The Agency Model: Further Update

Mercedes-Benz (“MB”) experience

MB Passenger Cars brought in the agency model in January. Although the likes of Lotus and Polestar already applied agency to the sale of new passenger cars to retail customers, MB was the first of the big manufacturers to launch it in the UK market.

It was introduced as “genuine agency” (not “non-genuine”/”hybrid”/”partial” etc. agency). For a summary of the distinction please see my earlier article.

The National Franchised Dealers Association (NFDA) Dealer Attitude Survey was carried out in January and February. According to the commentary, MB dealers “appear fairly happy with their lot”, though when it comes to the total margin on new cars the score is a low 4.9 in sharp contrast to 8.9 in the last survey. In the overall rating of the MB franchise, MB ranks highly, beaten only by Kia, Lexus and Mini. MB dealers give “current profitability” a score of (pretty good) 8.7, although lower than the 9.6 score six from six months before – and the same applies to future profitability. It will obviously be interesting to see how the MB dealers fare in the next survey after a bit longer in the agency model.

In speaking to MB dealers/agents direct about their experiences with the MB agency model so far, their views certainly seem to bear out the NFDA survey. It also appears that MB as a manufacturer/national sales company has been very keen to listen to its network and to try and be flexible to make it work. Hopefully, other manufacturers introducing the agency model will work with their dealers in similar spirit. 

Other OEM’s

Volvo has (at the time of writing) completed its June launch of its agency model in the UK (then Sweden and then the rest of Europe). Ford has now confirmed plans to roll out the agency model (across all its portfolio); Ford previously launched its agency model in the Netherlands earlier this year and says that it is “…gaining a lot of valuable insights for future roll out to other markets.” Ford’s spokesperson added that “Currently [it is] not able to confirm a future roll-out or timing for the UK or other markets outside the Netherlands.” Generally, it appears that OEM’s still pursuing the agency path for the UK are all actively consulting with dealers through steering committees and looking to work through the operational issues.

Many OEMs are yet to release their actual agency terms and conditions. It is still worth observing that (unlike Mercedes-Benz) many brands, such as VW, appear to be considering a hybrid agency model.

Observations

1. When we refer to “agency” in this context, we are talking specifically about new vehicle retail sales. Many dealers will, of course, already have used agency in other, smaller parts of their business for years (e.g. fleet and parts).
2. Some dealer groups heavily exposed to agency appear to be looking to rebalance their portfolios with a greater representation of those brands that have announced they plan to continue under the current franchise dealer model in the UK.
3. One big question on this agency piece is, what happens when oversupply returns to the UK? Some market commentators are of the view that this will just play into brokers’ hands but others go as far as to suggest that the agency model in the UK may well actually then fail – and that things would then revert back to the current franchise model!
4. Expected financial impact:
   • Obviously, the biggest question for dealers applying the agency model is whether dealers/retailers are going to make money! Encouragingly, Inchcape said in its annual report that although the introduction of agency in the UK will cut its revenues (as would be expected on a commission model) in its view the impact on its operating profits will be “negligible”.
   • Another key consideration is the impact that the agency model will have on dealer group valuations – the view of motor sector accountants that we have spoken to on this is that it is still too uncertain to say/call. Their view was that once we have had our first UK dealer group sale (with the agency model properly recognised) that should be a good indication at that point.

Agency – legal/competition law perspective

In one of my previous articles, I flagged the NFDA’s warnings about the impact of competition law upon agency models. The NFDA has been in discussions with the CMA (Competition and Markets Authority) to ensure that the CMA fully understood the sector and motor retailer’s needs following the initial submission by the NFDA of its response to the Department for Business and Trade’s (DBT’s) consultation on the draft Motor Vehicle Block Exemption Order 2023 (“MVBEO”).

By way of update, the CMA’s final version of its guidance has accepted the NFDA’s recommendation that it expand its guidance on the MVBEO so that it would not just assist in the interpretation of the (aftersales focused) MVBEO but also encompass wider competition issues relevant to the motor vehicle sector (i.e. vehicle sales (under the (general) Vertical Agreements Block Exemption Order (“VABEO”)).

The NFDA also requested the ongoing scrutiny by the CMA of different agency models and their potential impacts, as well as a call for an industry Code of Practice in order to promote fairer business practices – again, it appears from the final version of its guidance that the CMA have taken note. Indications are therefore that the CMA is paying close attention to the evolution of the sales models in the sector and accordingly that going forward further interventions – such as targeted investigations against OEM’s – are quite possible.