Jonny Stephens, senior manager at independent management consultancy BearingPoint explores, the recent changes in agency programmes.
Last month I attended the FT’s Future of the Car Summit in London. Executives from across the industry discussed the hot topics and of course Agency distribution models were still on the agenda.
A panel including Kristian Elvefors (head of sales at Polestar), Maria Grazia Davino (group MD UK at Stellantis) and Carlos Lahoz Pardo (VP of sales & ownership at Kia) spoke to their organisation’s outlook on direct sales. Polestar born into the model, Stellantis transitioning to Agency – albeit later than originally planned – and Kia sticking with a franchise distribution model.
However, the fact is, any number of sales executives from leading OEMs could have sat on that panel and provided insights into their recent thinking and decisions around agency. With so many OEMs making recent announcements to postpone and modify their programmes or to retain or rework their franchise estate, the fascinating division in operating approach is starting to crystallise.
This topic has been on the downstream agenda for years now – but it is telling of the importance of the decision and the extent of the change that organisations are still so strategically divided.
So, what are some of the key drivers behind these evolving implementation decisions? Below are five key contributing themes:
The Macro Environment
The macro picture for the industry has changed substantially over that period, which will certainly have influenced decision making. We have transitioned into over-supply for many categories following the bullwhip as supply constraints of recent years have eased – the risks associated with a new distribution model come into focus in an environment where vehicles need to move off forecourts. On top of this, BEV sales performance has been challenging.
This has been multifaceted, pressure on pricing coming from new entrants, residual value curves being steeper than expected and a decline in government EV incentives. This cocktail has hurt customer confidence and with several OEMs planning to launch Agency exclusively on BEV drivetrains, you could understand how changes may have stemmed from increasingly strained business cases.
The Transformation
The fact that it has taken a whole market cycle to evaluate, design, and (for some) implement Agency points towards the complexity of the transformation. Several OEMs have cited technology challenges as a key driver for delays. Internal platforms need new functionality to support ownership of the sale (e.g. customer accounts on finance systems) and many programmes would need new integrations with the various Dealer Management Systems for changes to stock management processes for example.
Aside from technology, the move to Agency represents a fundamental change in how National Sales Companies need to operate with the introduction of new processes, roles, skills, expertise, underpinned by a fast-paced, customer-centric retail culture. This is a substantial undertaking that requires significant time and investment to get right.
Test and Learn
As with any major operating model transformation, testing and learning through controlled pilots can be a great source of intelligence to inform direction of travel with broader rollout. Given the scale, complexity, and importance of the potential transformation, many OEMs have implemented pilots underway controlled by market, in own-equity retail sites, by brand, or by models. Indeed, certain markets appear preferable for pilot schemes, for example Sweden and the UK.
This approach gives OEMs the opportunity to evaluate findings, identify challenges and successes, and better understand the potential impact/opportunities for both business performance, retailer roles and customer experience. OEMs that have not yet made the move fully have the benefit of a ‘fast follower’ position, able to evaluate the market performance of early adopters such as Mercedes and Volvo Cars in the UK, against their own pilot market performance and finetune the model.
Retailer Relationships
For those that have chosen to delay their agency launch altogether, many are embarking on a redefinition of the retailer relationship. In planning for Agency, the consultation phases with retailers have involved a great deal of commercial negotiation with outcomes varying from the increasingly consolidated major groups down to the local independents.
Those opting to redesign their retailer relationship into a hybrid franchise model instead of pursuing genuine agency, could land on a best-of-both model which could help OEMs effectively navigate the above challenges. This would lead to more of a US-flavour of retail operations; where legislation prevents direct sales in many states, but OEMs continue to explore closer integration on systems, more stable margins, or improved stock management rules for example, without the balance sheet implications of holding stock.
The question for those that are pivoting back to something closer to a franchise model, is at what sunk cost?
Customer Experience
One net positive is that regardless of decision or position, customer experience looks set to improve in the medium to long term. Despite the changes in direction, proximity to customers and the customer experience remains central to OEM thinking.
All OEM communication on launches, pauses, pilots and pivots all reference a focus on outcomes for the brand’s customers – be that more support in sales processes; clearer pricing models or new channels altogether. Whilst there is still execution risk associated and the pathways to those CX improvements vary – any gains in aggregate CX should be a net positive for the industry.
It seems we are set for a prolonged period of variance in terms of distribution models and their hybrid applications. There will undoubtably be further tweaks and changes to many firm’s sales operations as their own stories evolve.
However, excitingly we are getting to the point where we could begin to see if there is a correlation between the flavours of agency and customer outcomes or competitive advantage. So, a fascinating period lies ahead as the operational divergence is embedded and the registrations, customer and retailer feedback trends start to arise.
Jonny Stephens is a senior manager at independent management consultancy BearingPoint.