Across the automotive industry, manufacturers are replacing their generations-old, supply-driven wholesale models with business strategies that are led by consumer demand. The agency model is already being pursued by several brands which are facing the necessary cultural changes head on. This model, whereby dealers act on behalf of the OEM but don’t own stock or set prices and deals, means manufacturers and their networks must adapt their attitudes and operations to make it work.

Unlike traditional distribution models, in which the dealer network absorbs stock, reducing financial risk for the manufacturer, the agency model’s success depends on the profit generated by the individual unit sold, not sales volume. It also relies on the OEM’s ability to predict and manage demand through more efficient supply chains and by adjusting production methods accordingly.

The emergence of electric vehicles (EVs) is also driving the agency model. EVs have fewer moving parts and their standardized form – a chassis with a battery pack – tends to mean EV engines perform in a similar way regardless of brand or model. It also means there are a reduced number of customization options available to customers, but this has made it easier for OEMs to offer online configuration tools that allow buyers to customize their vehicle online or from home if they choose. Ultimately, the car-buying journey is now less reliant on a customer’s visit to a dealership.

From selling to serving

An agency model changes the purpose of the dealership, whose staff can focus on serving the customer instead of chasing sales volumes and closing deals. Their role is to provide information, advice and guidance, and to deliver an unrivaled product and brand experience to keep customers coming back.

The new agency touchpoint provides customers with a place to see, touch and test drive a vehicle, to speak to an expert about its features or ask questions without the pressure associated with traditional sales activities. Customers should come away from the experience with a greater understanding of the vehicle, what level of maintenance it’ll need, and where they can find ongoing support.

Consequently, a successful agency model has the potential to transform the relationship between customer and brand. This shift in focus from selling to serving – to providing consumers with data, information and knowledge – helps them make informed decisions and provides them with legitimate reasons to remain loyal. Their decisions are no longer based on factors such as price or special offers, so the positive showroom experience is more crucial than ever in driving profit.

OEMs need to support dealers in the design of new roles and in the recruitment and training of staff for these new ‘hospitality-oriented’ models of service. Instead of vehicle salespeople or finance and insurance advisors, employees will hold titles such as host, experience specialist, and product and technology expert. Some distribution activities may become redundant altogether. Field managers, for example, who traditionally drive the wholesale of stock into the networks, may need to reskill to fulfil business or performance consultancy roles.

The logistics of an agency model

Typically, distribution and sales activities can be separated into three distinct but interconnected layers. The first is the ‘experience’ of the product and brand throughout the purchase journey from one touchpoint to the next. The second is the ‘sales operation’ which includes the generation of leads and their management through the sales funnel. And finally, the ‘transaction’ includes the process of arranging finances and vehicle trade-ins.

But with the agency model comes a new set of challenges that can’t easily be addressed by these structures. Sales activities will have to change because factors such as online buying tools, increasing EV sales, in-car connectivity and digitalization will disrupt existing customer interaction and sales processes.

These activities will also vary according to a brand’s level of commitment to the agency model approach. At one end of the scale, a brand adopting a full agency model may manage all operational distribution and sales processes, including the transactional aspects of the deal and sometimes even delivery of the vehicle to a customer, with little or no dealer input. At the other end of the scale, a brand may change its business model very little, and simply place stock ownership and management in the hands of the national sales company rather than the dealer.

Factors affecting agency model implementation

Each brand will need to determine how to evolve its three-tier framework. In agency model pilots and existing implementations in Europe, some brands have implemented less aggressive agency models to start. But others – typically premium brands with the means to invest heavily in delivering highly personalized services, for example – have been more assertive in employing agency model activities earlier in the process. The structure of the model will also differ according to the market in which the brand operates. Buyer behaviors and preferences vary in different regions, and these factors influence dealer buy-in. In some markets, for instance, the desire to get a great deal remains an important fixture in customer decision making. For these businesses, the move to a fixed-price agency model will include customer education strategies or adjustments that enable customers to achieve ‘special deals’ in other areas of the sale or at the discretion of the dealer.

Meanwhile, dealers can still deliver in-person sales and services using softer techniques that don’t include margin-driven interactions. The model will eliminate the price rivalry among dealerships that makes it difficult for customers to reach an attractive offer – consumers no longer want to negotiate prices. In an agency model, manufacturers set and control prices, ensuring customers receive complete transparency throughout their buying experience, whether using online or offline channels, or both. And the market benefits from improved service quality because dealerships are forced to differentiate themselves based on overall experience rather than just on price.

The agency sales model organically supports the multi-channel shopping experience. It requires an integrated data ecosystem across OEMs and their dealers in which all parties share relevant data, giving them access to insights that can steer sales processes and help deliver a highly personalized and coherent customer journey.

Changes to sales incentives

Brands that adopt the agency approach must implement incentives for dealer staff that help them support lead generation and market development in more customer-focused ways. The industry is already seeing incentive structures whereby dealer commission is based on sales volumes attributable to leads they’ve generated, for example. However, this is also a huge deviation from traditional processes, and OEMs will have to invest time and money into the exploration of new models that work for all stakeholders.

There’s still some way to go before the dealer experience is no longer about pressure to make a sale and more about customer experience. It will take time for OEMs and retail networks to overcome such vast operational changes and convey to customers that this new experience exists. In the meantime, businesses hoping to succeed will need to be flexible, iron out any challenges now, and be amongst those setting the trends.