The adoption of the agency direct sales model represents the most fundamental shift in automotive retailing since Henry Ford introduced the franchise dealer model in 1914. However, despite several car manufacturers publicly declaring their agency ambitions, very few have actually implemented the model. Most have subsequently announced delays to their agency programmes and at least one has completely reversed its decision, opting to remain with a franchise dealer model.
These delays and U-turns are unsurprising considering the scale of transformation that the OEMs will need to undertake to successfully implement the new model, something Bearing Point’s recent study ‘Wholesale Change – The Agency Implementation Challenge’ also confirmed. To deliver the agency direct-to-consumer vision, the OEM must take on several new car sales and marketing responsibilities from their retailers. The bulk of this new burden is borne by their National Sales Companies (NSCs), and therefore it is the transformation of these NSCs that is pivotal to achieving success.
Their direct-to-consumer ambitions require substantial changes to their legacy wholesale operations
NSCs are ostensibly wholesale operations focused on supporting their franchise dealer networks with very limited direct interactions with retail customers. This predominantly B2B role is reflected in their core processes, underpinning IT systems and the skills profiles of their staff. However, under the agency model the NSCs will now interact and contract directly with new car customers across all physical and online channels, whilst at the same time taking over responsibility for all national vehicle stock and sales demonstrators—plus the tactical new car marketing that was formerly undertaken by their retailers. In essence, NSCs need to pivot to become B2C omnichannel retail organisations to operate successfully under the agency model. The scale of this change is substantial, and certainly not for the faint-hearted.
The move to the agency model will require NSCs to transform across multiple dimensions. Beyond the structural changes associated with implementing a new direct sales organisation, core processes and systems will have to be recalibrated to reflect the new B2C paradigm. CRM capabilities will need to be enhanced to support new, more complex, omnichannel consumer journeys, whilst handling and leveraging significantly higher volumes of customer data and interactions. Meanwhile, the NSCs’ pricing and tactical marketing teams will need to become more agile, sensing and responding to changes in the patterns of demand at a more local and granular level.
However, beyond these organisational, process and system changes, the successful B2C transformation of the NSCs is likely to be most dependent on the OEMs’ ability to address the nuances of people challenges. Agency will require NSCs to work at a much faster pace, embracing the sales drumbeat and underpinned by a new retail culture. They need to rethink their relationship with retailers, especially in the transition phase, and need to bridge a potentially substantial skills and knowledge gap as their retailers step back from front line demand creation and sales negotiation roles to become agents. In short, the people dimension of the agency transformation will require NSCs to develop or recruit new skills and capabilities and undertake a significant shift in operational culture.
Against this backdrop, it is not at all surprising that OEMs are reappraising their agency implementation timescales. Their direct-to-consumer ambitions require substantial changes to their legacy wholesale operations, a time-consuming undertaking which will most likely require an incremental and iterative implementation approach.
As if this wasn’t enough for the OEMs to contend with, external market factors may also prompt some to revisit their agency business cases. A customer proposition based on fixed and transparent product pricing across all sales channels was easier to deliver when vehicle inventory was limited. But, as supply constraints ease, any underlying overcapacity may make this pricing stance harder to maintain. Under agency, any tactical marketing responses by the OEMs will now be highly visible with a potential knock-on impact to residual values, which are already under pressure for electric vehicles.
So, it remains to be seen if those that have announced delays will relaunch their programmes or whether the plans will be reconsidered altogether. If the former, will they have done what’s necessary to prepare the NSC? If the latter, at what sunk cost?
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Manuel Schuler is Partner at BearingPoint
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