In Australia - Mercedes-Benz has announced that it will do away with dealerships and adopt an agency model in 2022 after trialing it with the EQC SUV. Honda turned to the agency model in July, with up to half of its dealerships in Australia being axed. In Europe, Volkswagen AG announced that all of its dealer partners have signed a new retail agreement, starting with its all-electric ID range. It is believed that the company will start using the agency model in 2023.
Industry observers are of the opinion that the agency model will be brought to Malaysia soon. This would mean car dealers will have to accept a different arrangement in the future, one that will change their relationship with the original equipment manufacturers (OEM).
Dealers is considered an unnecessary cost. If customer can buy directly from the brands, why do you need a dealer?” A dealer typically makes a 6% to 8% premium on the ex-factory price of a car. A research firm noted that the ongoing Covid-19 crisis is leaving severe and lasting effects on the automotive retail and distribution cost for OEMs, as it costs them billions of dollars to prop up their retail partners. With retail revenues expected to decline between 20% and 30% this year, dealers require support from the OEMs. These support measures increase the OEMs’ cost of distribution by 10% on average.
OEMs that employ direct and online-focused sales models can achieve cost of distribution of below 10% of gross revenues, compared with between 25% and 30% by OEMs with traditional sales and distribution channels.
Agency sales model to be the best answer. Acting as a ‘golden mean’ between direct and indirect sales, agency models allow OEMs and dealers to benefit from a more centralized sales model, creating efficiencies in the overall system. Altogether, the cost of distribution for OEMs can be decreased by one to two percentage points in the short term and up to 10 percentage points in the long term.
For an automotive manufacturer in an increasingly competitive environment, earning more by removing the middlemen is something they must consider in order to stay afloat. And the middlemen they can easily control are the dealers.
In Volkswagen model, it lays the contractual foundation for integrating the online business with the showroom-based business. With the agency model, customers can order vehicles directly from the group and select their preferred dealer for personalized customer care and local services.
Under the agency model, dealers will assume the role of an agent to sell cars to private customers and small commercial enterprises, according to Volkswagen. These agents will look after the acquisition, sales consultation, organizing of test drives, transaction process and vehicle handover in coordination with Volkswagen.
The preferred dealer chosen by the customer at the beginning of the sales process receives the same commission and bonus as it would in the showroom, even if the vehicle is purchased online directly from the automaker.
Volkswagen decides on the vehicle price, thus dispensing with complicated price negotiations. Dealers can therefore count on calculable compensation regardless of whether the customer buys the vehicle online or in the showroom.
The agency model differs from the dealership model in that the agents do not have to invest in a showroom or hold inventory. Without these investments, the agents do not have to worry about making a return on investment as they only have to sell the cars. This means the car prices will also be fixed by the OEMs, rather than being differently priced from one dealer to another due to their respective cost structure. So, from a customer’s point of view, the cost of a model will be the same across the market.
The OEMs will provide the agents with the demo cars for customers to test drive. The agent may also be able to lease the demo car from the OEM for its customer to test drive. In an agency model, the agent will only be paid commissions.
One of the pioneers of this model is Tesla, as it does not have a dealership showroom. Anyone who wants to purchase a vehicle can do so via its website. While Tesla does have stores, they are small pop-up stores in a mall that the brand owns, more as a showcase than a dealership.
Can this be done in Malaysia - While the agency model sounds fair and workable, will it work in Malaysia and what will happen to the investments already made by the dealers? The millions of ringgit sunk in to develop the showrooms’ sales, service, spare parts and other systems will have to be recouped somehow.
According to an industry observer, a car showroom can cost around RM20 million (Proton) to RM50 million for luxury brand.
Dealer Termination without compensation - This is where it could get tricky, especially for the dealers. That is because most dealership agreements in Malaysia are renewable on a yearly basis, according to industry insiders, who also point out that there is no compensation clause in those agreements. If an OEM wants to change the dealership model to an agency model, they won’t have to pay any compensation for the millions of ringgit in investments that the dealers have put in to build the dealership.
Indeed, the move out of the dealership model has been in the works for quite some time. Even some major Malaysian dealerships have started to move out or indicated that they want to move away from this business segment over the last few years.
While it is unclear whether OEMs in Malaysia will move to the agency model, what is clear is that this is the way forward for automotive companies globally, with many brands taking steps towards this direction. Hence, auto dealerships in the country should prepare for an eventual disruption in the industry.
No comments:
Post a Comment