Mercedes to start direct-sales model in Germany after UK launch

Mercedes-Benz is preparing for perhaps the most important step in its transition to a direct sales to consumer “agency” retail model this year, when it begins the process in its home market, Germany.

Mercedes said in 2021 that it had reached agreements with its European dealers to move to the direct-sales model. Sales boss Britta Seeger said that the goal was to sell more than half of Mercedes cars in Europe through agency by the end of 2023.

Mercedes first tested the agency model in pilot projects in Austria, Sweden and South Africa. It went live with the new system in the UK on Jan. 1 -- with a splashy advertising campaign aimed at buyers. Germany will follow later this year.

"You turn yourself from a wholesaler into a retailer,” Mercedes-Benz Group CEO Ola Kallenius said Friday on the automaker’s 2022 earnings call. “It changes your whole attitude in how you run the business."

Selling directly to car buyers saves costs for the company and removes concerns for customers that they could get a better price at another dealer, he added.

In the current retail model, dealers buy their stock from automakers and assume costs of promotion as well as holding inventory. They make profits from the margin on vehicles sold, but that margin can vary depending on negotiations with individual customers.

The agency model transfers much of those costs to the automakers. Dealers would receive a fixed fee per vehicle sold, as well as revenue from after-sales. They would make less money per vehicle sold but make up the difference by not having to incur costly inventory and promotional expenses.

Automakers that have moved to agency in Europe or announced plans to do so include BMW, Stellantis, Volvo and Volkswagen Group (for full-electric vehicles). Volvo will introduce an agency sales model in the UK by the end of this year.

Renault and Toyota have said they plan to keep their franchised dealer-based systems of selling cars.

Kallenius and Mercedes finance chief Harald Wilhelm said the move to an agency model would help support Mercedes’ profit targets by lowering distribution costs and providing a foundation for increasing average selling prices.

“The switchover to a direct sales model should be a good enabler of managing discounts,” Wilhelm said. “It’s already gone beyond expectations in markets where we’ve already switched.”

Kallenius said the agency model could stabilize pricing and build trust among buyers. “If a customer makes up their mind that they want to buy a Mercedes, normally they are shopping around at several dealers,” he said. With agency, because the price is fixed, “You move away from selling the price to selling the car, which should be the case in the premium market.”

Buyers have more confidence that they are not missing a better price, which increases customer satisfaction, he said.

Kallenius said that U.S. franchise laws made a move to agency there unlikely, but he said that Mercedes had reached an agreement with dealers there on payments for over-the-air updates. Owners can buy those updates direct from Mercedes, he said, “in partnership” with dealers.

Mercedes said last week that it was “delighted” with initial customer response to agency sales in the UK, but the process has not been completely smooth in some countries. Dealers in Australia took Mercedes to court last year seeking compensation for what they said was lost income, and dealers in Austria also had complaints, according to news reports.

Reuters contributed to this report