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Franchise and dealership: the battle for the future of new car sales


No-bargain auto sales will come to a wide range of manufacturers over the next two years. Alfa Romeo and DS have set a timeline for their introduction by mid-2023, and Volkswagen, Mercedes, Audi and Volvo are also looking to switch to a new way to sell their models next year.

Why change? That’s because a bunch of brands are moving from the traditional franchised model to what’s known as a reseller agreement, which will ensure a single, fixed price across all dealerships. management, whether they are in store or online.

Buying a new car should be a simple task, but in reality, it’s often far from that once you get off the list. Figuring out how much a car will cost you is the first big hurdle. Yes, there are manufacturer suggested list prices, but most people who buy a new car privately use one financing option or another and think more about the monthly payment than title cost of the vehicle. After all, what if the list price of a car is £29,999, when all you really need to know is that you can afford to pay £299 a month to keep it on the road. your car?

Of course, that £299 figure will also depend on a number of factors. For example, what is your transaction value? And do you have extra money to deposit?

And that’s all before looking at any bargains or discounts offered when you go to the dealership that is ultimately the company that sold you the car. It’s a complicated process because everything currently exists.

In the UK, however, almost every private car is sold this way, through franchised dealers. It also means that even though you can buy a Ford or a Vauxhall or a BMW, your contract is with the dealer and if anything goes wrong, the dealer is legally responsible. duty.

Franchise and agency, the main difference

According to the franchise contract: Under the agency agreement:
● The retail price of the car is set by the dealer, so there may be a bargaining situation
● Sales contract is between agent and customer
● Stock owned by dealer
● Dealers can pre-register cars to hit the target
● Specific costs associated with the brand, such as signs, are borne by the agency
● Dealers can reduce car prices by ‘giving away’ some of their deposit
● The retail price of the vehicle is set by the manufacturer, so there is no bargaining situation
● The contract of sale is between the brand and the buyer
●Shares owned by the manufacturer
● Dealers cannot pre-register cars
● Specific costs, such as signs, related to the brand are borne by the car manufacturer
● Dealers cannot discount models by ‘giving away’ manufacturer profits

Selling is simpler

After more than 100 years of new cars being sold through franchised dealers, there’s been a shift in the price drop as manufacturers consider a new way of selling.

Haggling doesn’t translate well to the web, and that’s part of the reason why manufacturers are looking at a system that means a single, fixed price is displayed online to customers. But to do this, automakers had to abandon the franchise system they’ve used since Henry Ford began mass-producing the Model T.

That’s because under UK law, a manufacturer cannot control the price at which a dealer sells a car. So if the brand wants to take control, they cannot use the franchise model, and instead the company must consider a system where the company not only sets the price of the car but also contracts to buy it. direct sales between consumers and themselves.

Dealer model

Called the dealership model, or dealer agreement, the new fixed-price car sales system can still use dealerships and showrooms. However, you won’t be able to negotiate how much you’ll pay for the car and these showrooms may be virtual rather than real.

Everyone will pay the same price for a particular car and new model, and you won’t have to worry if you get the best deal. If you don’t like haggling with salespeople, that’s great news.

However, the process is not entirely straightforward. There are still some questions that need to be answered, such as what happens to your retail trade and indeed, your trading can be an area where you still have some leverage over your trading. Translate. That said, under the new dealership model, an automaker will likely have its own online valuation tool that makes it easy to switch vehicles and also compare to online valuations. other.

Keep the price down

While the move to a no-bargain system may be seen by many as part of a broader journey of the internet and improving customer service, the transition is happening for two other reasons.

First, some automakers believe that changing to a no-bargaining system can save both themselves and their customers from the rising cost of producing cars as the world transitions to cars. battery powered electricity full of technology.

Alfa Romeo will likely be one of the first manufacturers to switch to a new no-bargain model to sell its products, alongside Stellantis’ DS brand. Alfa openly admits that the savings will come from the reduction in distribution costs, in other words, from the dealer network.

Jean-Philippe Imparato, CEO of Alfa Romeo, explains the transformation. “Don’t imagine for a second that now [franchised dealer] the pattern will stabilize in the coming years,” he said. “Ride B segment; Five years ago it cost £10,000, today it’s £15,000. If you put connectivity, safety and EV in, it will cost £30,000. Do you think the client will also double their salary? No.”

