New car sales – is there one “right” solution?
The last couple of weeks have given me plenty food for thought about different forms of distribution model, and in particular whether there is a “right” answer to the question of who is best placed to handle the customer interaction face to face, the role taken today in the vast majority of cases by franchised dealers. At one extreme sits Tesla, alone in terms of having a 100% manufacturer owned sales and service network. Arguably at the other extreme sit the many thousands of small owner-operator dealers around the world, many of whom deliver a personal customer experience, generating a good income for themselves in the process. In between, sit true agency agreements, large franchised dealer groups, and around the periphery of the official networks a myriad of brokers and other intermediaries who take a direct or influencing role in a proportion of transactions.
Proponents of the factory direct sales model like Tesla argue that it allows the OEM to get closer to the customer, to ensure that their experience is exactly “on message”, as well as reducing distribution costs through better control of pricing and lower network costs. When I took out the lease on my Tesla, the sales process was unimpressive, but I put it down to teething problems in a new company, and my (very) few aftersales experiences have been better. However, in four days time, my car comes to the end of the lease. Anyone reading this blog would have expected that for the last two or three months I will have been bombarded with offers to get me into another Tesla, or at the very least a call from the logistics company to ask where to pick the car up from. But no, this “closer to the customer” model has only produced a deafening silence. My partner has suggested just parking the car up and waiting to see how long it is before anyone notices.
We have also had discussions with dealer associations who are concerned that the trends towards larger dealers and reduced investor numbers within networks – advocated by us in our Dealer of Tomorrow work, will disadvantage smaller operators (which it will) and reduce customer choice (which can certainly be argued). Undoubtedly this will form part of the submissions made to the EU as part of the BER review process, and it may be well received as DG Competition has laid out “protection of physical retail” as one of the issues they want to address within the Global Block Exemption.
On the other hand, following our ‘Clean Slate’ workshop which also assumes that the Market Area Partners would primarily be drawn from large dealer groups, one of the OEM delegates made the point that if you switch to agency, then you have removed the risk of intra-brand price competition anyway, so why not keep a larger number of dealers and save the pain and risk of restructuring and terminations. In a separate meeting with an OEM who has adopted the agency model in one market, they confirmed that they have kept all the previous franchised dealers and do not have any plans for terminations. Instead they saw value in local competition, but now on the basis of customer service rather than price. It was a very powerful point.
What is becoming clear is that not only will there be more variety in physical formats in the future, as we have said about both sales and service in Dealer of Tomorrow and ‘Clean Slate’, but there will quite likely be more variety in legal forms of representation as well, and how those are applied. There may not be a winning distribution model, but because all the approaches are aimed at delivering an effective omni-channel experience, there will still be a winner – the customer.