It is likely that most OEMs are building a business case to determine whether to implement an agency model. But while some OEMs have operated an agency model for 20 years in some markets or segments, others have no experience at all.
It is vital that OEMs consult effectively with their network partners during the design of their agency model. Aside from the obvious need for OEMs to protect network profitability, retailers know the wrinkles and pitfalls of the sales and ordering processes.
This consultation process might be helped by some key questions for the OEM and industry stalwart Stuart Copeland has compiled a list of 20 questions to set the ball rolling. The answers retailers receive, and the input they have on the shape of the final agreement, will have a major bearing for retailers on how happy they are with the model imposed upon them.
In June last year, I wrote about whether the agency model was friend or foe for retailers. Since then, agency has become a hot topic. A few OEMs have announced plans and others are rumoured to follow.
At the Auto Retail Network Agency Conference in August, there was a lively debate about the pros and cons, from the retailer’s perspective. But whatever anyone thinks, it is likely that most OEMs are building a business case to determine whether to implement their agency model.
I say ‘their’ agency model because each model is bespoke. In the agency world, one size does not fit all. Some OEMs have operated an agency model for 20 years. Some operate agency with fleet, retail, and parts. Others have no experience at all. Each has its own strategy for its market segment, EV, fleet, e-commerce, growth, block exemption and so on.
There are three ‘flavours’ of direct sales in play now – genuine, non-genuine and direct invoicing – but these are simply the headlines. For each model, there are design decisions required for the legal construct, sales policy, organisation, remuneration, systems, processes, data, customer handling, stock, ordering and so on. And these design decisions are required for the NSC, the finance house and the retailer.
For a multi-brand retail group, the bespoke nature of each OEM’s model increases complexity because it must work alongside the group’s own processes and systems. However, provided the agency model is designed carefully and the implementation is planned rigorously, it is doable.
In my experience, it is vital that OEMs consult effectively with their network partners during the design of their agency model. Aside from the obvious need for OEMs to protect network profitability, retailers know the wrinkles and pitfalls of the sales and ordering processes. And this consultation process might be helped with some key questions for your OEM.
The following is a suggested list, with some context. It’s a ‘Top 20’ list of questions because there’s too much to think about in a world where we’re much more used to Top 5s and Top 10s. And even then, it’s not exhaustive.
1. Why are you doing it?
Establish with the OEM to what extent this is part of a longer-term strategy, and whether it is national, regional, or global. Perhaps the OEM is looking to reduce supply chain costs, or simply moving to agency over fear of what the competition is doing. Equally, it might be about market share or a reaction to intra-brand competition. Or is it perhaps a steppingstone to ecommerce and/ or a pure direct sales model.
2. What experience do you have of designing and implementing agency models?
If the OEM has operated an agency model in areas such as parts, fleet and EV, or in other markets, is there a clear picture of how the retailers have been involved? Retailers will also want to get a feel for OEMs’ experience in implementing large scale business change across their NSCs, finance houses and retail networks.
3. What is the legal construct?
If a contract to sell is replacing a contract to buy, will it be a direct invoicing, non-genuine or genuine sales contract?
4. What is the scope?
Retailers will want to know if the scope of the new agreement covers any or all of new, retail, fleet, EV, used and parts, and whether it will be applied to all retailers. And what happens to retailers who are not included in the scope?
5. How will it affect the network size and type?
Any move to an agency agreement could have an impact on the size of dealerships and their market areas, perhaps shifting dealerships to hub-and spoke models or moving them towards being experience centres. In addition, the OEM may have plans for its own physical sites, perhaps in shopping malls or with plans for pop-up stores and experience centres. All of these plans could have an impact on the retail network, but it may also mean a change in OEM requirements for dealerships, perhaps with different property types or less arduous franchise standards. Whatever the requirements might be, will the OEM help in repurposing the retailer’s sites?
6. How will affect our profitability?
This brings in a number of key questions, because retailers will want to know what costs the OEM is absorbing, what the fees will be and what the commissions will be. It will also be important to determine what the targets will be, and what happens if those targets are missed.
7. What about my franchise agreement?
Will the agency model be incorporated into a new franchise agreement, and how might it be impacted by Block Exemption? And will the retailers be given two years’ notice?
