BUSINESS STRATEGY
2021 AND BEYOND

Changing sales processes: agency & online  

Laying the foundations for a direct-to-consumer approach

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Changes to the sales process.

With the onset of COVID-19, dealer groups had to advance their plans to sell vehicles online. Many dealers successfully adapted their strategy to this new environment.

Indeed, as noted in the section on digital retail, many dealers took the opportunity to invest in or accelerate their online sales journeys. Data from Google, also shared in the digital retail section, highlights that consumer preference shifted to online retail, while also emphasising the additional time prospective buyers had to research their next purchase.

As outlined in the forecasts section, the UK new and used car markets remain weak relative to 2019. However, there was an initial strong V-shaped recovery in the short term, which was echoed across global markets, such as China, US and Europe. While potentially a result of pent-up demand and, with the risk that this demand is not sustainable particularly considering further regional and national lockdowns, consumers are looking for alternative sales processes. Consumers and NSCs are looking for change; both Mercedes-Benz and PSA have announced that 25% of global sales will be online by 2025. 

The agency model

The introduction of the agency model would see dealers focus on the customer interaction – handovers, servicing and used vehicle sales; while the manufacturer would take more control of the new car sales process, the customer data and the overarching customer relationship. There is precedent, with several manufacturers already trialling the approach in global markets. One such example is the Toyota Drive Happy scheme in New Zealand.

In a recent dealer sentiment survey carried out by Cox Automotive for this report, almost half of respondents (45%) expected an increase in franchise agency within the UK dealer market in 2021.

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Advert for Toyota Dive Happy (External link - Toyota New Zealand/Saatchi)  

A view from the top: Daksh Gupta, CEO, Marshall Motor Holdings PLC

"COVID-19 has certainly accelerated trends in automotive retail; it will however be an evolution rather than revolution.

“The agency approach transforms the model in a number of areas. Notably, it frees up cash, increases returns, de-risks balance sheets and removes new car stock risk. 

“In addition, it provides the opportunity for dealers to be more flexible, creates a greater sense of partnership between the manufacturer and the retailer, and will likely offer the consumer a much more integrated and seamless retail experience.

“We've been predicting a significant fall in UK dealer numbers over the past three years and, while clearly horrendous for those affected, what should emerge is a leaner, more profitable and more customer-centric retail environment.

“We expect to see further consolidation and restructuring in the market, some prompted by COVID-19 but much of it because of network rationalisations by the OEMs.

“Ultimately, for all of us, the goal has to be delivering an integrated and effective customer journey which provides the opportunity for profit and value for everyone involved."

Pros and cons of the agency model

There are potentially several possible pros and cons relating to the agency model.

On the positive side, removing the issues of working capital and trapped cash caused by holding vehicle stock is likely to create a more flexible and less risky business approach for the dealer. Customers may benefit from not having to haggle with the dealer and online sales are likely to go up. The manufacturer has greater opportunity to create a direct-to-customer relationship, while the dealer remains part of the customer journey.

There are, however, some potential negatives. In the early stages of the implementation, the NSC and dealer could be in direct competition, as seen in New Zealand with the Toyota Drive Happy agency model. Some dealers suggested a profit decline of around 30% due to competing with the NSC. 

The Australian Automotive Dealer Association has highlighted some issues. CEO James Voortman said: “How does the trade-in work?  Will there still be sales targets?  Will compensation be offered for facilities which may no longer be fit for purpose? OEMs are yet to provide details with information on how agency models will address these concerns. Given they are as accustomed to the traditional dealership model as dealers are, perhaps they don’t yet have the answers, and these ‘toe-in-the-water’ beginnings will be as much a learning exercise for them as for dealers.” 

The agency model is still in its infancy and there will be solutions for most of these issues; however, more clarity is required from the OEMs on how this model will work. In Europe, VW is looking to undertake the agency model initially with just its electric vehicles. As already indicated in an early section of this document, dealers should be preparing a strategy for further sales to move online and the potential requirements to respond to the agency model.

"More clarity is needed to see whether the agency model approach works for the UK or Europe. There are some positive sounds from Toyota Drive Happy in New Zealand, but this example also has some underlying advantages. Toyota has 20% market share, and all of its 26 dealers are on the same dealer management system, enabling better communication between the dealer and the NSC."

Owen Edwards, Associate Director, Grant Thornton