Have national (whole)sales companies had their time?
In this section, ICDP provides context for some of the factors impacting the manufacturer and dealer relationship.
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Steve Young
Managing Director of ICDP
Despite the frequent talk of ‘retail partners’ and ‘manufacturer partners’ on the part of manufacturers and dealers, the reality is that the relationship can be tense, in the worst cases ending up in the courts. The critical interface point between manufacturers and dealers in a market is their national sales company (NSC) or an appointed independent distributor. This relationship will inevitably become closer in an omni-channel world where customers can switch between manufacturer-managed channels and dealerships. Any move towards agency or an improved form of franchise will increase the dependency of the dealer on the NSC or distributor to ensure there is a balanced stock supply, and that pricing and promotions are generating the initial customer pull. Given the historical tensions in the relationship, it is understandable that dealers report a lack of faith in manufacturers’ readiness to take on these responsibilities as one of their biggest concerns about an agency transition.
My focus in this article is on the wholly owned NSCs rather than the independent distributors. The latter is more common in smaller markets than the major EU5 markets anyway. Still, they also typically combine both distribution and significant retail roles, often owning the dealerships in the largest cities in the markets where they distribute. As such, they have the retail skills in-house, and if they get planning for the market wrong, now or in the future, they shoot themselves in the foot, so they generally seem to have more positive relationships with the smaller investors who make up the balance of their sales networks. ICDP research also indicates that they operate with leaner overheads than NSCs, whilst delivering the same market share.
Coming back then to the NSCs, they face multiple challenges in the years ahead. They carry an overhead level that reflects the culture and cost base of their parent organisations but do not appear to deliver more in return for that higher cost. There are NSCs in markets where volumes are much lower than the 10,000 unit ‘rule of thumb’ annual sales level, which separates NSC markets from independent distributor markets in the eyes of many OEMs, so they might be better operated by independent distributors or clustered to create larger NSCs with a multi-market responsibility.
"As we move from the old ‘push’ model to a new omni-channel, retail-led distribution model, should OEMs not recognise that what they have today are national wholesaling companies, when the future need is for national retailing companies, working in a totally different way with their retail partners?”
Steve Young, Managing Director of ICDP
Dealer attitude surveys in multiple markets show a wide variation between the most highly and least respected brands, often based on NSC relationships and behaviours rather than the product. Usually, the high scores can be tied back to the track record of individual senior leaders who have genuinely identified with the idea of partnership and put that into practice in all aspects of their relationships with dealers. However, a focus by local NSC management on achieving their KPIs can also result in sub-optimal outcomes – one recent example being one NSC who, in the current environment of supply shortages, offered incentives for pre-registration at the end of last year. The distorted logic was that by inflating the sales for that market last year, it would increase the allocation for this year compared to other European markets.
Looking beyond the NSC performance in today’s environment, they face the new challenges of supporting omni-channel. Although the transfer of responsibilities is more explicit under an agency agreement than a franchise agreement, in our view, the practical implications for an NSC are similar. Today’s NSCs are wholesalers – persuading and incentivising their dealer network to take the volume and mix of product that allows the NSC to meet their commitments to the OEM centrally. This type of push strategy – under normal supply conditions – leads to a disorderly market, where cars are pre-registered and sold through low-margin channels such as daily rental and brokers if the dealer channel becomes saturated. To achieve an orderly market, the model needs to move to pull rather than push, with the NSC more focused on creating a true consumer demand, with pricing and incentives adapted continuously to achieve the desired balance. Unfortunately, this type of retail understanding and skill is rare in NSCs today.
One consequence of this – and the biggest cost-saving opportunity after reduced discounts and incentives – is that the responsibility for managing the order pipeline and market stock should also shift to the NSC or even the OEM centrally. This has worked very effectively in a number of brands and markets in the past but is a lost skill. For example, generating the initial order pipeline at a market or regional level will always be more accurate than combining the orders generated by individual dealers, and late amendment capabilities give dealers more opportunities to precisely match customer demands with acceptable lead times. In addition, it is a key enabler of a seamless buying process for customers as stock availability is consistent across channels and transparent. However, these supply chain planning skills – like the already-mentioned retail skills – are not typically present in NSCs today.
The third key area of change is that related to performance measurement and rewards for dealers. Under a typical margin and bonus scheme today, a significant part of the total reflects qualitative and quantitative bonuses, with the latter often being the determinant of whether the dealer makes a profit or not. It is highly questionable whether such schemes measure anything which delivers customer value, but they drive additional resources at NSC and dealer level to measure and debate. With total bonus levels dropping – typically to around 2% under agency – they should also be simpler, and campaign spend refocused on retail pricing support rather than dealer incentives. These again represent a change in mindset and the removal of another area of friction in the NSC-dealer relationship.
I liken the situation to the broader transition of the industry from internal combustion engines to battery electric vehicles. We cannot start making electric drivetrains simply by retooling internal combustion engine development and manufacturing capacity. So as we move from the old ‘push’ model to a new omni-channel, retail-led distribution model, should OEMs not recognise that what they have today are national wholesaling companies, when the future need is for national retailing companies, working in a totally different way with their retail partners? At least in this area, we are looking for an NSC revolution rather than evolution.
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