Market Insight: How agency affects sales

A RADICAL overhaul of traditional car dealership methodology, dubbed the agency model, is not only expanding its audience but bringing with it fears of low dealership profits and weak customer service.

 

Much of this is being disproved but any change brings concerns. Most importantly, how has it impacted on sales for the two car brands in Australia – Honda and Mercedes-Benz – in comparison with some of their peers?

 

The graph shows Mercedes and Honda sales are down on previous years but this masks other factors. Like most OEMs, sales have been stymied by production holdups and logistics problems stemming from the COVID-19 pandemic.

 

In addition, embracing the agency model at Honda came at a time when it floated a sales ceiling above its business, pegged at about 20,000 units a year. 

 

As an example of how much that will impact on the business, Honda in 2018 sold 51,525 vehicles. Linking the introduction of the agency model with what appears to be sagging Honda sales is incorrect.

 

Mercedes also made changes to its business model, adopting the agency program but also splitting its car and van sales units in 2018. So while sales of 11,530 units  in the first four months of 2018 look healthy, vans, utes and trucks represented about 10 per cent.

 

In 2022, the van (the X-Class ute has been discontinued) segment was 1216 units, bringing the Mercedes number up to almost 9500 units for the four months.

 

The agency system aims to promote a greater role for the manufacturer in the car-buying process. Dealers become the agency – perhaps the middleman – and receive a commission for each sale.

 

It is a new way of doing business for Australia and at the moment, the agency model is used in full by only two OEMs. In Europe, it is expanding and will by 2026 be adopted BMW, Mini, Volkswagen, Audi, Mercedes-Benz, Alfa Romeo and Fiat Commercial.

 

Ongoing effects of COVID-19 on labour, component supply, shipping and general retailing in the automotive industry is well documented.

 

But how do the sales of Mercedes and Honda cars compare with some peers?

 

BMW sales in the first four months of 2022 are down 29 per cent (year-to-date April) on the same period in 2016, however, as an average are down a more modest 10.7 per cent in the same seven year period.

 

Mercedes sales, by comparison, are down 24.5 per cent since 2016 (removing van, ute and truck data) but are up on 2020.

 

Honda sold 11,705 units in the first four months of 2016 and this year, sold 5162 – a solid 56 per cent plunge. It also slid 54 per cent since 2020, showing the signs of Honda’s deliberate reduction in volume in line with the cut in dealer numbers under the agency program.

 

In the same seven-year period, using year-to-date April data, BMW sales went from 9934 units in 2016 to 7032 in 2022 as production issues reduced stock availability. 

 

Notable is that BMW’s variation during the period was similar to that of Mercedes. BMW averaged about 8095 sales for the four months over the seven years and in 2022 achieved 7032 sales, down 13.1 per cent. 

 

Mercedes averaged 9560 deliveries over the seven years and in 2022 delivered 8265 cars (down 13.5 per cent), indicating the agency model did not – at least as yet – affect the sales trends.

 

Using Subaru as a Japanese peer to Honda, it notched up 14,924 sales in the first four months of 2016 and in 2022 recorded 9796 sales on depleted stock, the model run-out of two models and the cessation of three models.

 

Over the seven years it averaged 13,268 units for the four month period in each of the seven years. In 2022 it was 9796 units, a fall of 26 per cent against the average.

 

Honda’s average for the same period was 11,718 units and for 2022, was 5162 sales, indicating a fall of 56 per cent.

 

The agency model by itself, may not be responsible for the sliding sales of Honda and Mercedes as there are other factors in play, not least being Honda’s planned volume reduction policy.