Automakers warned that 'agency' retail model could break EU antitrust laws

Automakers could risk breaking EU antitrust laws as they move toward selling cars through a so-called “agency” retail model, according to CECRA, the trade group representing European dealers. 

In a news release this week, CECRA specifically singled out “non-genuine” agency dealer contracts. Such arrangements combine the traditional distribution model in which dealers control inventory and pricing and the agency model, which shifts those responsibilities to automakers. 

Such hybrid contracts could be outside the block exemption from EU competition legislation that the automotive industry currently enjoys, CECRA said, describing them as a “potentially anti-competitive practice.” Penalties for running afoul of EU compeitition rules can include heavy fines.
 
Automakers are free to decide which distribution model they want to use, so long as they follow the contractual obligations, the group said, but they should not be allowed to “cherry pick” benefits by combining business models.

“In other words, they are not allowed to combine different models and taking advantage out of each particular system,” the release continued.

Automakers are seeking to cut their distribution costs by selling direct to buyers under the agency model. The move to the model comes against a backdrop of higher costs for electric cars, as well as a migration toward online sales that was accelerated by the pandemic.

“We see some manufacturers becoming imaginative and a number of scenarios are emerging,” CECRA said in a news release.

"For genuine agency models, we have no legal concerns. It is up to the actual dealers to negotiate the content of the contracts and the commercial aspects with their manufacturers,” CECRA Director General Bernard Lycke said in a telephone interview. “We want to be very clear about this.”

In the distribution model, the dealer buys inventory from an automaker and is free to bargain with customers on price. The dealer also bears most of the costs of promotion and carrying that inventory until it is sold, and pays for applying the brand corporate identity to its showrooms.

In the agency model, the automaker instead owns the inventory and sells direct to buyers, at a fixed price, through an agent. In theory, the dealership is guaranteed a fixed commission on each sale (in return for a potentially lower margin), and doesn’t have to invest money on inventory and can spend much less on marketing. Automakers also pay for corporate branding. 

Automakers that have said they are moving to an agency model include Mercedes-Benz, which will introduce it for dealers in the UK and Germany by 2023; future Smart models will be sold this way; and Volkswagen Group uses an agency model to sell electric vehicles from VW brand’s ID lineup and Audi e-tron family.

Stellantis has canceled its European dealer contracts and says it will strike a new agreement in 2023 based on some form of the agency model.

Toyota and Renault have said they will stick with the traditional distribution model.

But some automakers are offering a non-genuine agency model for their dealers.

VW Group subsidairy Cupra, which was spun off from the Seat brand, signed such a contract with its French dealers last year for sales of future models, including the just-launched, full-electric Born. Current Cupra models would be sold using the traditional model, according to reports in the French media.

Under the terms of the contract, as reported by the French trade website autoactu.com, Cupra has responsibility for inventory and customer invoicing, and takes on more marketing costs, as with a true agency model. But there is no fixed price, although scope for negotiation is narrow because of the low commissions on EVs.

Such “non-genuine” models could potentially expose dealers to antitrust enforcement, CECRA says. Such laws regulate the conduct of independent parties, but true agency models fall outside the scope of competition laws because the agents are not independent of the manufacturers.

“From a legal point of view, this system of ‘false’ agent contracts does not hold water and presents serious risks both for manufacturers” and distributors that could become “stakeholders in an anti-competitive practice and thus potentially exposed to fines,” CECRA said.

The group said dealers could be “forced to sign these contracts under penalty of termination with the brand concerned.”

In the UK, the National Franchised Dealers Association, or NFDA, has also sent out an alert about “non-genuine” agency models. 

“For those OEMs who might propose a ‘non-genuine agency’ model on the basis that they are prepared for their agents to share commission with customers (and so retain some control over the transaction price), this can also create genuine antitrust risk,” the NFDA said in a position paper.