What is the future of agency agreements?
There was a recent report by Steve Young, Managing Director of the ICDP, International Car Distribution Programme, which I thought was intriguing.
He pointed out that several manufacturers are already pushing agency agreements, and the recent announement from Stellantis said it’s likely that they will come true in the next few years.
There appears to be three differing opinions, some retailers seem relaxed about it, others think it’s an awful idea, some believe it will be a hybrid between a new model and what we already have now.
But I’m just not sure it is in anyone’s best interest.
I understand that there is a theoretical efficiency benefit of having an agency agreement, letting the manufacturer make the pricing and sales decisions.
But my concern is that good retailers do a good job of hitting their manufacturer targets and I’m not convinced that removing good retailers’ ability to control their pricing and marketing will create better outcomes for the OEM’s.
Hitting your targets
The best retailers will look at the targets they have the for the quarter and break it down. Work out what models they can get hold of and what models they want to sell. Looking at what they have sold previously is a good guideline for that.
At this point, they will get together with their teams and communicate the individual targets for the sales executives in order to hit their goals.
The brief for the sales execs will include how many prospects they will need to talk to, how many test drives, the price points of the models etc.
The progress is likely to be tracked weekly to see how many orders are being taken, particularly in the run up to the plate change months.
This is important because if you hit your targets on new cars and fill your workshops with PDI’s, you’re also supplying yourself with a steady stock of used cars in the future. Maintaining customer loyalty means that they will return for their services and part exchanges.
How would this work in a world of agency agreements?
For this to work effectively, manufacturers need to make sure that they know the ins and outs of each dealership’s local market, and therefore make the accurate decisions required to hit the targets they set.
This will probably be done by appointing regional managers to oversee the current climate in each local market.
You have to think about the variables a retailer can control in a car sale. The part exchange, the finance, discounts and more.
These variables might be removed from the equation if retailers decisions are controlled remotely through an agency and then the manufacturer could miss out on potential benefits.
The factory will continue to make new vehicles, if you remember back in late 2010’s the UK became like a treasure island for manufacturers.
Europe’s recessions were more enduring than ours and manufacturers couldn’t do enough to try and persuade retailers to move cars on.
Manufacturers will end up competing with themselves, at the moment it is possible to ignore the sales that are done with brokers, discounted and advertised as finance deals to private individuals and businesses.
However, if you are actually going to market as an OEM at one price point, then suddenly get undermined by others at a cheaper price point then you really are damaging your own profitability.
Even fleets won’t be able to compensate for the fact that they aren’t hitting the retail targets. There is also the point that if the manufacturer decides to pre-reg cars themselves then they are creating competition for the new cars that they have to sell themselves, or they would have to pass them to retailers.
I think that agency agreements, whilst might be something that manufacturers seem keen on, could potentially end up tying their shoelaces together if not done correctly.
Perhaps, time will tell, those that aren’t tempted to go down this route will feel a stronger partnership with their retailers and reap the rewards of additional sales, rather than relying on an algorithm to try and hit their targets.
As good as algorithms are… in this case they aren’t guaranteed to get money in the bank.
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