Ford dealers are worried that some aspects of the Model e program are a slippery slope leading to the agency model of selling vehicles. In an agency model approach, the manufacturer sets the price and manages the online customer relationship. The dealer serves as the delivery point for the vehicle.

The worries are not totally unfounded. The trend of automakers targeting ownership of a greater share of the transaction won’t abate. However, there will always be a role for dealerships.

“There is and always will be a role for dealers in the U.S. and Canada, regardless of how an automaker wants to go to market,” Tyson Jominy, vice president data & analytics at J.D. Power, told Getting to Go!

He gave three key reasons why that is true.

For one, automakers will need dealers to absorb excess inventory, said Jominy. The past few years saw an unusual situation in which dealers were short inventory. From the automakers’ perspective, they stood in for dealers in that circumstance, he said. But inventory is already returning to more normal levels. “Over the long term, (inventory) will go past two million (units) and the deals will return,” said Jominy.

Second, not all consumers want to buy online. Covid forced almost every dealer to sell online. California dealers were the first to be pushed to strictly online sales. In San Francisco, said Jominy, the sales rate at the peak of Covid was only 1/3 of the normal rate. “That is a test of how big the market is for only digital retailing.”

As soon as dealerships reopened, consumers returned to in-person shopping in San Francisco, said Jominy. “A car is an extraordinarily important purchase,” he said. “The majority preferred to actually go in and see the vehicle before buying it.”

Third, dealerships’ flexibility is a strength. Automakers know vehicles sales are very regional in nature, he said. Electric vehicle sales have made that even more evident. “EVs have proven to be so regional it reinforces the need to have marketing clearing prices set by people in those regions,” said Jominy.

To be sure, the lure of the Tesla direct-to-consumer model of selling is strong for manufacturers. They see that dealers are making up to $4,000 profit per vehicle and “automakers can be quite envious of Tesla, who gets to capture all of that,” said Jominy.

The challenge of direct-to-consumer, he said, is that when the manufacturer holds all the inventory it can’t share the risk with the retailers. So, when inventory swells, such as it did with Tesla, the manufacturer has to quickly cut prices to get rid of the inventory. “Tesla can use the total channel profit to address that,” said Jominy. “The automaker with franchises can only make some price cuts to address it.”

In the U.S., automakers are pushing the boundaries of exerting even greater control over the online customer experience. As Jominy pointed out, Hyundai’s deal for the sale of vehicles on Amazon “is an attempt to have a similar customer experience. That is one of the examples of how automakers are trying to take over the purchase experience.”

Overseas dealer reaction

Mercedes-Benz has already adopted the agency model in Europe and Volvo has done so in the United Kingdom. A swath of other automakers plan to switch to the agency model in Europe.

Consulting firm BCG interviewed more than 400 authorized car dealership executives in Germany in 2022 representing a broad array of premium and volume brands. Dealers who had already adopted the agency model, while not overwhelmingly positive about it, did have a better view than those who had not experienced it, found the Shifting to an Automotive Direct-Sales Model report.

Of those who had already adopted the agency model, 41% had a positive view of it; 34% had a negative view and the remainder were neutral. Of dealers still selling in the conventional model, 54% had a negative view of the agency model and 20% had a positive view.

Based on what is currently known about the agency model, dealers with strong after-sales service offerings and a well-defined used vehicle strategy may fare better under the agency model.

BCG recommends that dealers focus more than ever on offering excellent customer service rather than selling vehicles fast and at (almost) any price.

“To secure a sales commission and the ensuing after-sales business, agents will compete not on price but on offering customers a shopping experience of the highest quality — enjoyable, informed, and simple,” says BCG.

This article was written for Getting to Go, a buy/sell newsletter from Scali Rasmussen.