Speed bumps ahead? Navigating the path to the agency sales model

Looking back at automotive industry trends in 2023, one word that kept re-emerging was ‘agency’. This was a year where some of the largest OEMs – such as Ford, BMW, JLR – confirmed plans to roll out the agency model across parts of their network. Meanwhile others – Mercedes, Volvo – are already operating the agency model in certain markets.

As the shift towards agency gathers momentum, we reflect on our experience in delivering the agency model for a new entrant and share our thoughts on some key considerations for OEMs before embarking on this journey.   

Why agency? 

The agency model can simplify many of the sales processes for all parties. For the customer: convenient, simple purchasing with transparent pricing. For the OEM: direct control over pricing, discounts and their own customer data. For the dealer: fewer costs and a closer focus on customer service.  

In theory, implementing agency means operating a direct-to-customer model. The OEM takes increasing ownership of the purchasing journey, and with it a greater responsibility of key sales touchpoints - for example, where previously the OEM was primarily responsible for production and key marketing activities, agency means the OEM also owns the finance and purchasing steps, as well as a central involvement in test drive, part exchange, delivery, aftersales and remarketing. This cannot be achieved without additional systems and operational workload, complexity and cost. 

See below for a summary of some key differences between the agency model and the traditional dealer franchise model: 

In practice, few OEMs have made the leap to a complete agency model, such as new market entrants like Tesla and Fisker. Instead, there is a broad spectrum in which OEMs are currently applying the agency model to varying degrees, with many operating a hybrid agency model where certain models or brands are sold under agency whilst others are sold under existing franchise agreements (e.g., VW, Ford). 

Considerations 

In our experience, the agency model is not a one-size-fits-all solution, but one that hinges upon the following factors: 

1. Digital maturity 

The agency model's success is underpinned by digital systems and processes in a way that the traditional dealer franchise model is not. For example, developing a digital finance application process with finance providers, or integrating systems to enable registration with government organisations can be complex and expensive, amplified by varying requirements across different markets such as legal limitations, country-specific taxes and on-the-road (OTR) costs. 

Customers expect a smooth digital journey, from checkout, finance application and handover to aftersales processes. OEMs should ensure they understand both the set-up and longer-term running costs associated with taking previously dealer owned processes in house, such as complex system development and integrations with third parties like finance providers or registration agencies, and that their teams are resourced and trained effectively. 

2. Dealer and OEM roles and responsibilities  

Pivoting to the agency model is a significant change to the dealer’s roles and responsibilities, whilst taking jobs in-house creates new roles and responsibilities and an increased workload for the OEM’s operations teams. New processes are challenging to embed, and will undermine the benefits of agency by impacting customer experience and brand confidence if not implemented effectively. 

To get the best from the agent network, OEMs should engage closely with dealers to ensure expectations are clearly defined – such as lead conversion or test drive targets. Strong change management is key to success, focusing on mitigating the impacts of change through coordinated training, guidance and communications. From the OEM side, operations teams must be resourced effectively and trained to meet the additional demands and digital processes, from order creation and amends to finance application, contract signing and lead management. 

3. Market readiness 

Although we are seeing the agency model rolled out more widely, this is not to say that every market is suited to agency. In many cases, requirements across markets can vary considerably and close consideration must be given to regulatory and legal restrictions, finance requirements, the competitive landscape and consumer behaviours. 

As such, we recommend careful analysis on a market-by-market basis coupled with a gradual, phased rollout. A thorough change impact assessment of the market’s readiness for agency is needed, evaluated against the set-up, systems and operational impacts associated. 

Summary

In summary, OEMs must be clear on the extent to which they want, or indeed are ready, to commit to the agency sales model, as this determines the previously dealer-owned jobs that they will need to take in-house and thus where the new roles and responsibilities lie.

It is by evaluating these factors that an OEM can start to decide whether the business case for agency stacks up and shortlist the markets in which it might be viable. 

If you would like to learn more about our experience in delivering the agency model and how we could help your organisation evaluate its options, please do let us know.