THE decision of the Federal Court in the case of dealers against Mercedes-Benz, if allowed to go unchallenged or if not rectified by any amendments to the Franchise Code, will more than likely see a distancing of car retailers from their OEMs as they seek to pivot away from a focus on new cars to a focus on all cars with special attention to used cars.
It will also mean that OEMs will have more trouble in persuading dealers to invest in premises upgrades or all-new facilities without guaranteed longer-term secure agreements.
If goodwill is to be changed in the way the court seems to think is appropriate, then brands may well find a reluctance by car dealers to invest in attracting customers to their new car offerings as distinct from the dealers investing in their own all-makes car retailing businesses and brands.
In these turbulent times, remember that the only aspect you can change is the future.
Today’s message to car retailers is abundantly clear: they must adapt and evolve to secure their place in the retail automotive industry of tomorrow.
Steve Bragg
Meanwhile, in the wake of recent developments from the Mercedes Benz Australia case, one cannot help but feel a tinge of disappointment for the dealers. While not entirely unexpected, the discussions that will undoubtedly ensue in the coming days, weeks and months are bound to be emotionally charged.
The crux of the matter, and what has always been, is the intricate dance between the franchisee and franchisor relationship.
It’s crucial to acknowledge that dealerships are not akin to Jim’s Mowing franchises. The vast investments in people, processes and property have long surpassed the framework established by the automotive retail franchise model.
Rather than steering the ship towards change, many dealers found themselves entangled further within the web of the franchising model by focusing on the new car department too heavily.
Admittedly, the dealers were often painted into a corner, considering the substantial investments they had made.
The question that immediately comes to mind is whether dealers will continue to make such investments without a significant commitment from the franchisor/principle in terms of franchise or agency tenure.
Dealers can now no longer commit to spend in some cases tens of millions of dollars on capital expenditure on facilities that will not provide a return on the invested capital.
In a country where approximately 4.6 million cars are sold annually (1.1m new and 3.5m used), most dealers fixated on the 1.1 million new variants and failed to harness the full spectrum of the market. Even with non-new variants (read parallel imports) becoming openly available at volume, both domestically and overseas, dealers hesitated to pivot and embrace their role in the franchise they really own, which is the non-new market segment.
Several essential truths remain evident in this tumultuous landscape:
Dealerships stand as the most efficient and effective conduit for transferring vehicle ownership from supplier to customer, navigating this journey with unparalleled expertise proven over many decades.
Dealers, due to their transactional relationships spanning various income streams, have an innate ability to make deals happen, seamlessly bridging the gap between buyer and seller.
Recognising that most customers tend to procrastinate, dealers employ expert systems that gently guide individuals toward making purchasing decisions that benefit all involved through inducements either by discounting or services provided.
Dealerships are creatures driven by profit. When profit margins dwindle, they adapt or, in some cases, depart from the scene.
It has long been our conviction at Pitcher Partners Sydney that dealer brands possess the potential to seize market share from agency brands as customers gravitate towards efficiency in purchasing a car.
Both Agency and DTC (direct to consumer) sales models have shown too much friction in real world operation compared with theoretical reports delivered in board rooms by big-end-of-town consultants.
While the automotive industry grapples with the debate between dealer and agency sales models, we implore dealerships to embrace the future.
First, focus on maintaining the ICE (Internal Combustion Engine) to EV (Electric Vehicle) sales ratio to over 75/25 during the transition period to ZLEVs (Zero and Low Emission Vehicles), particularly by directing your efforts toward non-new (used and parallel imported) cars.
This involves investing in your ‘pre-owned franchise’ and your ‘brand’, whilst fostering growth and retention within your workshops, where your customers often reside.
Secondly, CRM will have never been more important than today going into the future as this is where the battle will be won or lost.
Your customer relationships are a ‘moat’ acting as a barrier to the so-called disruptors that will see the Mercedes case as the green light to attack the retail margin they covet to recover their investments in EV technology.
Thirdly, selling new cars profitably is essential, but it’s equally crucial to know when to pivot when it ceases to be profitable.
This is where dealers also have the advantage as they can pivot their businesses at lightning speed in comparison to the global car manufacturers.
