09 November 2021

Alfa Romeo and DS will be the first Stellantis brands to switch to agency agreements for their retail networks, within two years.

Speaking to Auto Retail Bulletin after the investor event, Jean-Philippe Imparato, CEO of Alfa Romeo, explained the switch to an agency model was necessary to cut distribution costs in order to counter the rising cost of production, particularly from electrification.

Mr Imparato said: “Dealers will have to change their business model. Do not imagine for one second that the current model will be stable in the coming years. This is because if you take a B-segment car, five years ago it cost £10,000, today that’s £15,000. If you put the connectivity, the safety and the EV in, it will cost £30,000. Do you think that customers will double their wages too? No.

“If you are pushed in the back by this movement, you have to control your distribution cost. We were living in a world where it was normal to have 30 or 35% as distribution costs.

“You cannot spend 30% of your value on distribution costs anymore, it’s not possible. So we are changing the way we sell cars and we are changing in a way to absorb that cost.

“I can’t say the cost we’ll take out, but it will be significant.” Considering that the total production cost with EV costs, safety, connectivity, etc, Mr Imparato says you could be looking at an extra €10,000 per car. “So you have an idea of what we have to do.”

The move to an agency agreement is core to Mr Imparato’s 10-year plan for the Alfa Romeo brand. “The network needs to believe in the plan. The first five years are locked in,” he said, adding that this meant all the product plans had been costed and would go ahead.

“There will be one new car per year per region in the next five years. The brand needs to refuel to power the business model of the brand and the network.”

Recognising Alfa Romeo’s past, including its mistakes such as oversupply and quality issues, he said he didn’t want to “over-promise”. And in a nod to the previous rapid turnover of management he said he wanted to stay with the brand “for more than a year”.

Mr Imparato also claimed Alfa Romeo had already “cancelled all the toxic channels” that did not result in a profitable sale in a bid to improve residual values. He also claimed that Alfa “made a positive contribution to the Stellantis bottom line in the first half of 2021”.

However, UK retailers that Auto Retail Bulletin spoke to said continuing broker sales was one of the biggest issues the brand faces.

One retailer who did not want to be named, speaking just before Alfa Romeo revealed its plans, was highly critical of the brand: “Notwithstanding the semiconductor situation there is no business case to be representing Alfa Romeo. There’s basically no vehicle parc and the only customers are Alfisti, and there’s not enough of them to keep things going.

“Any margin that’s left will go with an agency model. Brokers are making twice our margin and we can still buy from them cheaper than we can from Alfa Romeo.”

Another retailer added: “They make great cars but they have no idea about the sales process. It’s a race to the bottom. Customers come into the showroom, love the cars, but take one look at the monthly payments [which are high due to poor RVs] and go and buy German.

“There are one or two dealers that get all the stock and sell them at £5000 off.”

But that retailer commented: “Agency would work if it stops the brokers.”

Mr Imparato claimed that around 73% of vehicle orders now had a named customer and that in future orders must have a customer.

When challenged over keeping production going so that factories didn’t close, he claimed he did not a have a volume target and that “Stellantis does not need Alfa Romeo to push numbers”.

He added: “Feeding the factory is not something we have to do. If we push we would destroy the brand.”

Under the Alfa Romeo agency agreement, dealers will see a lower margin than the current maximum of 12% but would have reduced costs, according to Mr Imparato.

Under the Alfa Romeo agency model retailers will be paid a fixed fee for each sale but would also be able to earn a bonus linked to customer satisfaction.

Commenting on pricing, Mr Imparato said dealers would not be able to give away any of their margin. “I will control the pricing,” he said, adding that Alfa would model its pricing to “plus or minus 1%” of the equivalent BMW model.

Alfa Romeo and DS’s plan to work out an agency agreement with retailers is to split the new model into eight topics each with a working group which will include retailers. Investors will then have “one year to be completely aligned” with their brand ready for implementation in 2023.

“We won’t be the last to move to this model,” he concluded.

Mr Imparato’s comments were echoed by Beatrice Foucher, CEO of DS: “We have decided to jump into this new model. The cost of car is going up due to the introduction of EVs and we need to find a model so that the price fits with the customer expectation and decreasing the cost as much as we can for the customer.

“For the dealer the cost of stock will go. There will be fixed pricing for the customer and the dealer.”

Commenting on how far the agency model would go for DS, she added: “For the time being it will be for new cars; used cars will belong to the dealer. It will not be a big bang, it will be a smooth change.”

Tags: agency, Alfa Romeo, Beatrice Foucher, distribution cost, DS, Jean-Philippe Imparato, network