Automaker Move Towards "Agency Model" in Europe

News this week out of Europe about the evolution of the dealer body away from franchisees and towards more of an “Agency” model.?

The agency model, which is being talked about more and more in the press but is not very well defined, is an evolution away from a more typical franchised dealership model to “agents” who sell product on the OEM’s behalf. This model is more attractive to the automakers because they see the potential to reduce operating costs and eliminate discounting.

The Concept: As an OEM moves towards a direct-sales model, the dealers need less expensive facilities - to store fewer vehicles; consumers order the vehicle ahead of time so inventory costs are lower; advertising costs are lower; and, there isn’t any competition on price as all vehicles sell at MSRP.

Outside of the U.S., Mercedes-Benz is also moving toward a more direct-sales – or "agency" – model, and is targeting 80 percent of European sales through this method by 2025.

This week, Mercedes-Benz announced plans to cut 15 to 20 percent of its dealerships in Germany, and about 10 percent of their dealerships globally, as part of a broad overhaul of its distribution network.

They were quick to add that there are no plans for a U.S. dealership consolidation at the present time.

At the same time, Mercedes is targeting 25% of all of their international sales to be online by 2025.

The automaker says the moves will cut distribution costs and allow it to rein in incentives as the automaker seeks to move even farther upmarket with higher average selling prices.

And it isn’t only Mercedes who is making big changes overseas.

Just last week, Stellantis has said it would end all current sales and services contracts with European dealers for its 14 brands, effective June 2023.

The plan is to move the Stellantis distribution structure in Europe towards an “agency model,” where carmakers take more control of sales transactions and prices while dealers focus on handovers and servicing, no longer acting as the customer’s contractual partner.

The new Stellantis distribution structure would be operational in all of Europe’s 10 largest markets by 2026, and they envision allowing their dealerships to capture 5% front-end profit on new cars sold.?

We will be keeping a watchful eye on how this dynamic unfolds over in Europe and its implications on the U.S. market.?

Steve Greenfield is CEO and Founder of?Automotive Ventures, which is raising its first?DealerFund?to help auto dealerships navigate through the next decade of unprecedented change and participate financially in the AutoTech startups they help to grow. The DealerFund looks to build a critical mass of the most progressive dealerships, work closely with these investors to understand their biggest challenges and needs, and then identify companies to invest in that uniquely address our dealer investors’ needs.

Note:?This article was?originally broadcast on the CBT News Friday Five.