Dealers and distributors have been slow to fully embrace online selling. No brand or product is immune from online transformation. The agency model supports (or more accurately is a pathway towards) online selling. Many dealers are fearful of where the path is leading. Yet the bigger picture is more important than worries about margin erosion and loss of control over their business.
Photo by Brett Jordan on Unsplash
We need as an industry to be customer focussed, not process focussed. Consumers don’t mind ‘how’ something works. They just want it to work well, be seamless and not be constrained by internal issues. They also dont want retail to be constrained by working hours. If the industry protests and attempts to block progress, then consumers will find another way. There are a number of lessons from how Tesla delivered over a 1000 new cars in September. In NZ we dont have, as yet, a Carsales.com.au alternative. This is, arguably a consumer driven solution to online buying.
Against this background of reluctance and the chance to be innovative, there is a much much bigger issue, that is more likely to stop or at least delay the introduction of agency.
Simply put dealers are making more money than they have in years. Bigger gross on new and used. Increased volumes. Less days in stock.
Covid’s travel restrictions have created a feeling of affluence among car buyers. With less money spent on holidays, there is more money in the bank for that car upgrade. Demand for new and used stock is very strong. Semi-conductor shortages have restricted supply (aided and abetted by RoRo shortages). This increase in demand and shortage of supply has created a healthy jump in dealers’ GPs for new and used vehicles. It is likely (particularly in NZ) that retained margins have never been this good before. This is also mirrored in the USA. As a bonus, low inventory has helped keep operational costs down because holding costs are low, average days in stock are low, and because vehicles are arriving pre-sold dealer swaps are at an all time low.
There's an irony here of course. Low inventory and better cashflow, with no dealer swaps at exactly the conditions that the agency model creates.
Compared to last years’ YTD figures the market is strong. Up 39% for passenger and light commercials. Last year was a tough year, however 2020’s comparable YTD headline registration data figure masked the nuances of the market. This time last year the retail market was already running hot. Much of 2020’s YTD sales reduction was because rental sales had virtually died (no travel, equals no rental equals no demand for new rental fleet), government fleet had dried up (paused because of Covid and probably waiting for the imminent inclusion of EVs in the AoG round) and business sales were picking up from a low base (businesses are slower to make decisions after a lockdown than retail customers).
For any brand to consider agency, the distributor will be looking at pegging the agency handling fee somewhere lower than the average retained margin. Lower is okay, because lots of costs disappear as well. If a distributor did its planning based on (say) two or three years worth of average GP and net profit per unit, they would have a handling fee that might be acceptable. Ordinarily. However we aren't in ordinary times. Today that amount would be wholly incomparable to current GPU and NPU and so dealers are likely to reject any offer on the table, today because that gap is too large. And manufacturers cannot afford to move to agency and offer the kind of retained profits that are being made today.
Factor in a fear of loss of control and potentially a feeling that changes are being rammed through and the picture is bleak. Brands cannot force a dealer network along a path without fully engaging them. This is the heart of the issue.
With so many new (mainly Chinese brands) entering the market, disruption is coming. It is coming very fast and NEV first. We can guarantee that new entrants wont be looking at distributor dealer models first. At best it will be agency. At worst (for the industry) it will be direct or subscription. To compete with these new entrants something will have to change.
Agency could well be the model that helps save a legacy brand from becoming the Nokia or Blackberry of the automotive world. But the timing stinks, which illustrates that the most important lesson is to fully explain the ‘why’ agency is important. This is more important than when.
Boost Auto is an automotive consultancy working in six main areas.
Market Insights & Trends
Sales and Marketing effectiveness for brands and dealers
Green fleet facilitation for large corporates
Go To Market strategies for emerging brands
Market Insights & Trends
Business Planning and facilitation
Operational Effectiveness
You can contact us at hello@boostauto.co.nz
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