During the more than 135 years since the automobile was invented one thing has remained mostly the same: the sales model.
The automaker builds a vehicle and then sells it to a dealer. The retailer takes care of all major sales and service activities. It's the classic wholesale model.
This model is changing and we are on the brink of a fundamental disruption of automotive sales.
E-commerce giants such as Amazon and industry leaders such as Apple have transformed the purchasing process, making it simple, convenient and transparent.
New players such as online platforms and electric vehicle startups understood the change in buying behavior earlier than many traditional automakers and dealers.
Since 2016, online marketplaces and brokers have been gaining traction, and EV pioneers such as Tesla are blending inner-city showrooms with their online stores, offering customers a simple interface and a new purchasing experience.
Massive threats
Kerrigan Advisors’ proprietary annual OEM Survey of over 100 executives reveals that the majority of respondents are worried about the financial impact of Chinese automakers’ growing global market share, and most expect that the EV transition to be slower than expected. The survey also queried executives on their outlooks for dealership valuations and profitability, as well as their expectations for the future of dealer networks and facility requirements.
Clearly, the traditional automotive wholesale model is facing massive threats, and established automakers and dealers have started to take note and change course.
To combine the strengths of their widespread network of independent dealers with the benefits of more tightly managed sales processes and direct customer access, automakers are turning toward the agency sales model.
Here, the former dealers (now agents) in effect remain part of the sales process as independent business entities but are now bound to the sales channels as well as prices defined by the automaker.
In return, agents receive access to the market's full stock of vehicles and fill the same production pipeline on a first-come, first-served basis. This gives customers full transparency on inventory available within the market as well as faster delivery.
This allows the automaker to reduce overall inventory levels while optimizing the production pipeline. And because prices are fixed, automakers can design truly competitive online offers that are fully integrated with the agents' offline sales channels, enabling agents to better follow up on customer requests and close deals online and protecting them from competition from online platforms.
In practice, however, what is emerging is not one model, but rather, multiple variations -- some better equipped than others to handle the current challenges.
BMW, Mercedes test drive a new idea
One of the first true agency models in Europe was introduced by BMW when it launched the BMW i subbrand for electrified cars. Although BMW abandoned this sales model a few years later, it sparked further pilots such as BMW's current agency model in South Africa.
In 2019, Daimler undertook a massive transformation of its sales operations in Sweden, introducing a genuine agency model for all models and customer groups.
With this new sales model, Daimler has achieved transparency and control over stock levels, order intakes, transaction prices, and more.
In Sweden, the company is currently testing the processes, systems and tools that might become the new standard of Daimler's European sales operations.
And the success the company has been having -- hitting its original retail target by selling 19,700 cars in Sweden in 2019, and outselling German rivals BMW and Audi in 2020, during the COVID-19 pandemic -- give Daimler good reason to expand direct sales to other markets.
In fact, last May Daimler announced that Austria and Germany will be its next European markets to move to an agency model, making Daimler's sales transformation arguably the fastest and most extensive one in Europe.
In Germany, Volkswagen recently combined the launch of its ID3 vehicle with the introduction of the agency model, and VW sister brand Seat announced plans to follow suit with its Cupra Born EV in Spain and other European markets starting this year.
Unlike Daimler, however, the VW Group is focusing its new sales approach on EVs only and is opting for a variation on the agency model. Here, the dealer remains in charge of several important tasks such as those related to used car remarketing and residual value management. VW, in turn, exerts a more flexible form of price management by setting transaction prices and discounts but without limiting dealers to grant additional discounts.
Volvo's online-only EV ordering
While skeptics of the agency model remain, industry leaders have taken notice, with more automakers announcing plans to pilot direct sales.
This March, for example, Volvo announced plans to have EVs comprise 50 percent of its fleet by 2025 and 100 percent of its fleet by 2030, with all EVs being ordered online via volvocars.com.
Dealers will continue to be an integral part of the consumer journey, providing consultation, test drives, face-to-face interaction, delivery and service.
Customers will also still be able to transact in dealerships, but orders will essentially be placed online.
To achieve this, Volvo plans to expand its Care by Volvo subscription platform into a simplified yet comprehensive offering.
According to Lex Kerssemakers, head of Volvo's global commercial operations: "Online and offline will be seamlessly integrated to offer a superior customer experience, whether the customer is at home, in a retailer showroom, or driving the car. This change is about how we, our retail partners and us, together make it better for the consumer."
Volvo's plans are ambitious and have the potential to put the company at the forefront of the industrywide sales transformation and help it withstand the growing competition.
Selling directly to customers in Europe
Largely unnoticed, microcar brand Smart has worked hard to revolutionize not only the market for small vehicles but also the way that they are sold.
Dirk Adelmann, CEO of Smart Europe, has said: "We will meet our customers where they are, redefining omni-channel commerce by creating meaningful interactions at every touchpoint. Seamless customer journeys, with physical retail outlets fully imbedded and based on marketwide data analytics, will bring these interactions to a new level."
Smart is well positioned to achieve its goals given that it is now a joint venture between Mercedes and China's Zhejiang Geely Holding.
And even more automakers are preparing to enter the European market and sell directly to its many consumers. While Chinese EV startup Aiways has chosen the exotic way of selling via the electronics chain Euronics, more-established Chinese automakers such as Brilliance, Great Wall Motor and BYD have the digital and operational know-how and financial means to establish efficient sales operations in Europe within the next few years.
The ride won't be easy for established automakers seeking to transform their historical wholesale structures. Designing state-of-the-art online platforms and fully integrated back-up systems for dealers is costly, and a big part of the transformation requires changing the mindset, both internally and within the dealer network, that lays the foundation for direct-to-consumer sales.
Successful examples have shown that the transformation journey can best be managed through three phases:
- Phase 1: Discovery. The traditional role-split is deeply ingrained in the minds of automakers and dealers. To foster a lasting mind-shift, automakers should start with a small but meaningful pilot rather than shooting for an all-out transformation from the start. Sutomakers that have mastered the transformation have done so by establishing a task force that includes internal and external experts on a wide range of topics, including sales, marketing, IT, and finance. As a first step, this team will conduct a detailed analysis of markets and models to identify a suitable laboratory for the agency model. Further, a business case can showcase the financial impact of direct sales—proving the possible feasibility of such model.
- Phase 1: Discovery.
- Phase 2: Design and implementation. To handle the complexity of redesigning the entire sales journey, automaker's should break the project down into work packages. These include multi-channel online and offline sales, an entirely new commission-based remuneration model for agents, and multiple new IT systems—from CRM and pricing tools all the way down to online evaluation of trade-in vehicles. Past examples have demonstrated the importance of involving dealers early in the development and testing of solutions. A successful practice is training so-called "transformation angels," who can coach dealers in the new sales processes and IT tools and who provide support during the launch and go-live phase. Additionally, a dedicated communications group can help anchor the idea of direct sales within the automaker's national sales companies.
- Phase 2: Design and implementation.
- Phase 3: Rollout and agile adaptation. To be quick enough to handle the day-to-day retail business, automakers should closely monitor feedback from the market and adapt processes and systems on the run to eliminate bugs and hurdles as quickly as possible. Once the new sales model has been successfully implemented and tested in the pilot market, the automaker can start scaling the model across further markets and regions.
- Phase 3: Rollout and agile adaptation.
While these are only high-level prescriptive measures, they can lay the groundwork for a successful transformation of the sales model. Those with the courage to take a bold step and re-think the way they sell have the best chance to outperform their competitors, creating a win-win-situation for automakers and dealers alike.
