BMW Group's retail network in Europe will undergo major changes in the next few years as the automaker introduces a direct-sales agency model, under which the manufacturer invoices customers directly and dealerships receive a fixed fee for the sale. The automaker's sales and marketing boss Pieter Nota explained how the agency approach will work in an interview with Automobilwoche reporter Lennart Wermke.
How BMW will revamp its retail network for digital age
BMW Group's retail network in Europe will undergo major changes in the next few years as the automaker introduces a direct-sales agency model.
Some of your competitors in the premium segment are planning to introduce agency models to sell their cars or have already done so. A few months ago, you also presented plans to this effect. Why?
Direct sales with agents as sales representatives in Europe is a logical step for us. We will start with the Mini brand in Europe in 2024 and introduce an agency model for all BMW cars in 2026. But I would like to emphasize one thing upfront ...
What is that?
The agency model is often misunderstood. We will not bypass dealers in taking this step. It will be a triad that benefits all three parties involved in the process of buying a vehicle.
What do you have in mind specifically?
We will improve the customer experience and provide an attractive business model for our agents, and at the same time gain direct access to the customer. Those are the three most important aspects in our plans.
Do you want to achieve that with a genuine agency model?
Absolutely. When we go down this path, it will be all the way. It will be a genuine agency model.
Why is this step necessary now?
Our customers frequently switch between an offline and an online world. The customer starts looking online, configures a vehicle with us, and then wants to take a look at the selected model at the dealership. This is currently creating a systemic break, which we want to eliminate. Our web activities and the dealer systems are not yet linked. In the future, we will introduce a uniform IT system.
So the customer benefits. How does the dealer benefit?
After intensive discussions, we have developed a commission model that takes into account the profitability of our dealers in recent years. In this way, we can ensure that this profitability is also maintained in the agency model in the future. You can be sure that this will be the case.
What amount of commission are we talking about?
I was expecting this question, but I am afraid I will not answer it. That remains confidential between us and our dealers.
Mercedes-Benz has agreed to a commission of 6.5 percent initially with its dealers and 6 percent later. Do you think that is fair?
I will certainly not comment on our competitors. It’s between us and the agents, who are after all our business partners. This partnership approach is the BMW way.
How difficult were the discussions with your dealers on this topic?
It helped us that we began discussions very early on and were in talks since March. Our dealers were involved in the entire process development. Due to this, we have experienced a great deal of support for our plans. Many of our dealers will confirm this.
Where do you see the biggest problems at the start of the agency model?
When we launch at Mini on Jan. 1, 2024, Mini will be completely ready. Mini is not a guinea pig for anything that we could then do better at BMW two years later. All things considered, we are already very far along in terms of IT development and the new structures. From our point of view, however, it still makes more sense to start with Mini and then convert the BMW brand. That's why we're taking our time, so that we can then go into the start-up phase in stages.
Will all countries start at the same time on Jan. 1, 2024?
There will be three waves. Germany's turn will come in the first half of the year. I cannot say now how things will be at BMW in 2026.
Would the agency also be conceivable for the U.S. in the future?
No, definitely not. That would not be compatible with the general conditions in the U.S.
Your competitor Audi, like other brands in the Volkswagen Group, initially will only sell its electric cars with an agency model. Why are you doing things differently?
I think it is extremely important to only introduce an agency model with the entire vehicle portfolio. Anything else will not work in my view, because you then start competing within your own model range.
What do you mean?
If we introduce an agency model for our electric vehicles only and a customer comes to one of our dealerships because he/she wants to buy an i4, then under such an approach it could happen that he/she leaves the dealership with a 4-series coupe. What I am saying is that we do not want our customers to be pushed in any direction at the dealership just because the dealership has another vehicle in stock. That is why I think such a step is fundamentally wrong. There will be no such separation with us.
Is this a lesson learned from the agency model for your electrified cars that you introduced in 2013 and dropped by 2018?
The model worked well in itself for the i3 and i8. In fact, the reason we folded it back in anyway was because of the competition with the conventional sales system. At BMW, the customer and his or her needs are in the foreground, not what the dealer currently has on offer. The changeover now affects the entire brand. That is different. And that is why it will work.
Stellantis CEO Carlos Tavares wants to cut distribution costs at his brands by 40 percent by 2030. Do you also see potential savings in the agency model?
For us, the agency model is not a cost-cutting program. Of course, new efficiencies will result from a more data-driven management of our sales. We will be happy to take that on board. But we are taking this step to improve the customer experience and the brand experience. In the future, the customer will get the same offer and the same prices everywhere. That is extremely important for us as a premium brand. We do not want the customer to feel that they are being quoted a different price everywhere.
But offering the same prices everywhere can also be a risk. For example, a car that is selling well in an area such as Tegernsee in southern Germany can cause demand to collapse in other regions of the country if retailers have no scope for discounts. Would you accept a loss of sales here?
