26 May 2021

With all the talk about car makers moving from a franchised model to an agency model, Auto Retail Profit spoke to a sales manager in a country that moved to agency agreements two years ago.

“At first I hated the change,” our source reports. “I hated it because of the sudden lack of control.”

Our retailer went from running a dealership where he could set discounts, sort out finance and deal with refunds in a franchise to being an agent of the manufacturer, but still in the same role. Much of the previous flexibility and freedom seemingly disappeared overnight.

“With the manufacturer setting the pricing structure we couldn’t even give a discount the equivalent of £50 to seal a deal,” he says.

“And we couldn’t even refund deposits without the manufacturer’s say so because customers didn’t pay us, they paid the car maker.”

There was still the ability to make decisions on the numbers in some areas, though.

“Trade-ins were the only thing we could compete on – apart from offering a better sales experience through better staff. However, we couldn’t be as competitive as some because we kept most of our trade-ins to go on the forecourt when others didn’t.

“Some other dealers here throw in free services instead of discount as it’s all they can control,” he says. However, experience suggests that the new setup he is working under has some positives and can work in ways that it didn’t previously.

“But after 18 months under an agency agreement I can say it has some advantages, I can get as much new car stock around me as there is space for in the showroom without worrying about anything going overage and adding to finance costs,” he says.

“Another upside is that we don’t have stupid targets that pay huge volume bonuses like we used to which means I can switch efforts to used cars if it makes more profit.”

One area that hasn’t been reported widely is the impact of agency agreements on marketing, with our secret agent saying it has allowed him to reallocate spending to areas that might not have had it previously. “We don’t spend money advertising new cars because everyone has the same margins,” says our secret agent. “Instead, we put that budget into funding a really good call centre because customer retention is now key.

“It’s probably an exaggeration to say I’ve come to love the agency model, but I’d say I’ve learned to live with it and it’s not all doom and gloom.

“For the UK a lot will depend how exactly it is implemented and how much the manufacturers want to control.”

By The Secret Retailer
The secret retailer has a vast amount of experience managing dealerships both in the UK and abroad

Why are agency agreements suddenly a hot topic?

Multiple manufacturers have confirmed that they are considering switching to an agency agreement within a short period of one another, with plans having progressed beyond the first explorations in some cases.

Both Mercedes and the VW Group have signalled their intent in the form of letters to their retailer networks.

The VW Group is making the move only for its electric vehicles after it trialled the concept in Germany and Austria for the ID EVs in 2020. It will be used across a number of the group’s brands.

A spokesman confirmed this in a statement saying: “At the European Dealer Council, Volkswagen AG confirmed the intention to implement an agency model for the sale of battery electric vehicles of the brands Volkswagen, Volkswagen Commercial Vehicles, Skoda, Audi and Cupra.

“This confirmation means we can now plan a comprehensive engagement programme as we co-develop the implementation plans and timings with our retailer partners, ensuring that the retail network remains a key player, and also ensuring that the new sales model delivers profitable growth for the brands and retail investors in the long term.”

The EV-only plan could be a precursor to a wider roll out of the agency setup further down the line, although there is no confirmation of that just yet.

Mercedes is consulting with its UK retail network about moving to an agency model for all new car sales, according to several retailers who spoke to Auto Retail Network.

The brand explored the possibility several years ago but pulled back from the idea after the network pushed back. With more manufacturers making the move now, it could well be something that sticks this time around. A spokesperson for Mercedes declined to comment on the matter.

Polestar is the only brand that is currently operating on an agency basis in the UK but this is not on a wide scale as the company only has two physical sites in the country, in London and Manchester operated by Endeavour Automotive and Lookers respectively. However, other brands operate agency agreements in other countries around the world. Amongst others, BMW has consumer facing agency agreements in Scandinavian countries while Toyota does so in New Zealand.

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