PARIS -- Automakers that have moved to the direct-sales agency model have yet to be fully tested on their skills at selling cars compared to traditional retailers, the Automotive News Europe Congress was told.
The parts supply crisis in 2022 and early 2023 helped automakers, including Mercedes-Benz, which have already made the agency switch in selected markets because there was more demand for cars than availability.
"The lessons learned are limited when supply is restricted," Steve Young, head of automotive retail consultancy ICDP, said during a panel discussion at the Congress held in Paris on June 14.
The shortage of new cars meant most automakers were able to sell their vehicles at list price or close to list price, which is a key aim of the fixed-price, direct-sales model.
The return of supply will be a crucial test. "We have not learned the most important thing: have the manufacturers picked up the skills to understand and stimulate retail demand to give the planned volumes?" Young said.
Automakers are switching to the direct sales model in response to the success of new retail methods pioneered by the likes of Tesla, which did not adopt the wholesale model but sold direct to consumers from its own stores.
However, pioneering new methods is not always easy, Mathias Holst, chief financial officer at Lynk & CO, told the panel.
The Geely-owned brand has focused on flexible subscription and now sells 60 percent of its 01 plug-in hybrid compact SUVs that way. But it had to adapt. "We came in with some bold ideas on paper, but it turned out we designed a lot of things that were not scalable," he said.
Moving to more traditional methods tried and tested by the retail industry helped the brand. For example, Lynk & CO announced in May that it had partnered with BCA Europe to defleet its cars when they came off subscription in the brand’s seven European markets. "We needed an excellent partner to work in a traditional way," Holst said.
More established automakers will also need to learn lessons from the retail industry as they take over the business of selling cars.
"They have not thought through how to stimulate demand. They think somehow it will just happen," ICDP's Young said. Young cited Mercedes in the U.K., which switched to the agency model at the beginning of the year and has begun paying retailers to market cars at a local level.
"There is nothing wrong with that. Dealers know how to generate sales so why not give them money to go out and do it? If anyone knows how to do it it's the dealer," he said.
Dealers have the digital skills to chase sales leads from customers, no matter whether customers approach the dealer physically or online.
Semler Gruppen, a Danish dealer group, has migrated to a single online dealer management system as well as single customer retention management (CRM) system to track all potential sales leads.
"If it’s not reacted to in two hours, then the customer care centre takes action and actually bills dealer for not having done it in time," said Lars Himmer, Semler Gruppen's executive vice president. "Being digitally seamless is much more important than agency."
Toyota meanwhile indicated that it was prepared to move to the agency model after holding off longer than rivals. "Existing distribution margins and models are undoubtedly not sustainable," Toyota Europe Chief Operating Officer Matt Harrison told the Congress in a separate session from the panel.
Toyota, Hyundai reluctant
The need to save money as the company moves to sell more electric models has pushed Toyota to look at direct sales.
"I am reluctant to say we are fans of agency model – we want to protect our strong values and strong partnerships with the retailers -- but I do think in terms of margin structures and their business model it’s going to look very different in the future," Harrison said. "I guess we are stepping partly towards the agency model."
Toyota has already used direct sales for plug-in hybrids and the full-electric bZ4X, he said.
Hyundai remains committed to the wholesale model in Europe, Michael Cole, the brand's Europe chief, told the Congress.
"Agency can work in right market and right circumstances but for Hyundai we have dealer contracts, not agency," Cole said.
Hyundai is issuing new dealer contracts at the moment, retaining its current retailing system, he added.
