AS THE handing down of one of the most important legal decisions for Australian dealers becomes imminent, the boss of one OEM in the UK, in the manner of Alexander the Great, has called on his dealers to get behind the franchising sales model and “burn their boats”.

In other words; embrace franchising and no turning back.

The agency model for automotive retailing is likely to be the most contentious global change ever put before dealerships and while some countries have given it tacit approval, some are against the concept, the US in particular.

Australian dealers are waiting on the looming decision in the court action by 38 Mercedes-Benz Australian dealers against Mercedes-Benz Australia/Pacific.

At stake is $650 million in goodwill which the dealers allege was taken from them and transferred to Mercedes-Benz under the agency sales agreements which they allege they were forced to sign or have their Mercedes-Benz businesses taken from them.

That decision will have a direct impact on whether other Australian OEMs pursue the agency sales model or back away to see how the Mercedes (and Honda) agency efforts start to play out.

But the head of Suzuki in the UK, Dale Wyatt, really put his cards on the table when he called on his dealers to oppose the model and “burn their boats”.

Screenshot of video presentation to Suzuki dealers by Dale Wyatt, director of Suzuki in the UK and Ireland

The comment went viral. In Australia, automotive dealership expert and Pitcher Partners consultant Wayne Pearson told GoAutoNews Premium that “when the head of one of the OEMs talks about dealers burning their boats to protect their business from agency, it’s something worth thinking about.”

“My view on the agency model has always been that dealers will do it if it’s profitable,” Mr Pearson said.

“I also think OEMs will hybridise the model to pay dealers to actually sell cars – rather than just deliver them – because they (the OEMs) aren’t good at selling cars at retail and they just can’t make it easy enough for customers.”

Mr Pearson said he would like to see dealers take a more “burn their boats” approach though the Australian Automotive Dealer Association (AADA) to protect their model.

“Given that could be difficult, dealers need to make sure they are getting their absolute fair share of upfront gross to make a profit,” he said.

“We know at 10 per cent margin on RRP, dealers broke even at best before COVID in new cars. With service in decline with EVs, dealers need front-end gross more than ever. Dealers just can’t survive on 4 per cent or 6 per cent.”

To dealers, he said: “When the time comes to negotiate the extra margin required for dealers to do their traditional job, remember you hold the keys to the kingdom. So get more than your fair share.”

Wayne Pearson

Suzuki UK’s Dale Wyatt said he believes many manufacturers undervalued dealers.

“My job is to create an environment that enables the dealer to perform,” he said in an interview with the UK’s Car Dealer magazine.

“If you’re a dealer and I’m a manufacturer, we’re both going to agree where north is.”

He said that Suzuki, which has 151 dealers in the UK, was an established manufacturer and that to make a change to an agency model would require “firing my management team” and changing all the office processes to take on the “punishing implications” of looking after all the stock.

He said the agency model was “not for me” and said it should not be for all dealers.

“Now is the time to unite. Unite and prove – yes, prove – the franchise model is the right place for consumers to sell their car and buy a new one,” he said.

“I am like Alexander the Great. So why Alexander the Great? It’s a bold claim. Well, legend has it that he burned his boats when he arrived in Persia, giving his army no way to retreat.

“Well, I burned my boats. I’ve said no to agency, very publicly, and now I cannot turn back. And neither should you,” he told his dealers.

Mr Wyatt said dealers were entrepreneurs and that entrepreneurial behaviour was “all about innovating, and improving upon existing ideas, spotting opportunities, and capitalising on them, seeking both opportunity and competitive advantage”.

“You buy and sell new and used cars, you have taken a risk backing yourself, and you’ve built a local brand. You serve the mobility needs of the community, and you do it bloody well.

“We at Suzuki serve a franchise dealer network and we are pretty damn good at that. So my message is to hone your sword. Prepare for battle.“There’s no going back. Your boats are burned. Indecision is the enemy of progress. Your excuses may be valid, but they prevent you from giving your all to get your mindset right and adopt the mentality.”

Meanwhile, the UK magazine AutoCar, reporting on the progress of the agency model in the UK, said Jaguar Land Rover (JLR) would move away from traditional franchise agreements with dealerships from 2024 because it “wants better relationships with customers”.

JLR told AutoCar that its retail volumes were higher in North America (up 42 per cent), China (up 40 per cent) and the UK (up 6 per cent) but not in Europe.

It said that selling direct to customers would give it greater control of the buying process, whether online or via the showroom, with dealers paid an agent fee for handling each sale, instead of cars sold directly to the dealer network.

JLR was asked by GoAutoNews Premium in July 2022 if Australia would follow the lead of the UK and was told it was still under consideration.

