The shift to agency sales and car pricing

Research with 1,221 ‘in-market’ car buyers by What Car saw over half expressing a preference to buy direct from a manufacturer rather than a dealer. However, that number was slightly down on similar research undertaken by the publication in January 2022 found 57.5% of buyers wanted to transact via an agency model.

While the fixed price model – a key component of agency sales – was seen by people as more appealing than haggling and shopping around, there are question marks over whether this is always the reality. When it comes to signing on the dotted line for a new car, many car buyers and, indeed, the consumer media are so conditioned to getting a discount, helped by the many car aggregation purchase websites, that the fixed price proposition may not be that appealing.

A central perception of ‘going direct’ is that prices taken out of the distribution chain will mean lower prices. Having led the transition from franchised to agency in the UK, Mercedes-Benz has seen their average car prices increase by 43% since 2019, according to a report by Bloomberg. It is a rise that will have shocked many would-be buyers, and this was reflected in a mystery shopping exercise visiting Mercedes Benz agency ‘dealers’ by What Car. They reported that the fixed price model was seeing dealers reporting lost sales.

It's widely understood in the trade that emerging EV models are more expensive to manufacture than their petrol/diesel predecessors. However, consumer awareness of the higher production costs for EVs may be less ingrained. Trying to suggest that the higher production costs justify such a significant price hike when the belief is that distribution costs will be lower could be a challenging proposition.

Another learning from the Mercedes Benz experience is that their model range has been slimmed down to simplify ordering and production. The risk here is higher prices and lower specifications. Buyers may need to forego certain features or pay more for a higher trim level. Tailoring a car’s specification would mean a delay in delivery and the risk of further price rises if the production process is slow.

The net result is that at present, What Car concludes, the negatives of a switch to the agency model far outweigh the positives for buyers.

Chris Rowthorn, Director of Motor Sales Operations