Who's looking after the people?

I do try to keep the topics of my blogs varied, covering the whole spectrum of ICDP research and the various conversations that I have around not only sales but also aftersales and other related areas such as mobility.  However, there is so much going on at the moment in respect of changes to franchise dealer agreements, restructuring of dealer networks and the introduction of agency, then it's difficult not to return to these topics more regularly than might be my natural preference.

As most people are aware, we are now clearly into the launch and implementation phase for agency across a number of brands and markets.  Whilst there have been a number of delays including some since I last discussed that in November, Mercedes are now well into their roll-out in major markets, Stellantis will still launch in Benelux and Austria in the summer despite issues, Ford is still likely to go live in Netherlands in the next month or two, and Volkswagen Group brands will be launching their “non-genuine” version of agency for BEVs across European markets this year.

As I have noted before, the lessons learned are limited when supply is restricted due to component shortages and pricing is generally at or close to list price for most models.  It's possible to partially validate processes and supporting systems, but we don't really know how customers will behave when presented with a no haggle price, and manufacturers don't know what the cost of supporting and driving retail demand will be compared to what they have traditionally spent through dealer discounts, campaigns and variable marketing.

This is where the big saving comes from theoretically in the transition from a margin-based franchise system to agency.  Part of the dealer margin and some of the variable marketing spend which was made available to dealers was utilised on a case by case basis to sweeten the deal for customers and close a sale.  The other part of variable marketing was used by manufacturers to support sales through lower margin channels and to support attractive finance arrangements and specific promotions.  Under agency part of this money should be managed by the manufacturer to support dynamic pricing that matches demand to supply, whilst the balance covers the additional overhead costs of the manufacturer as they take on new responsibilities and risks.  There should then be a net saving that reflects what went into the business case to justify the transition.

This change in their relationships and responsibilities is fundamental to the successful operation of an agency agreement.  The manufacturer has to focus on retail, because there is no wholesale.  The dealer also has to focus on retail, because there are no deals.  Whilst to some extent the operating environment of a business defines how people behave, if an individual is totally unfamiliar with retail, we should not be surprised if they struggle to adapt to this transition.  Some will make it but others will not, yet one aspect of agency that has not been widely discussed (though it has been flagged in ICDP research for over a decade) is the whole question of culture change and the implications for the people employed at both manufacturer and dealer level.

I do not believe that sufficient attention has been given to this challenge, with the focus being on contractual matters and underlying processes and systems rather than the people using them.  I have been told of some manufacturers who have made retail experience mandatory for new hires into their national sales companies, and I'm aware of recruitment by others to build up their own internal retail sales operations.  However my impression is that these appointments are often to run new online sales channels rather than to take on the responsibility for monitoring the sales funnel and applying insights gained from that into adjusting pricing and promotions.  Similarly at the dealer level I'm aware of previously top-rated sales executives choosing to move to dealerships handling brands that have remained on franchise as they were unable to replicate their previous earnings in an environment where there were no deals to close.  I've not seen evidence yet of dealers taking proactive steps to help their sales executives change the focus of their conversations and behaviour away from doing deals, to the more service-oriented approach that's required under agency.

Agency – looked at in the most positive way – is trying to change the game in automotive retail.  We have been playing that game with square pegs on a board that has square holes, and everyone understood the rules and have been able to make it work reasonably effectively.  However, we've now changed the board so it has round holes and the pegs no longer fit.  Whether it is at manufacturer or dealer level we need urgent action to ensure that both pieces match.  Without that attention to human factors, the best processes and the best systems will still struggle to deliver.