Volvo, Mercedes-Benz, Mini and Honda are among those to have cracked the difficult ‘agency’ formula
Have established car makers finally found the magic solution to sell direct to customers?
Volvo for one reckons it has, praising its system for boosting private sales (the most valuable sales) in the UK by 21% in the first six months of this year.
Direct sales were popularised by Tesla and eagerly rolled out by other brands starting around 2022, as manufacturers looked to cut their distribution costs and remove a crucial barrier to their customers. The original dealers were retained, but instead they acted as agents paid a fixed fee, with car makers officially selling the car.
But many, including Ford, the Volkswagen Group and Ineos, have abandoned or postponed the shift to the so-called agency model as increased competition exposed car makers’ unpreparedness to move into the selling game; most returned to the time-honoured system of wholesaling to dealers.
Most, but not all. Volvo, BMW (via Mini), Mercedes-Benz and Honda are persisting with a full or partial embrace of the agency model, showing that with perseverance this system may yet work.
“Ultimately, the model works because it aligns everyone’s interests,” Nicole Melillo Shaw told Autocar in a statement. “Over the past three years we have learned a huge amount.”
Melillo Shaw cites the advantage to consumers, Volvo itself and even retailers, who have traditionally been most resistant.
The benefits for the car maker include a better insight into buying habits, which they get to see first-hand via online ordering systems. “We have much, much more data and insight about our customers and customer behaviour,” Hans De Jaeger, head of Honda in the region that includes Europe, told Autocar. “In the past, we didn’t have that.”
Honda UK began on one model, the electric eNy:1 and last year rolled it out to all models. Now it’s considering rolling the model out across Europe, De Jaeger said.
Mini is also sticking with what BMW calls The New Retail, which was rolled out in the UK last year. It is providing a learning course for BMW, which has delayed its own version but says it is committed to adopting the model. “There is no way back,” BMW’s former CEO Oliver Zipse told investors in March. “We will introduce that step by step because individual mobility will be closely linked to understanding the customer individually. And that is something you can only do as a retailer and not as a wholesaler.”
Mercedes is another choosing to work its way through the issues. The company now sells 50% of its cars direct to customers in Europe, including in the UK. More markets in the region planned to make the switch, Mathias Geisen, head of sales and customer experience, told investors in February. The original goal, set in 2022, was to have 80% of Mercedes sales via agency by 2025.
Persistence can pay off, however. “Experience with Volvo UK and Mercedes in a number of markets suggests that such a fundamental change is difficult to get right from day one,” Steve Young, head of dealer-focus consultant ICDP, told Autocar. “But once the early wrinkles are sorted out, it can bring a win-win-win outcome for customers, dealers and manufacturers.”
Switching is not easy. Dealers generally dislike agency because the fixed-fee system in genuine agency removes their ability to hustle more of the margin in each car for themselves. “They’re entrepreneurs,” David Allison, head of product and planning at MG in the UK, told Autocar. “If they’re good they can increase the amount of money they make on each car.”
That also helps the car makers, who found it easy to sell cars themselves when the market was constrained during the chip shortage but much harder when supply returned, quickly followed by hard-charging Chinese entrants.
“Maybe we were too early,” Markus Haupt, CEO of Seat/Cupra, told Autocar. Cupra made the switch to agency back in 2021, starting with the Born EV, but it has since reverted to wholesaling cars to dealers along with the wider VW Group. “We went back to the traditional business because it’s what dealers and importers are used to,” Haupt said. Cupra will focus on reducing costs at the vehicle development end, rather than via its distribution model, he added.
Former VW Group UK boss Paul Willis has gone on the record saying he always opposed agency. “I was in the room in Ingolstadt when we started putting the whole agency thing together, he told Car Dealer Magazine. I’m afraid to say, from the very beginning I questioned it.”
The VW Group looked to agency to improve margins by reducing the amount given away to dealers, but it hadn’t considered how it impacted its sales network, Willis said. Willis now works for Dubai-based dealer group Al-Futtaim Automotive.
The switch was kneejerk, argued Hyundai CEO Xavier Martinet in an interview with Automotive News Europe. “The agency model was pushed so hard a few years ago, for two reasons,” Martinet said. “One, Tesla was doing it, and at that time everything Tesla did was considered to be game-changing. And two, when the chip shortage occurred, customer demand exceeded what automakers could supply, so everyone could use a pull model. A sales model, however, should work both in good times and bad.”
Adaptability is key. Honda, for example, uses what’s often called a ‘non-genuine’ agency model, which applies element of both direct and wholesales. Honda dealers have room to discount and have sales targets, recognising that it’s a strong motivational force to move metal. “Our current model is adapting more towards this dealer engagement, which we really want to have,” European head De Jaeger said.
Getting the dealers onside is crucial. “A key focus for us is ensuring our retailers are successful and profitable within the model,” Volvo’s Melillo Shaw said. “We haven’t replaced or diminished their role; we’ve evolved it.”
Tesla has persisted by selling directly through its own network, but few of those that followed this pure direct sales route still do so. Polestar abandoned it and now sells through Volvo dealerships in Europe using the fixed-fee agency model. But in Switzerland it wholesales its cars to dealers, and it could eventually move that way elsewhere. “Obviously it has pros and cons,” Polestar CEO Michael Lohscheller told the recent Automotive News Europe Congress. “For the time being, we feel good with the current set-up, but it’s something we are exploring.”
The cons for car makers of selling to dealers and letting them control the final sale remain the same: customers have to shop around or haggle to get the best price; dealers compete against each other for business for the same car; and car makers are stuck with an expensive and outdated system that leaves them out of the customer loop.
But it also works well enough. “Currently, we want a mature solution. We don’t need to take that risk,” MG Europe CEO William Wang told Autocar. “But we do want to offer better technology, something really the customer can benefit from. We can move fast. If everyone moves the other way and if it works, we can quickly adapt.”