No, absolutely not. We have a very clear growth strategy at BMW, and we are also gaining market share worldwide. In 2021, BMW was once again No. 1 in the global premium segment, and we want to remain in that spot. There are still opportunities to respond with prices, even in the agency model. Just perhaps not as locally as is currently the case. Even the pricing today may certainly not be perfect everywhere, but in the new model there will at least be uniform prices.
But then you might lose a customer to Mercedes or Audi because of 500 euros...
I do not see that happening. We always have ways of reacting, for example through our young used cars. There are possibilities that we have now and will continue to have.
Many automakers are using the switch to agency sales to thin out their dealer network. Are you considering this?
There have always been and will always be network adjustments, regardless of the agency model. We look at performance first and foremost. But there may also be changes due to succession in family businesses or because a partner wants to grow and add businesses. Our customers will always find a BMW or Mini dealer near them. That is our competitive advantage over newcomers to the market who do not have a dealer network. They are scratching their heads and pondering how they can offer their customers proper service. There are competitors where you as a customer cannot get anyone on the phone or have to drive for hours to the nearest location. That will not happen at BMW.
Let us stay with service: Industry insiders report that BMW is considering expanding the agency model to include aftersales, specifically parts sales. Can you confirm this? Many dealers generate margins of around 20 percent here. It's obvious that BMW can earn more here.
No, we are not doing that. Parts distribution, like the rest of aftersales, remains outside the agency model.
What about nearly new or "young" used cars?
Young used cars are part of the agency model. As a manufacturer, we also want to give customers the opportunity to buy a young used car directly from us.
Where do you draw the line at which cars cease to be nearly new used cars?
There is no fixed cut-off point, as you have to take into account age and mileage. Most young used cars are between six and 12 months, maximum 18 months. All other used cars remain unaffected by the agency sales model and will continue to be the exclusive business of dealers.
The legal hurdles for a true agency model are daunting. They must cover all the dealer's entrepreneurial risks, such as investments in showrooms. At the same time, BMW must pay a fee for the agent's brokerage services. It will have to be very clear how much will be paid and what will qualify for payments. How will you implement this?
We pay the dealership a commission for every vehicle that is sold. This applies both to the car that a regular customer buys at his dealer and to vehicles that customers buy entirely online. In this case, they have to choose an agent to deliver the vehicle. There will be a commission in both cases. In this way, we want to ensure that there is no competition between online and offline and that only the customer's wishes count. In the years where this model is not adequate, we will step in and compensate the agents' losses to some extent. But what is at least as important for retailers is that we as a brand and a group are future-proof and have the best product portfolio in the industry. Actually, we are taking on some of the dealers' risk. We therefore have to be sure that we can generate growth and business for our agents.
So you will use the commission to handle both the remuneration for the agents' brokerage activities and the assumption of their entrepreneurial risks?
That's exactly how it is. That is all included in the commission.
This year, BMW presented a new retail concept. Should this be seen against the background of the agency model?
Showrooms are changing not so much because of the agency model, but because the digitization of the customer process requires it. Dealerships, for example, offer numerous digital tools so that customers can start their configuration at home and seamlessly continue it later at the dealership. The salesperson can then digitally demonstrate every conceivable equipment variant in razor-sharp detail.
Thanks to digital tools, will you then also need fewer cars in the showrooms?
There will be more consultation via digital tools. The number of vehicles in the stores may therefore be lower, but it doesn't necessarily have to be -- it depends on the specific local situation. Rumors that there may only be X number of vehicles in stores are false.
With the agency model, BMW takes over many of the dealers' tasks, such as scheduling, marketing and pricing. Will you add staff for this?
Of course this will also be reflected on the personnel side when we take on the tasks. But there will not be a significant increase. We have a number of large subsidiaries that can handle these tasks.
Conversely, will the dealers have to cut staff?
That's something the dealers decide for themselves as independent entrepreneurs. Some employees will certainly be able to take on new tasks thanks to further training. But I don't expect staff reductions, especially in sales. On-site consulting will remain important in the future.
At your competitors Volkswagen and Mercedes Austria, costs have not fallen as promised to dealers following the introduction of the agency model. Can you give a guarantee that this will be different for you?
I am very confident that our plans will work out. As I said, we are largely in agreement with our dealers. Which processes will change and how, and what staffing levels will be required will be outlined in detail. That is why this intensive preparatory period with the retailers was and is so important.
You will avoid the start-up difficulties that Mercedes had in Austria, such as the IT sytems not being ready, and complaints from dealers about inflexibility and longer delivery times. Was that one reason why you took your time, at least with BMW?
We always prepare our homework very well. We take enough time to avoid something like this. It will work for us.