8. How will demand be driven?
And what about when an OEM is given a sales task for extra vehicles? These are both key questions and related to these are a number of important supplementary questions. How much will retailers have to do to generate local demand and to drive showroom traffic? Will the OEM now pay for local marketing? And when a national market inherits a sales task from the factory, will retailers receive incentives to help shift the cars?
9. How does the customer journey change?
The customer journey has changed enormously in recent years, driven by the move to digital, and retailers have played a key role in that. Going forward, retailers will want to see that that OEMs have a clear picture of what the customer journey is going to look like in any agency model, whether that’s for fleet or retail, or perhaps just reserved for EV sales. What will the online journey look like? How will the OEM contact centre work, and how will complaints be handled? And then there are aspects such as ownership of data, ownership of the customer and brand advocacy, etc.
When it comes to the sale of the new vehicle, retailers will want to establish how it is determined which dealer is credited. That might be according to geography, or it might be determined by the NSC or perhaps by the customer. And what about aftersales? There are other considerations, too, such as who facilitates home deliveries if required, and how finance settlements and part exchange valuations are handled. And what will be the roles of brokers?
10. Data and consents?
How will the data sharing be handled that is required not just across different stakeholders (notably the NSC, the finance house and the dealer) but also possibly across different countries?
11. How is the price set?
The OEM might set the price, but in a non-genuine agency model there could be scope for dealers to provide financial incentives for customers. And dynamic pricing might be required to meet market demands.
12. Who is responsible for the part exchange?
In the established franchised model, it is the retailer who is making the part exchange valuation and taking the risk on the condition, as well as organising the movement and refurbishment of vehicles. With some OEMs making overtures towards used in their agency discussions, responsibility for the part exchange will be a key part of the debate.
13. What about F&I products and accessories?
What are the implications for PCP, PCH, HP, Gap Insurance and other add on products, as well as the accessories on the OEM system which are fitted by the dealer?
14. How will it affect your range of products?
Some OEMs are streamlining their variants and focussing on option packages.
15. How is stock ordered and what about factory orders?
Typically, OEMs balance factory push with national market demand when forecasting their stock. The retailers provide the local knowledge. In the new agency agreements, how will OEMs who will own and manage stock acquire this local knowledge?
16. What are you doing with your organisation to support agency?
Retailers will want to ask their OEMs how they intend to support them maintain demand and maintain conversation rate and support them with regional marketing. Retailers might also want to see support with customer advice through the sales process, the provision of expertise, support with issues and complaints, and support from ordering for demand instead of push. Does the OEM have the teams in place to provide this support?
17. What do expect us to do with our organisations?
Have the OEMs properly considered the new roles of the retailers in sales and brand advocacy, and how they will provide incentives for salespeople?
18. What changes will there be for PDI and transport?
Retailers should look to determine whether there will be regional or central PDI, and whether transport will be from the factory or from the port.
19. What systems are you implementing and when will they be live?
Retailers are already selling cars online and should, therefore, determine how those systems will integrate with the OEM’s own website. A timescale on when those systems go live will be needed and how they will integrate with the retailer’s DMS. Will the changeover be seamless for customers, and what about integration with the consumer finance provider? Further, what systems will still be required by the retailers to facilitate sales and for stock ordering.
20. How long will it take to implement?
Any move to agency is going to be a complex project, involving multiple stakeholders, where profitability is at risk. It is clearly not going to happen overnight, but is the timescale set and is it realistic?
The OEM strategies for agency, whether they are regional or global, will likely be set in stone, and there will be little that retailers can do to influence either the scope or whether the new agreement is implemented or not. But how happy retailers are with the final agreement may well depend on where the OEM sits on the spectrum between ‘consultative’ and ‘authoritarian’.
Consider, for example, a hypothetical case where an OEM decides to move to the agency for fleet and retail EV, and they are consultative. Yes, the retailer will have to accept the new model, its scope, legal construct, and systems, but the retailer’s knowledge and experience will be vital to assist the OEM with remuneration, customer journey and most of the sales and operational processes.
As I said, the design of an agency model and its subsequent delivery is very complex and requires proper thought. But there are existing case studies of where it has been done by some OEMs, in multiple product lines and several countries. The devil will be in the detail.
First published by Stuart Copeland, for Auto-Retail in August 2021