will only result in sales volumes equivalent to the opposition if the fixed prices are suitably keen.’
The anonymous car dealer also revealed intelligence suggesting that 32 per cent of Mercedes’ registrations so far this year have either been internal or demonstrator cars, or short cycle rentals.
‘This would indicate a lack of true retail sales, as they lag well behind competitors BMW and Audi in volume,’ said the managing director, whose group runs dealerships for multiple car brands.
Further laying bare their view of the agency model, the dealer added: ‘Let’s not forget, the push to agency sales is dressed up as consumer driven but in reality it is about manufacturers reducing the cost of retail of expensive-to-produce BEV vehicles.
‘Leveraging internet driven sales interactions – with AI generated customer interfaces – is deemed to deliver a reduced cost of retail for the OEMs but is not necessarily focused on customer service and value.’
Mercedes hits back
Mercedes boss Savage refuted allegations the agency model is motivated by driving profits rather than supporting customers, and he highlighted impressive early buyer satisfaction scores and positive car dealer feedback.
Savage also said the brand was upfront about expecting to sell fewer cars at greater profit margins this year – something he says it is doing.
He told Car Dealer: ‘At the end of Q1 profitability is where it was at the same time in 2021 and 2020, and better than it was in 2019, 2018 and so on.
‘It isn’t as strong as it was in 2022, but I think most people accept that last year was an aberration. Overall, we’re where we need to be.
‘Remember, the networks came to us and said “We need to stem this decline in profitability”. Agency was the answer to their provocation.’
Savage also said the phrase ‘fixed pricing’ is misleading, highlighting the fact there are special offers available via its sales channel.
And he said the firm’s retail mix – traditionally the most profitable sales channel – had actually grown in comparison to that of Audi and BMW year-on-year, rising from a share of 26 per cent between the big three German brands to 30 per cent.
He also said that under the agency model, Mercedes is required to provide dealerships with demonstrator and showroom vehicles, accounting for the high run rate of self registrations.
‘Of course we had a considerable number to register – that’s the business model,’ said Savage.
He said dealers were ‘very positive’ about the switch to agency sales as are – he believes – customers.
Savage cited Mercedes’ customer satisfaction score of 4.7 out of five, and said feedback from a tour of his dealers resulted in him being ‘overwhelmed by positivity’.
He added: ‘98 per cent of our sales are from the nearest dealer now. A year ago it was 76 per cent. That’s good for the dealers and good for the customer, who isn’t left traipsing around trying to haggle for hours.’
The full interview with Savage is published on the Car Dealer Magazine website today.
Industry view
Analysts and industry experts universally praised Mercedes for the way it rolled out its agency switch, highlighting that it had done so well before its rivals and with relatively few operational issues.
Professor David Bailey, a British academic economist at the Birmingham Business School, University of Birmingham, said: ‘Mercedes has managed to keep retailers on board with a rumoured five per cent commission model, plus finance commission, thus avoiding – so far – the messy debacle that has beset its shift to agency in Australia.’
Bailey was referring to the furore that led to dealers in the southern hemisphere demanding $650m in compensation from the brand.
Bailey added: ‘Mercedes also claims that the shift has helped boost its average selling price, shifting it further into premium territory.
‘Not surprisingly in the early part of the year market share is down. What is clear is that this means higher prices for consumers who can no longer haggle with dealers eager to get their custom to hit targets.
‘For Mercedes it means potentially a bigger share of a higher price. Where that leaves the dealers isn’t clear.’
Philip Nothard, customer insight and strategy director at Cox Automotive UK, also cautioned that it was too early to draw major conclusions from Mercedes’s performance in the UK so far.
However, he did cite two firm conclusions from trading to date, both echoing Bailey’s views: On the upside, Mercedes’s claims that it had increased profit-per-unit and, potentially more negatively, the SMMT data showing that it was lagging behind rivals in terms of registrations volumes.
Nothard also praised Mercedes for implementing agency smoothly and ahead of its competition, many of whom have had to delay its introduction.
He said: ‘Mercedes’ migration to agency has begun without any notable technical issues, something other OEMs have cited as a reason for delaying their agency ambitions.
‘What I think we’ve learnt so far is that when it comes to agency, there’s no one size fits all, and for it to be successful, there needs to be an upside for the OEMs, their retail partners, and the customer.
‘That’s not to say agency won’t work or isn’t appropriate, but it’s complex, and there are factors to consider far beyond retail prices, consumer interaction and ongoing relationships.’
Nothard also suggested that the catch-all use of agency to describe the shift was unhelpful, and suggested that different OEMs would take different approaches.
He added: ‘New ways and old ways are converging and will continue to do so. I believe what we’re moving towards is more like ‘retail 2.0’ rather than 100 per cent agency.
‘In some respects, what we call it is just semantics: If nothing else, the past couple of years have taught us that the most successful businesses, regardless of their size or structure, thrive when they offer a customer journey that is flexible and tailored to individual needs and it’s this that must sit at the core of any retail strategy, agency or otherwise.’
Support wavering
Steve Huntingford, editor of What Car?, said its research suggests support among customers for agency sales is wavering.
He cited evidence from its polling of in-market buyers each week that revealed that a shrinking – but still majority – proportion of respondents favoured the agency approach.
He said: ‘Recent research by What Car? found 55.3 per cent of in-market car buyers were in favour of manufacturers moving to an agency sales model with standardised prices across dealers.
‘The same research found just a quarter of buyers enjoy haggling over a car’s price, with the majority either disliking it or merely accepting it as part of the process.
‘However, despite the slight majority support, if anything consumer attitudes seem to be moving away from the agency model, potentially as people learn more about the downsides. When What Car? first surveyed buyers on the topic in January 2022, 57.5 per cent were in favour.’
What do you think about agency sales? Are you a Mercedes dealer and disagree with what’s been said? You can contact us via email here. Your identity will not be revealed.
