The thing is, it’s already happening. While we’ve become comfortably used to the traditional method of buying and selling cars – the franchised dealer model – the move to agency sales is under way and such operations are already on Irish shores. Like spies in the night, agency sales have already begun under our noses…
Actually, that probably makes the whole agency sales thing sound portentous and sinister, which it isn’t. But what does the move to agency car sales actually mean for the Irish car buyer? First off, it helps to understand the difference between the franchised model and agency sales. Under the franchised model, car dealers are independent businesses. They buy their stock of new cars at wholesale prices from importers who bring them into the country from the various factories. Some of those importers are themselves independent, locally owned companies that have built up relationships with big car manufacturers over the years. Others are local offices of those car makers.
Having bought their stock of new cars, the dealers then sell them on to you, the consumer, having added on a profit margin. That profit margin can be used to offer you a discount, especially if you’re a loyal customer of that particular dealer, and so the great mercantile machine of car sales continues.
The agency model upends that. Under an agency set-up, the dealer no longer buys their stock of new cars from the car maker, and – technically – you’re not buying the car from the dealer any more. Instead, when you click the ‘pay now’ button on the website or sign on the dotted line for a finance agreement, you’re buying the car directly from the company that made it. The dealer, from whom you will continue to collect your new car and to whom you will return for servicing and repairs, is now not a dealer but an agent. They are handling the physical handover of the car to you and doing it for a flat fee rather than a variable profit margin.
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Digital sales
It’s being done for two reasons in the main. Firstly, consumers are now keener than ever on simple click-and-buy internet purchases, even for cars, and agency sales is the key to unlocking that demand. Secondly, and arguably more significantly, car makers want to take greater control of the sales of their products and, while not entirely eliminating the middleman dealer, want to at least have a fixed cost for dealer fees, streamlining the revenue chain.
This arrangement already exists. Tesla, famously, does not used franchised dealers but instead owns its own outlets and sells directly to customers. Thus, the premises in Sandyford, Co Dublin, and the one that’s shortly to open in Cork are actually part and parcel of Elon Musk’s empire.
Equally the Polestar brand – spun off from Volvo and owned by the giant Chinese car maker Geely – sells directly and currently has only one physical outlet, coincidentally also in Sandyford, just a short walk from Tesla’s building.
The agency model is spreading fast, though. BMW has announced that it will go fully agency for all its sales. “In close partnership with its retail partners, the BMW Group always aims to offer the best premium customer experience. In the context of rapidly changing customer expectations and the options and opportunities of increasing digitalisation, the company will in the future focus on direct sales, with agents acting as its sales representatives in Europe. The implementation of this agency model will start in 2024 within the European Mini network, with the BMW brand joining in 2026,″ a BMW Ireland spokesperson told The Irish Times.
“As part of this new model, the company’s existing retail partners will remain the principal touchpoint for customers and will focus on providing them with advice and support. In return, our agents will receive a commission for their services. In future, the BMW Group will assume a significant part of the risks and costs of selling the cars and take full advantage of the technical opportunities offered by the constant evolution of digitalisation, offering customers to move seamlessly between a digital and physical sales experience. The offer, including pricing, will be consistent and transparent across all sales channels.”
Transparency and simplicity
What will such a change mean for consumers, though? “Polestar is a direct-to-consumer brand,” said Kieran Campbell, head of Polestar’s operations in Ireland. “This means that Polestar is the distributor and the retailer. Polestar have a retail partner, Spirit Motor Group. Spirit staff and manage the retail space in Sandyford – this is Polestar Dublin.
“What this means for customers is transparency and simplicity. The full transaction happens digitally and seamlessly, and the car can be ordered from the comfort of your own home by configuring the Polestar 2 you want. Pay a €1,000 reservation fee and the order is complete and [the car] can be handed over within two weeks.”
In theory, this is all true. Agency selling simplifies the value chain and generally comes with clearer, often haggle-free pricing; you just click on the website and then go and collect your car once it’s been delivered. Given that consumers regularly cite haggling as a major point of stress when buying a car, this is surely good.
That said, it also means you’ve got less chance of securing a bargain. Generally, dealers work on pretty slim margins – 4 per cent is considered good – so their opportunity for discounts are limited. But they do have wiggle room given that they also receive cash bonuses for selling a certain number of cars and they can always play off the price paid for a new car against maintaining a relationship with you in the future. Agency sales take most of that away, really leaving only the trade-in price paid for your old car as a factor for negotiation. In some ways, that’s good – it’s certainly more transparent. In other ways, it’s bad – less room for negotiation leads to you paying a higher price.
Change is inevitable
Denis Murphy is manager of Blackwater Motors, the Co Cork-based group with premises in Cork city, Fermoy, and Skibbereen, and franchises for Volkswagen, Audi, Seat, and the newly arrived Chinese brand Ora.
He says such changes are pretty much inevitable and should be viewed in that context. “The industry has changed so much since I started in it,” Murphy says. “Back then, the whole car market was about 65,000 cars, so to sell one was like doing a job interview. Being in a position to buy a car was to be incredibly privileged.
Am I worried about it? A bit anxious but time will tell. We’ve been through so many changes over the years that I feel this is just another one
— Denis Murphy
“So, it’s change – and it’s just another change. Digitalisation is coming; it has to come. And people want to move to the Amazon way of buying things online. So it’s really driven by customers and what customers want to do and how they want to do it. And once you move towards an online buying experience you have to have a fixed price, so we have to move away from the current model, towards the agency one. It’s inevitable. Am I worried about it? A bit anxious but time will tell. And we’ve been through so many changes over the years that I feel this is just another one.”
Others are far less sanguine. One senior figure in the Irish motor industry, who asked not to be named, said to Business Ireland that: “Agency sales work well when you have the situation we’ve had recently – where there have been more buyers than cars available for them. That’s changing rapidly now and once we’re back into a world where sales have to be ‘pushed’ then the agency model simply won’t work as well.”
While many – Volvo, Fiat, Jeep, Peugeot, Citroen and more – are already starting their switch to agency sales, others in Ireland – notably Toyota, Lexus, and Mercedes – have told The Irish Times they are simply not interested in leaving the franchised dealer model behind.
The Competition and Consumer Protection Commission (CCPC) is keeping a wary eye on the switch to agency sales. “Firstly, it is critical that consumer protection responsibilities are clearly set out and that the consumer knows who they are entering into a contract with,” the CCPC told Business Ireland. “If the contract is with the manufacturer, then they will be the responsible party for any consumer-protection issues, such as faulty goods, that arise after the sale. The benefits of the agency model for consumers are generally seen to be that the fixed, consistent price can give consumers more confidence that what they are paying is fair and it provides a better indication of value. However, it also means that there is no opportunity for consumers to negotiate on price or to shop around for better value.”
It seems all but inevitable that agency sales will be the reality for all but a few in the coming years. Whether that ultimately results in a better deal for consumers is still a wide open question.
