Death of the dealership

I’M NOT sure I’d like to be one of JLR’S franchised dealers right now. In fact, I’m not sure I’d want to be a traditional main dealer for any marque, given the direction things seem to be going. The ongoing semiconductor supply problems mean that most car manufacturers still can’t make the numbers of vehicles they want to, but at least customer demand was buoyant and order books were bulging. But demand for new vehicles is now expected to soften dramatically. With inflation beginning to bite amid spiralling fuel and energy costs, and with fears of recession, people are understandably putting off buying a new car.

There are also rather more existential threats on the horizon as car makers look at how they expect their sales channels to evolve in the not-too-distant future. Newcomers such as Polestar and Grenadier had the luxury of defining their sales operations from scratch, and in the case of the former this means an online sales presence backed up by ‘Polestar Spaces’ for the whole UK, all of which are located in major shopping centres, where potential buyers can actually see a vehicle in the flesh. And since you’re asking, they’re situated in London, Manchester and… Solihull. Polestar calls them its ‘Farewell to Dealerships’.

Ineos, too, is majoring on a digital sales channel for its new Grenadier, but has also recruited an international network of agencies, all of which are existing establishments that include some Land Rover dealerships. There are 24 in Britain and Ineos claims ‘the majority of customers in the UK will always be within 45 minutes of an official sales and service location’.

Many major manufacturers are already planning to transition away from franchised dealers to agency sales outlets, including the Stellantis brands Alfa Romeo and DS, while Audi, Mercedes-benz, Volkswagen and Volvo are expected to adopt the agency model next year.

In case you’re not aware of the implications, the agency approach basically means the days of haggling will be over, because the retail price is set by the manufacturer and the agent cannot offer discounts. The vehicles stocked by the agency are also owned by the manufacturer, which means cars can’t be pre-registered, as they often are in the franchise mode (allowing the franchiser to ‘hit’ sales targets even though a customer hasn’t actually purchased the vehicle).

The sale contract is between the buyer and the vehicle brand, rather than the dealer, and costs associated with the selling of the brand, such as signage and the design details of the agency, are borne by the car manufacturer, whereas in the franchise model these costs are expected to be met by the dealer as part of its franchise contract.

In short, it all represents a revolutionary change in terms of how cars are sold as well as the end-to-end experience of the buyer. Add into the mix the fact that the majority of customers nowadays are buying a personal contract plan of one form or another rather than the car itself, and the fact that these personal plans are already evolving into more complex arrangements such as shared or part-time deals (or indeed what JLR describes as ‘Own. Subscribe. Rent’), and you can see why traditional dealers are right to be concerned. It will be a case of evolve rapidly or die.

Part of the pressure for change comes from the fact that traditional haggling over the price doesn’t translate very well to online sales channels where the buyer is able to specify their vehicle, order it, select their personal plan, obtain a trade-in value if they have a car to dispose of, and quickly get to the point that really matters, which is how much the monthly payment will be.

But another and even more important reason for manufacturers to adopt the agency model is because it allows them to control the retail price, something that in many countries, including the UK, is illegal in the franchise model.

Some manufacturers continue to argue in favour of the franchised dealer model, claiming that the benefits of personal customer care and attention enhance their brand values.

But doing away with franchised dealers is also likely to save those car manufacturers that do it a considerable amount of money. Which means that whether they like it or not, rivals will have little choice but to follow suit in order to ensure their products remain priced competitively.

And what about JLR, I hear you ask? Well, together with everything else at the company, the sales channels are being ‘Reimagined’. Earlier this year JLR revealed that it would implement an agency model for its current franchisees by 2024, but wouldn’t comment on whether it would retain the existing number of outlets.

And according to the trade magazine

Automotive Management, JLR recently advertised for a Head of Global Retail Operations and revealed that it intended to ‘open its own global network of stores, ahead of a planned shift to a luxury-focused offering, the move to an agency model and the introduction of an all-electric Jaguar range by 2025’.

It must be deeply unsettling for JLR’S loyal franchised dealers, all of whom will have invested many millions of pounds of their own money over the past few years on the so-called ‘Arch’ standard building design, only to find that ‘Luxury Reimagined’ will mean fewer vehicle sales and new ways of selling them.

As I said, it’s not a good time to be a franchised retailer.

“The days of haggling will be over, because the retail price is set by the manufacturer and the agent cannot offer discounts”