The ‘Agency Model’
6 September 2022
In our Winter 2021 edition of Motor Matters, I wrote an article titled: ‘What will a move to the agency model mean for motor retail?’. In this article, I delve a bit deeper into some of the key issues.
In the UK, the ‘agency model’ is in place with the likes of Lotus and Polestar – and Cupra for its electric cars. The“bigger players” such as Mercedes-Benz, Stellantis and VW (for VW EV car sales) are understood to be bringing the agency model during 2023.
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.
- the manufacturer: owns the car; sets the price and discounts; bears the appropriate share of overheads etc; and bears the risks;
- the motor retailer: negotiates the sale to the customer on behalf of the manufacturer and in return receives commission/handling fee from the manufacturer.
With the traditional franchise model it is unlawful for a manufacturer to set vehicle prices, whereas with the ‘genuine’ agency model manufacturers may lawfully set prices.
Under a ‘genuine’ agency model, the motor retailer must not bear any significant relevant risks (i.e. contract specific; market specific investments; or related to other activities in the same product market).
Various partial/’non-genuine’ agency models (i.e. where all the relevant criteria for a ‘genuine’ agency model are not met) are understood to be proposed in the UK by a number of manufacturers – with various different approaches/structures contemplated.
The National Franchised Dealers Association (NFDA) has been consistently raising competition law concerns on both ‘genuine’ – and partial/’non-genuine’ – agency models. Broadly, the NFDA warns that if the model is not structured correctly then it breaches competition law – with consequences including huge fines (up to 10% of group turnover) and director disqualification (up to 15 years). Even for the ‘genuine’ agency model, the NFDA flags that: “there is danger that they undervalue the market-specific risks that OEM’s will have to remove from dealers’ shoulders (both going forward and on a legacy basis) to benefit from having a benign competition law treatment” (i.e. from being classified as a ‘genuine’ agency model).
Globally, a number of manufacturer networks appear to have made a successful transition from franchise model to agency model, including BMW in South Africa, Honda in Australia and New Zealand, and Toyota in New Zealand. But, with “go live” usually about two years from the start of negotiations, there may be some way to go with many of the manufacturers on the proposed switch over to agency with their UK network of motor retailers.
For more information on the topics raised in this article, please contact Partner Mark Gipson.
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 September 2022.