‘Agency model’ is the future of automotive retail

The last six months have been one of the toughest periods the new car market has had to contend with in recent times, but will the effects of coronavirus turn the traditional franchised car dealer model on its head permanently?

The pandemic has not created a new digital revolution, but has tremendously accelerated changes that have been building in the car-buying journey for years.

Whereas ten years ago, customers visited dealerships an average of seven times per purchase, today, it is barely 1.5. This declining customer interest in dealerships has come hand in hand with the rise of online marketing, digital experiences, and visualization technology.

Adapt or fail

Dealerships are facing a simple choice: adapt and evolve or take the risk of becoming less and less relevant.

Dealers are not oblivious to this. According to Accenture, 85% of them agree that the sales model needs to adapt quickly in order for them to survive.

Where dealers used to be the end point of a traditional linear buying journey, we see a future where they will be part of a set of inter-connected touchpoints that the customer can decide to activate at any time.

In this new sales model, dealers become ‘agents’ who act on behalf of the OEM, with sales conducted directly between the OEM and the customer – both online and in store.

The dealership’s role becomes the one of an ‘experience centre’ that adds value through in-person interactions and technologies, sales consultation, test drives, and vehicle handover, with dealers taking commission as middlemen.

In the agent model, OEMs will be able to set and maintain a more consistent pricing strategy across all sales channels, which will reduce traditional price-based competition between dealers. This could have a significant impact on bottom lines: research from Accenture has shown that franchised dealers have been undercutting OEM-set prices by an average of 12% to avoid losing sales to competitors.

Fixed pricing

This negotiation-driven flexibility of a car’s price could actually be one of the remaining blockers of online car sales, as customers may fear that they might pay more online than in the dealership. The agent model would alleviate these concerns and enable consistent pricing across channels, as is common in other vertically integrated industries such as luxury, fashion and tech.

With customers making purchase decisions earlier and earlier in the buying journey, online has become the main battle ground where car brands must maximize every moment ‘from advert to convert’. The key to success, however, will be in recreating the interactive nature of the showroom online, while also ensuring that the hyper-personalized online experiences are also carried over into the dealership.

In other words, OEMs should spin their mindset and design their dealer experience like their online presence, and their online experience like a showroom, thus ensuring total continuity between the two worlds.

This can be facilitated by the use of advanced cloud-based visualization technologies such as ZeroLight that enable users to view their car of choice in a variety of configurations and locations. This tech also gives users the ability to interact with the vehicle by opening the doors for a detailed look inside, opening the boot, or turning on the headlights.

Each of these helps bring the car to life for the customer, regardless of the device or touchpoint they are using. Such high-quality visualization is crucial to help customers overcome any concerns they may have about buying online.

OEM advantages

In addition to delivering more consistent pricing and interactive visualization experiences, the agent model offers manufacturers several other advantages, including the ability to gain direct access to valuable customer and market insights across all channels.

Accenture claims that a large-scale roll-out of the agent model can reduce the costs of retail by up to 4%, potentially generating more than $1bn of annual savings for an established carmaker.

But where will this leave dealers? Under this model, they will still remain the most important sales channel, but their purpose will have shifted: they will be product experts rather than sales experts. In this way, dealers will continue to be a place where customers can ask questions and touch, feel, and test drive a new vehicle. Customers will have better control over when and where they purchase, and dealers will still serve those who are keen on buying in person rather than online.

The digital framework for the agent model – where customers can research, explore, configure, and order their next vehicle in a fully digital environment – is already in play. In fact, VW recently announced that its entire EV range, the ID. family, will soon leverage the new agent model.

Moving to this Tesla-style model of vehicle sales will not present a big technical barrier to overcome, but it will mean change for dealers, and it won’t happen overnight.

Nevertheless, the challenges of coronavirus are accelerating the adoption of the agent model approach.

As new challenger brands adopt this model as well, it will become more and more pressing for established OEMs and dealers to also make the leap and re-establish themselves in this new customer-shopping journey.

With the technical and financial changes now easy to adopt, the only potential thing standing between dealers and the agent model is a cultural shift.  

This article was first published in AM Online as a Guest Opinion on 09/08/2020