Changes to the long-standing relationship between dealers and OEMs should be viewed as an opportunity and not a threat, says Barnaby Turner, Chief Partnerships Officer at auto financer Allied Credit.
OEMs Mercedes and Honda are trialling the agency model in Australia. Under this model, the OEM “sells” the vehicle direct to the customer and the dealer, as agent, becomes responsible for the test drive, the face-to-face activity, and the delivery. Dealers have no discretion on price, which is fixed by the OEM, creating a similar model to the direct-to-customer models utilised by some EV manufacturers such as Tesla.
In the current environment, where stock is low and demand high, there isn’t much discounting, but it is yet to be seen how the agency model will perform in a more competitive market and if it will be adopted more widely, Turner says.
While some dealers are understandably concerned about the impact of the agency model on dealership valuations, Turner says the new model also presents opportunities and dealers shouldn’t make any rash decisions. He notes that dealers won’t have to pay for finance on the stock because it will be owned by the OEM, even when it’s on their lot. And the delivery fee they receive from the OEM for a vehicle handover might be more generous than the profit margin they would have retained from selling discounted stock in some circumstances – especially if the OEM creates a tiered fee model which rewards dealers who deliver higher targets.
“Dealers still need have their fingers in the business but proceed with caution and see how customers react,” he says.
Some customers will love the new arrangements because they may not want to haggle with a salesman and some won’t even want a test drive. Others will want to have a relationship with dealers, particularly if they or their families are long-standing customers.
“One of the concerns about the agency model is the dealer loses the customer. I don’t necessarily agree with that. Maybe the ownership is technically changed but the relationship can still be built by the dealer,” Turner says. “Modern cars, in particular EVs, are quite complex and a well-trained salesperson can add considerable value to the customer experience by providing information and confidence in the process.”
In an environment where dealers can’t discount, they end up competing on service, so the customer relationship becomes paramount. By maintaining and nurturing that relationship, dealers will still buy and sell used cars to customers and still service the vehicles they’ve sold and sell spare parts.
Allied Credit is committed to supporting dealers and OEMs in this environment by providing simple and effective product delivery and value-add product enhancements such as a Guaranteed Future Value offer which will help attach the customer to the dealer. The GFV gives dealers the opportunity to interact with the customer more regularly and acts as a strong customer-retention tool.
“By putting a guaranteed future value in there, we can shorten the loan term and bring it more into line with the lifespan that the customer would like,” Turner says.
Allied Credit can also run algorithms over its loans database to see which customers’ cars might be in equity. “We deliver that information back to the dealers so they can contact the customer directly and offer to take back the old car, clear the loan and sell them a new vehicle and a new loan,” Turner says. “It’s a value proposition our competitors aren’t all delivering to this market.”
“We pride ourselves as the lender who analyses the data we get from the dealers to help them become more profitable.”
Turner sums up Allied Credit’s philosophy about dealer relationships: “It’s all about keeping the dealers front of mind with the customers, keeping them really relevant and helping them leverage the distinct competitive advantages that they have.”