“Plans will vary by market on how best to achieve this and no decision has been made regarding distribution in Australia,” said JLR PR manager James Scrimshaw.

“Ultimately, our objective is to build a stronger and more sustainably profitable Jaguar and Land Rover retail network for the future.”

In another report, a study by financial services group Zeus Capital which was published in Cox Automotive’s latest AutoFocus quarterly automotive insight update, said that fears that the agency sales model may have had a detrimental impact on trading could be misplaced.

Zeus’ head of research Mike Allen says UK dealer groups all made a solid start to 2023 and that trading continues to look robust.

Philip Nothard

“The agency model is here to stay, with more brands likely to adopt this over the coming months,” he said. “But has the agency model had a material impact on trading? In short, we believe the answer is not yet.

“There are advantages to the agency model for the dealer, particularly from the quality of earnings perspective. In theory, the dealer does not have to invest in stock.

“Suppose the unit economics are pitched fairly, with dealers gaining from cost savings. In that case, the theoretical margins and ROCE (Return on Capital Employed) should be enhanced versus the traditional model.

“If this plays out and impacts group financials, it should eventually lead to higher valuations. However, this is some way off as it will take time to develop.”

Meanwhile, more so-called “no-haggle” vehicle sales models are set to be launched by several OEMs within the next few years.

Cox Automotive’s insight and strategy director Philip Nothard said: “The types of disruptive agency models that we are seeing vary in type from OEM to OEM and we’re likely to see yet more in the future.

“That shouldn’t come as a surprise. The way in which cars are sold is currently undergoing the biggest change for half a century.

“Many dealers will be breathing a sigh of relief that the agency model has not significantly affected financials. But the story is far from over in an era of rapid change.”

Agency brand news

Renault: Has said it will adopt the agency model and has already cut its UK dealership numbers as it downsizes its network. From 2025 it will reduce its dealership outlets from 153 to 115 and its dealer groups down to 46.

Jaguar Land Rover: JLR will adopt an agency model by 2024 in the UK as part of a review of the car-maker’s retail network that could in the future extend to Australia.

Mercedes-Benz: Operates agency model in Europe, India, South Africa and Australia (but not the US because of franchise laws). In Australia, dealer groups are awaiting the outcome of a court decision to be delivered 30 August.

Toyota: In Australia, it said it intends to “double down” on its strong relationship with its dealers as it moves to address the retailing challenges facing car-makers. It said dealers would do a better job of selling Toyotas than the factory could, especially as the market becomes more competitive again. However Toyota has been operating the agency sales model in New Zealand for some years.

Ford: Has confirmed the move to agency in Europe but Ford Australia told GoAutoNews Premium that it has “no plans” to move to an agency model. It said it sees its dealers “as vital to the success of the Ford brand and an important touchpoint for customers to experience our brand.”

However, it said it was “always exploring ways to give customers more options in their shopping experience. For example, we opened online reservations for the Mustang Mach-E a couple of weeks ago, as a natural part of our digital evolution and a way for our customers to shop with their authorised Ford EV dealer 24/7.”

Honda is operating the agency sales model; starting in 2022.

Stellantis: The car-maker – including Alfa Romeo, Fiat, Peugeot, Jeep and Citroen – was originally planning on an agency model for its UK retail network by mid-2023 as part of a bid by the manufacturer to cut distribution costs. That has now been delayed and will start for Alfa Romeo and Citroen sub-brand DS in Europe from January 2024 and into 2025 and 2026 for other brands.

Stellantis Australia told GoAutoNews Premium that there are no plans for an agency model in Australia.

BMW: Is looking at an agency model in Europe with Mini starting in 2024 and all BMW cars in 2026. In Australia, BMW told GoAutoNews Premium that “there are no current plans to change the existing sales model in Australia.”

Volkswagen: Along with Audi, Cupra, Seat and Skoda, Volkswagen is switching to agency agreements for its UK retailers. VW initially brought in agency agreements for its electric ID car range, but is now looking to move all new cars sales to a direct model.

No similar moves are planned for Australia.

Mazda: Has said it has no plans to apply an agency strategy to its retail network. In the UK, it said that it has ruled out the retail model for at least the next five years.

MG: Said it is not going down the agency model. In the UK, its head of fleet sales Geraint Isaac said that its dealers are partners and that: “MG has no intention in the short to medium term of changing.”

Nissan: Will stay with the franchised model and said the agency model was not on the agenda.

Volvo: It has moved to direct sales in the UK from June this year, with Sweden to follow later. Buyers deal directly with Volvo with sales on a fixed-price basis, but the dealer network remains integral to the sales process.

In Australia, there are no current plans to adopt the same model.

By Neil Dowling and John Mellor