ICDP managing director Steve Young believes the decision of Stellantis, Ford and Volvo to delay their roll-out of the agency model retail agreements for their franchised car dealers is a positive step.
The supporter of reform within automotive sector asserts that, while the transition should be positive, OEMs must take their time to ensure its success.
In the last few days we have heard of delays to a number of the planned implementations of agency agreements in Europe.
Ford has delayed the launch of agency in the Dutch market by two months, from January 2023 to March, and Stellantis have delayed implementation in all markets other than three selected as pilots (Austria, Belgium and Netherlands) by six months so they will now go live in January 2024 instead of July 2023.
Volvo has delayed their launch of a so-called ‘non-genuine’ agency model by two to three months due to delays in IT development.
Implementations by Mercedes in Germany and the UK appear to remain on track for January 2023, and despite some dealer concerns about readiness as well as the agreement itself, the VW Group will implement agency on their BEVs on a rolling basis over the coming year, with national negotiations in progress.
As someone who sees agency as both a good approach to managing omni-channel effectively, and a way to force better supply disciplines on manufacturers – if implemented correctly – you might be surprised to see from the title that I welcome these delays.
Surely, the sooner we get the industry switched to agency, the happier I’ll be? However, that is not the case, and this week I wanted to outline some concerns about the wave of agency implementations and explain why these announcements are good news for manufacturers, dealers, customers and the concept of agency itself.
Since early 2020 when ICDP was almost a lone voice promoting agency as an option that merited consideration in the context of transforming automotive distribution, there has been what one industry participant described well as a “fever” of implementation announcements.
Areas of concern
There are three areas of concern from my perspective.
The first is that there are quite specific requirements for a manufacturer-dealer relationship in order for it to be treated as ‘agency’.
There is no legal framework for a ‘non-genuine agency’ – such arrangements are effectively just a modified franchise, albeit that some of the proposals could act as a stepping stone towards true agency if that was the desired path.
However if a manufacturer tried to steer pricing centrally under a non-genuine agency or retail pricing was effectively fixed because there was no realistic opportunity for the dealer to negotiate prices, then the competition authorities are on standby to intervene in such arrangements. The last thing we need as an industry is more legal and regulatory battles.
My second concern is that the fever has led to plans being made without a full recognition of the depth of the changes that are required on the part of the manufacturer.
Although there are examples where the necessary retail skills are being acquired and there is a genuine recognition of the need to maintain a balanced supply under agency (when conditions exist to allow over-supply), there are other cases where this change of mindset may have been neglected.
My impression is that the cultural, process and – in particular – systems readiness falls far short of what will be needed for a successful implementation.
My third concern relates to the agency concept itself.
If too many agency implementations are seen to fail, there is a high risk that this will tarnish the image of agency as a concept. Industry players and observers are quite likely to attribute failure to the concept rather than the way in which failed implementations were planned, negotiated, resourced and supported in terms of technology.
One-sided, rushed launches which attract negative headlines and the attention of the competition authorities will be seen as proof that agency does not work in automotive retail rather than a reflection of flawed planning or implementation.
Delays are therefore good if it reduces the probability of any of these outcomes becoming less likely.
Time for change
Whatever the reason for manufacturers choosing to delay, they now have the opportunity to invest more time in improving all aspects of their plans.
It is obviously possible, even probable, that instead they will simply become more inward-looking and task-focused, with all effort focused on whatever the current roadblock is perceived to be. That would be a missed opportunity in my view.
Manufacturers who are still in the planning phase will hopefully also take note of the delays, and reconsider their own timeline and whether they have fully considered the implications of the transition.
They should certainly now not be under any illusion that this is simply a contract change, but in fact is a fundamental change in the manufacturer-dealer relationship that has huge implications for roles and responsibilities, and for the people who staff the operations on both sides.
Equally important is the fact that based on current expectations of when supply constraints will ease, unless demand falls off dramatically due to the current economic climate, it will still be possible to sell almost any car in 2023 at list price.
As a result we will not learn anything about how fixed, transparent pricing under agency works in a competitive environment.
Manufacturers will not be forced to make the tough choices about chasing volume and market share versus focusing on balanced supply and maximising profit.
There is a logic to implementing agency whilst inventory levels are low, and customers have to an extent been conditioned to fixed pricing, but that might imply a late 2023/early 2024 ‘go live’ window.
Until then, resources may be better invested in testing and refining processes and systems, and building the new shared culture that will be key to getting the best out of agency.
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