He added: “I can’t say how much it will cost us, but it will be substantial. If you add in the cost of EVs, safety, connectivity, that’s 10,000 Euros per car, more or less, so you get an idea of ​​what we have to do. ”

Missing chips

The second reason the move to the dealership model is happening now is that the Covid pandemic means car production is falling, mainly due to a chip shortage and demand outstripping supply. The result of this shortfall is that new car discounts are now rarer than ever, which makes the transition to a no-bargain system easier for manufacturers to manage.

Alfa Romeo and DS are the most vocal about the new no-bargain sales system, but other brands are also working on dealer plans to sell new cars. These include Volvo, Mercedes and Volkswagen in the UK. However, other car manufacturers have implemented the system in other countries, most notably Toyota in New Zealand, BMW in South Africa and Honda in Australia.

Honda Australia is now more than six months into the new way of selling and has recently stated that “89% of customers completely agree that buying a Honda is particularly easy, while 87% for the sales experience. new with a top rating of nine or 10 out of 10”.

Online options

Nissan is now demonstrating that a manufacturer can use the latest technology to sell cars online and still have brick-and-mortar dealers.

Using the studio as a gallery and actors as guides, visitors to its website can take a live Zoom or Team-style tour of the Qashqai, Leaf or its new Ariya electric SUV. . The tour guide can then walk around the vehicle, answer any specific questions from the customer, and if the customer wants to buy a car, they will contact the nearest dealer to negotiate a purchase.

“The Live Showroom has only been open for a few weeks, but we’ve already received really positive feedback from customers,” said John Parslow, head of digital at Nissan. They love that it’s a truly personalized experience that offers service tailored to their needs and means they can enjoy the thrill of choosing their next new car from the comfort of their home. roof in his own house.

“Depending on the request, we will typically go over 60% on a quote, but the core measurement for us is about customer satisfaction and simplifying their buying journey, and because So we have more than 95% satisfaction.”

Parslow also revealed that current Nissan owners as well as prospective buyers are using the system. “We have customers who will use the Showroom directly after purchasing a Nissan vehicle,” he said. “In some cases, if they forgot how something works, they took advantage of live product experts they could contact at home.”

There are countless ways to sell used cars, being considered or being tested, making it clear that there is a need to simplify the way cars are sold, both online and in showrooms. And while haggling may be a thing of the past for some brands, as long as it works for other automakers, it’s here to stay.

Pro-bargain

Obviously not all manufacturers will migrate to this new system, many in the UK have said they will stick with the traditional franchise model. These include Suzuki, Mazda and Kia.

Kia UK President Paul Philpott believes that franchising remains the best way to maintain a high level of customer care. “Obviously we are monitoring what is going on in the market, but at the moment we have no intention of moving towards an agency agreement,” he explained. “I continue to believe that the value a franchisee can bring to customers is really important.

“Most customers, firstly, want to try out a model before buying, and second, (especially about new technology) want to reach out to someone they trust, who they can talk to through information. across options.”

Commenting on how a single online listing price is handled in the franchised model, Philpott said it’s not as important as communicating monthly prices to customers.

“Nobody goes out and spends £20,000 on their car, they spend £400 a month,” the Kia boss said.

“What really matters to consumers is ‘what can I get in my monthly budget?’ and that depends on the remaining values. It depends on the acquisition price. It depends on any discounts the manufacturer includes and any discounts the dealer includes. And it’s a complicated calculation,” added Philpott.

All beneficial? Not necessarily…

Sue Robinson, chief executive of the UK’s National Association of Franchised Dealers (NFDA), suggests that buyers risk losing out, because more control over brands would disqualify them. Eliminate the competitive aspect of the car buying process. “An agency model will have an adverse impact on customer choice,” she said. “Basically, OEM [car makers] will own the stock and have a fixed price.”

“Ultimately, with the introduction of unified pricing, it will mark the end of intra-brand competition. It is important that market regulators take steps to minimize any negative effects the agency model may have on consumer choice, as well as employment and investment. agent’s private. ”



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