Navigating the Shift: Evaluating Sales Model Transformations for Automotive OEMs

?In brief:?

• Getting the sales model right is instrumental particularly for new market entrants to boost their sales and business growth?
• Lately, numerous OEMs have disclosed plans to transition towards direct sales models. However, due to several factors, some prominent OEMs have reversed their plans.?
• In EY’s experience, achieving ideal ‘market-sales model fit’ involves multiple internal (OEM’s strategy, extent of operations, etc.) and external (market heterogeneity, market complexity, etc.) factors. A fact-based assessment is key to choosing an appropriate sales model?

Sales models play a quintessential role in mapping out the path from the initial customer contact to the final sale, providing a systematic and scalable approach to selling products or services. They are not just about making a single sale; these models are about building long-term customer relationships, optimizing profitability, maintaining consistency, and driving business growth. ?

Automotive sales models can be broadly classified under two categories - indirect and direct sales models.?

Indirect Sales Model:??

The indirect sales model, widely used in the auto industry by companies such as Hyundai and Toyota, allows OEMs to sell vehicles through dealerships. OEMs benefit by leveraging the dealer's reputation, local understanding, and customer relationships. It improves liquidity, provides cost-effective distribution, and lets OEMs concentrate on product development rather than responsibilities such as inventory or store management.?

Direct Sales Model:??

A direct sales model, used by companies such as Tesla, enables OEMs to sell products directly to customers via online platforms and proprietary stores, eliminating dealer involvement. OEMs have full control over the sales process, from advertising to pricing, and allows for direct customer interaction and retail price control. In addition, OEMs also have direct access to customer data, enabling additional service and product sales alongside the customer lifecycle.?

The significance of online channels in the automotive purchasing journey is underscored by findings from our EY mobility consumer index study. The study revealed that a remarkable 87% of respondents use online channels for gathering information during the pre-purchase phase, indicating that these channels are gaining prominence. Moreover, a substantial 25% of consumers are inclined to purchase a vehicle online, showcasing a transformative shift in consumer behavior.?

The rise of digital technology and evolving consumer preferences have prompted many OEMs, such as BMW and Mercedes, to reassess their sales models. As people grow more comfortable with online purchases and direct brand interaction, these companies are rethinking traditional indirect sales models and planning a shift towards more direct sales.??

BUT what is the ground reality??

Amid the overall trend to shift to more direct sales models, however there is a slow turn in the tide. Many OEMs are reviewing their sales models - While some remain resolute in their intent to adopt direct sales strategies, others are choosing to continue with the indirect/ dealer-focused models.?

Recent news reports indicate that major OEMs such as Volkswagen, Stellantis, and BMW have delayed their shift to direct sales models. What might have led to this reconsideration??

Several significant challenges are obstructing the shift to direct sales, such as the strong opposition from dealer groups, lower than expected sales traction, and difficulties regarding the outsourcing of support activities. On the other hand, OEMs are recognizing the advantages of indirect sales models - dealer-assisted product introductions, dependability in dealer service quality, heightened brand awareness through established communication channels, reduced investment, and opportunities for a 'test-and-learn' methodology, among others.?

This is not to declare one sales model's superiority over the other. Multiple strategic, structural, operational, financial, and regulatory considerations come into play in determining the optimal sales model for an OEM. A thorough sales model review can yield invaluable insights and unlock the brand’s full potential.?

Sales model review:?

A sales model review begins with an in-depth analysis to determine the level of control of each sales model across a multitude of factors. ?

• Strategic control factors – e.g., brand and image consistency,???
• Structural and operational factors – e.g., simplicity and scalability of operations,?
• Financial factors – e.g., expected operating profit for new cars and aftersales,?
• Regulatory and market adaption factors – e.g., legal simplicity and tax impact.?

Each model’s suitability is further scrutinized based on factors such market complexity or strategic relevance of the market to the OEM. It is necessary to examine unique market and OEM specific metrics to finalize the suitable “market-sales model fit” - this can involve factors such as the brand’s strategic goals in each market and its extent of operations.??

It is essential to remember that there is no universal solution, as each car brand is unique, with different preconditions, target demographics, and goals.?

EY’s expertise:?

We, at EY (Ernst & Young), have supported several OEMs in reviewing/adjusting and establishing their sales models, both historically established OEMs and new joiners to the European market. We know that there is no right or wrong in choosing a sales model. An individual assessment is necessary to determine the model with the best fit - country by country. Yet, we have experienced that ‘quick fixes’, i.e., choosing the sales model, which is most beneficial in the short term, could be detrimental.?

Uniting different capabilities, we have expertise across many decision parameters, e.g., strategic, legal/tax or financials. Our experts are located across Europe’s major markets and are happy to connect for a talk with you—to choose a sales model that support sustainable growth.?