The Agency Model: An update – and some potential challenges ahead
18 January 2023
In previous editions of “Motor Matters” we have addressed the Agency Model in Motor Retailing, so in this edition we provide an update on its adoption/take-up in the UK market and also look at some of the potential challenges ahead for those going down this route.
By the time this article is published, Mercedes-Benz will have been the first volume brand to make the switch to the Agency Model in the UK – historic stuff! It is expected that Volvo will follow in the middle of this year, 2023, and that other manufacturers will also follow. Notably, Stellantis announced delaying its agency plans for DS, Alfa Romeo and its Commercial Vehicles by six months to January 2024. Some manufacturers have made clear that they are not – for now at least – going down the agency route, including Suzuki, Mazda and Nissan. Yet other manufacturers, including most notably Volkswagen, have introduced the agency model for some but not all their product/supply. At Volkswagen, their agency model is to cover all fleet sales as well as sales of Electric Vehicle (EV) models to private individuals – with the franchise model retained for the sale of Internal Combustion Engine (ICE) models to private individuals.
What is the Agency Model?
So, for those manufacturers going down the Agency Model route (for all or part of their products/supplies) – what does their version of ‘Agency’ actually look like? It appears that many of the manufacturers have not disclosed exactly what Agency with them will actually look like – and there are many different potential variations of the “Agency Model”!
- The “genuine agency” model;
- Various different iterations of “non-genuine “/”partial”/”hybrid” agency model;
- A “split” of models from the same manufacturers (such as Agency Model for some but not all products and/or supplies e.g. Volkswagen);
- With some including used cars (but others excluding used cars) with their agency model.
To recap on the previous article on the “Agency Model”: “The crux of the genuine agency model is that motor retailers would no longer buy new cars from the manufacturer and then sell them on but instead sell new cars on behalf of the manufacturer” and “with the traditional franchise model it is unlawful for a manufacturer to set prices whereas with a genuine agency model [but not a non-genuine/partial/hybrid agency model] manufacturers may lawfully set prices.”
Some of the potential challenges ahead for dealers whose manufacturers are going down the agency route include:
- M&A – uncertainty on valuation etc. on any future sale/exit;
- Regulatory – there are strongly voiced concerns from regulators on price fixing/competition law, especially for non-genuine/partial/hybrid agency model and also where manufacturers are going for the agency model for some but not all of their products/supplies;
- Existing investments in premises etc. by dealers – to qualify for a genuine agency arrangement the motor retailer must not bear any” significant relevant risks” (including “product specific investments”, which are expected to catch investment in their existing premises by motor dealers), so the question will be whether the manufacturer will be prepared to now pay for that existing investment; and
- Termination etc. – the manufacturers may well find termination of genuine agency contracts here much more complex and problematic than terminating franchise agreements here in the UK. Agents are protected under the law here in ways that do not apply to the current franchise model – including on their monetary entitlement on termination.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2023.