The Agency Model?,,,,, An Opportunity For Change Most Will Get Wrong!
Well a raft of manufacturers have broken cover regarding their plans to transition to an Agency Model; Alfa Romeo, Volvo, Lotus and Cupra to name just a few.
I have no doubt that more will follow and it will be fascinating to see how this all plays out, once individual manufacturers have outlined what their transition to an Agency Model means in reality; but with the fog clearing and some clarity now being provided, it doesn’t look good news for some franchise dealer networks.
From what can be gleaned from the announcements thus far, Volvo and Lotus appear to have effectively chopped their franchise partners off at the knees; Volvo only reassuring their franchise partners in their recent statement that, in their new retailing world “Volvo’s UK retailer network remains key to its business, continuing to provide all aftersales services.”
Now I doubt that this statement is going to be the reassurance that the Volvo franchise dealer network will be requiring, nor the staff employed within new and used car sales operations of these businesses; so what is it likely to mean in reality? Well unfortunately I fear that most manufacturers (not just Volvo and Lotus) are going to get the transition to an Agency Model wrong, and once down this road there will be no turning back!
In reality all have their trading and operational nuances to navigate when implementing their Agency Model, determined by the sector of the market they are operating in, as well as their product line up. For some, those for whom there is no aspiration to own their product - so therefore it is all about price, the transition will be far easier. There will be no hybrid trading model to build and cultivate, involving the blending of technology with the sales and used car business development professionals required to drive sales.
For others though the transition will be far more difficult and this leaves me wondering how well any transition to an Agency Model will go in reality? Of late I have written about two manufacturers and their statements regarding their plans to transition to an Agency Model retailing model; Volvo and Lotus. In truth I have my doubts about the success of both, albeit for different reasons. I won’t expand again here, anyone interested can follow the links to the articles below on my Used Car Business Development Blog;
My fears are rooted in the likely mistakes that will be made, those made by staff employed at manufacturers and therefore likely to be making the key operational decisions moving forward. Now manufacturers and franchise dealers can be an awkward alliance and mix of two very different types of professional. In reality you are either a franchised dealer based operator or a manufacturer type operator; unfortunately, in the main, they mix like oil and water but also need each other.
Having read the statements from Volvo and Lotus, I am absolutely convinced that manufacturer based professionals made the big operational decisions regarding their future retailing models; thinking (incorrectly) that they no longer need their franchise partners to sell new and used cars. The irony in all this being that, (in all likelihood), those making these decisions have absolutely no experience of the associated trading environment and what is required in order to be successful.
Taken at face value, Volvo’s comments are crass in the extreme and full of arrogance towards a franchise dealer network that have put up with much over the past; and are only recently being rewarded for sticking with the manufacturer. In reality the damage to the relationship with their franchise partners has probably been done and, if they are capable, existing franchise dealers will now probably be plotting against the manufacturer’s plans in order to survive; this is not a healthy trading environment.
So here we have a manufacturer (Volvo) in a good trading position getting it all wrong; how many more will follow suit? Well only time will tell but to my mind there are some who are more at risk of getting it wrong than others; purely because they have a very challeging retailing landscape to navigate. BMW, Audi, Mercedes Benz, Jaguar, KIA and Hyundai are some of those with the most difficult transitions to navigate, should they decide to navigate to an Agency Model.
Albeit for some differing trading realities, they all have their challenges; let’s just look at BMW. The “A Car For All Seasons” BMW model range leaves the BMW trading in many sectors of the automotive market, where the customers involved have vastly differing expectations. The customer purchasing a 116 has totally different aspirations and inhabits a totally different world to the customer purchasing a specialist M Power Series car.
This will be challenging to get right for BMW, especially when it comes to the professionals required to drive their retail and profit ambitions to a successful conclusion. Now I’m not here to give BMW all the answers for free but the business involved in retailing a 116 is (and should be) a completely different business to one retailing specialist high performance M Power cars; so the retail models required will need to be completely different.
