Is the Agency Model dead?

The transition to Agency has been hot topic for automotive retail over the last few years, but seems to have stalled in the face of challenging market conditions. In January 2023 Mercedes were the first big player to fully implement an Agency model in the UK but as we've entered 2024 we've seen a string of announcements to delay or cancel implementation. Stellantis and Ford have pushed back implementation whilst Jaguar Land Rover appear to have abandoned the change in the UK at least, citing internal and external pressures.

What's happening, what are the learnings and does it spell the end for the Agency model?

The case for change

The rationale for agency is compelling, with the key driver being the desire to provide an omnichannel experience to the customer. In the traditional franchise approach, OEMs don't control all aspects of the relationship, often leading to a fractured and inconsistent experience for the customer. In the digital age, not understanding all aspects of the customer journey is unacceptable.

However, there have also been other reasons impacting the decision. As profits for retailers increased through a period of COVID-induced short supply, many within OEMs have been reassessing their margin structures as a potential way to offset the costs of developing less profitable Electric Vehicles.

With a prolonged period of demand exceeding supply it's been all too easy for OEMs to forget some of the reasons why the franchise model has evolved the way it has and to underestimate the scale of change required to move to Agency.

Not so easy...

The change to Agency is a fundamental shift that requires an OEM to rethink not just its relationship with retail partners, but it's entire sales and marketing strategy.

It forces OEMs to move from being a wholesaler to truly behaving like a retailer. Many think they already do this, but very few truly do. It's often at the local level that this gets exposed, where retailers have the local understanding, leads and a hunger to drive engagement. In difficult market conditions, an OEM's website now has to become a tactical sales tool instead of a brand building product showcase.

The shift to retail also impacts cash flow, as ownership of stock typically stays with the OEM until the point of retail. The current wholesale model evolved to help smooth the peaks and troughs in demand against the need to for consistent production levels.

The enablers required to deliver Agency are significant, impacting the majority of systems within an OEM and extensive training or even change of skillsets within the organisation. Any change is difficult, but this one is particularly hard. Mercedes Benz spent many years planning for the change to Agency and they did so in conjunction with, and with the support of, their retail partners. Even then it wasn't easy and took time to bed in. The delays that we have seen from some OEMs are not a surprise - The timescales were always optimistic and suggested that in some areas the full due diligence hadn't been done to plan it properly. As soon as market conditions deteriorate, then it becomes exponentially harder to manage the change.

What next?

Changing a deeply ingrained distribution system was never going to be easy and as the market moves to a 'push' environment, the benefits of the franchise model are being rediscovered. However, in this digital age, not understanding all aspects of the customer journey is unacceptable for OEM sales and marketing teams.

So the pressure to implement an omnichannel experience remains; The key question for OEMs is whether to continue with Agency or take a different approach.

In some cases, Agency may still be appropriate. However, some OEMs are already talking about a "franchise plus" model which will see retailers signing up to common CRM systems. Whilst the ability to set the sale price is retained by the retailer, a lower margin means less flexibility to discount. Pseudo-control of the pricing in effect. Whilst this may hold some appeal, care needs to be taken implementing a solution that attempts to move away from franchise without being agency.

Whichever route is chosen, don't expect a quick fix: Such significant change is difficult and will require extensive negotiations with retailer partners and careful planning on systems. The clock has effectively been reset.

At Origin Auto we have direct experience of implementing an Agency agreement and are able to advise on all aspects of distribution models.