Real-world agency model experiences ‘failing to live up to expectations’

The real-world experiences of employing an agency model by manufacturers has resulted in some OEMs pulling back from implementing the sales approach, according to the latest Insight Quarterly report from Cox Automotive.

In its most recent report, Steve Young, managing director at ICDP, says that employing an agency model in the UK demands a carefully planned and strategic approach to ensure success.

He identifies several critical challenges associated with the agency model's current implementation, including incomplete and missing processes, IT that doesn't work as intended, and ambiguity regarding the true definition of an agency model.

“Pricing is the key lever for balancing supply and demand,” explained Young. “In the traditional franchise model, manufacturers wholesale vehicles to dealers at fixed prices. Dealers then use some of their margins and OEM support to secure sales.

“While this approach has its inefficiencies, it also brings certain advantages.”

Under the agency model, the OEM acts as a direct seller, setting prices and removing commercial risk for the retailer.

Philip Nothard, insight director at Cox Automotive, said: "The agency model's arrival in the UK has been anticipated for several years, often met with dealer challenges and manufacturers reconsidering their approach.

“It's encouraging to see the lessons learned and the proposed changes that Steve and ICDP are highlighting in Insight Quarterly.”

Given the importance of residual values (RVs) in the strength of the used vehicle market, maintaining flexibility in the system is crucial.

Young argued: “In theory, a centralised dynamic pricing tool should replace dealer price negotiations, but in the near term, some flexibility is needed based on a  hybrid model where OEMs can make the coarse adjustments to reflect market conditions, and dealers can still apply a final discount where needed to close a deal.”

Several brands, including Stellantis, Volkswagen Group, BMW, Genesis, Honda, and Mercedes-Benz, have announced plans to transition to an agency model.

Conversely, brands such as BYD, Hyundai, Kia, Mazda, MG, Nissan, and Renault remain committed to the traditional franchise retail model.

Brands like JLR, Lotus, and Ford have experimented with the agency model but have since reverted.

Nothard concluded: "The market is evolving rapidly. By 2030, the vehicle mix will be vastly different from today.

“With consumer spending under pressure and demand for a seamless buyer journey on the rise, the agency model must evolve to meet these needs.

“Flexibility is key, allowing OEMs and dealers to adapt and retain alternative models if better suited. This will lead to greater efficiency and improved experiences for all stakeholders.”

Read the latest Cox Automotive' Insight Quarterly here.