This will leave BMW with 2 retailing models to build, two models that are very different to each other; so the staff attracted to each project will be critical to both success and profitability. In reality an Agency Model, one driven by technology platforms and delivered on by polo shirt wearing “Product Geniuses,” (the Apple Store Model so coveted by some manufacturers) could work in the 116 market. Although residual values will be at risk if they get the used car model wrong, therefore increasing the cost of ownership and making new car product overly expensive in their market.
Where that model won’t work though is in specialist, premium and high performance markets; as Lotus appear to be trying to do. Rely on technology to drive sales in these markets and it is going to end in tears, and my fear is that manufacturers like BMW are about to make this mistake; why?
Well, in a word; Fear! I worry that they have become “Blinded” by the pandemic and how they were caught out by not being able to immediately leverage the operational trading model required during the pandemic. At that time most had not fully developed online retailing models and offerings; and for good reason, it hadn’t been necessary up to that point and probably still isn’t!
During the pandemic much was made about how well prepared the “So Called” Disruptors were, (how they had changed the market – well they haven’t!) and they were, but for a market place that we will not see again. In truth they got lucky, (as a lot of businesses got lucky during the pandemic), they did not drive huge change in the sector, they reacted to a once in a life time event because they were able to. Now the world is returning to normal, giving manufacturers the perfect opportunity to take the lessons learned and build their new retailing models.
In fairness to Lotus, most manufacturers would do well to look at Lotus and their plans to lock future used car vehicle parks in to returning to their own used car retailing network; although I add the caveat that I fear Lotus will not make this work in practice. This strategy though is how the manufacturers listed above can secure their retailing futures; via the strategies required to control access to their own used car markets, via controlling access to used car stock holdings.
Unfortunately there are likely to be some problems; firstly the used car professionals required to make this work, at both manufacturer and franchise dealer level. This is a huge operational and skills shortage issue for all manufacturers, all of whom gave up on used car retailing (and developing the professionals required) over a decade ago. So will they “Grasp The Nettle,” put aside their prejudices and reach out to the professionals required for this to be a success? We will have to wait and see, but I doubt it!
Part of the reason for my lack confidence on this issue is that manufacturers and their franchise partners are organisations addicted to third party businesses now aligned to their own; doing the jobs they should be doing but became too lazy to do so themselves; especially when it comes to the franchise dealer networks.
Manufacturers currently have networks made up of franchise partners unable to value and dispose of trade vehicles and overage used cars; instead relying on auction companies like BCA to retail their overage used car stock holdings via Cinch, and to dispose of part exchanges! If this wasn’t bad enough both franchise dealers and manufacturers began to make new cars available to independent leasing companies (Select Car Leasing, Vanarama etc.) and to the most ridiculous company of them all; Carwow!
Offering cars to companies like these (companies that should not have a trading model at all) should be seen for what it is; a sign of failure and an inability to sell new cars! Pre-pandemic, franchise dealers openly posted on LinkedIn about having Carwow staff on site teaching them how to sell new cars the Carwow way? Just let that sink in for a minute! What’s worse is that the dealers themselves couldn’t see just what a sign of abject failure this was and in truth, no success can be built upon teams of professionals as inept this.
But with Agency Models coming, manufacturers have the opportunity to get rid of “Dead Wood” like this and build anew. This will only be possible though by ensuring they have the most capable sales and used car business development professionals available. For those like BMW and any other marque requiring an “Excellence in Execution” sales model, relying on transitioning to technology based shop windows alone, will not lead to success.
Unfortunately some manufacturers though will not have the margins required to attract these professionals therefore their aspirations will need to be lower, impacting on the Agency Model they will be able to roll out successfully.
The inconvenient truth for manufacturers and their franchise partners is that for genuine sales and used car business development talent, the next 12-24 months will represent a once in a generation opportunity. New retailing models will require different skills and there will no doubt be opportunities aplenty. I will endeavour to be abreast of what is happening, how models are evolving and keep everyone informed via these articles.
Any manufacturer or franchise dealer wanting to get ahead of the curve and explore the opportunities raised in this article, can feel free to reach out to me directly.
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