Steven Bragg is a partner and Motor Industry Services lead at Pitcher Partners Sydney
By Steve Bragg on 5th September 2023 Comment, News, Regulations Agency, Court Ruling, Pitcher Partners
THE decision of the Federal Court in the case of dealers against Mercedes-Benz, if allowed to go unchallenged or if not rectified by any amendments to the Franchise Code, will more than likely see a distancing of car retailers from their OEMs as they seek to pivot away from a focus on new cars to a focus on all cars with special attention to used cars.
It will also mean that OEMs will have more trouble in persuading dealers to invest in premises upgrades or all-new facilities without guaranteed longer-term secure agreements.
If goodwill is to be changed in the way the court seems to think is appropriate, then brands may well find a reluctance by car dealers to invest in attracting customers to their new car offerings as distinct from the dealers investing in their own all-makes car retailing businesses and brands.
In these turbulent times, remember that the only aspect you can change is the future.
Today’s message to car retailers is abundantly clear: they must adapt and evolve to secure their place in the retail automotive industry of tomorrow.
Steve Bragg
Meanwhile, in the wake of recent developments from the Mercedes Benz Australia case, one cannot help but feel a tinge of disappointment for the dealers. While not entirely unexpected, the discussions that will undoubtedly ensue in the coming days, weeks and months are bound to be emotionally charged.
The crux of the matter, and what has always been, is the intricate dance between the franchisee and franchisor relationship.
It’s crucial to acknowledge that dealerships are not akin to Jim’s Mowing franchises. The vast investments in people, processes and property have long surpassed the framework established by the automotive retail franchise model.
Rather than steering the ship towards change, many dealers found themselves entangled further within the web of the franchising model by focusing on the new car department too heavily.
Admittedly, the dealers were often painted into a corner, considering the substantial investments they had made.
The question that immediately comes to mind is whether dealers will continue to make such investments without a significant commitment from the franchisor/principle in terms of franchise or agency tenure.
Dealers can now no longer commit to spend in some cases tens of millions of dollars on capital expenditure on facilities that will not provide a return on the invested capital.
In a country where approximately 4.6 million cars are sold annually (1.1m new and 3.5m used), most dealers fixated on the 1.1 million new variants and failed to harness the full spectrum of the market.
Even with non-new variants (read parallel imports) becoming openly available at volume, both domestically and overseas, dealers hesitated to pivot and embrace their role in the franchise they really own, which is the non-new market segment.
Several essential truths remain evident in this tumultuous landscape:
It has long been our conviction at Pitcher Partners Sydney that dealer brands possess the potential to seize market share from agency brands as customers gravitate towards efficiency in purchasing a car.
Both Agency and DTC (direct to consumer) sales models have shown too much friction in real world operation compared with theoretical reports delivered in board rooms by big-end-of-town consultants.
While the automotive industry grapples with the debate between dealer and agency sales models, we implore dealerships to embrace the future.
First, focus on maintaining the ICE (Internal Combustion Engine) to EV (Electric Vehicle) sales ratio to over 75/25 during the transition period to ZLEVs (Zero and Low Emission Vehicles), particularly by directing your efforts toward non-new (used and parallel imported) cars.
This involves investing in your ‘pre-owned franchise’ and your ‘brand’, whilst fostering growth and retention within your workshops, where your customers often reside.
Secondly, CRM will have never been more important than today going into the future as this is where the battle will be won or lost.
Your customer relationships are a ‘moat’ acting as a barrier to the so-called disruptors that will see the Mercedes case as the green light to attack the retail margin they covet to recover their investments in EV technology.
Thirdly, selling new cars profitably is essential, but it’s equally crucial to know when to pivot when it ceases to be profitable.
This is where dealers also have the advantage as they can pivot their businesses at lightning speed in comparison to the global car manufacturers.
Steven Bragg is a partner and Motor Industry Services lead at Pitcher Partners Sydney
Read more:
Mercedes agency verdict is in
Mercedes agency decision today
Mercedes court decision ‘soon’
Mercedes decision next year
Mercedes court case is critical
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