Watch creep of agency model in European market

Conversation around the controversial direct-sales model is rearing its head once again, showing evidence of automakers' wishes to steer more of the retail process as the new-vehicle sales market evolves. Parts of a revamped sales model could be beneficial to dealers and the industry, but dealers should be wary of giving too much control to automakers.

Last month, Mercedes-Benz said it would cut 15 to 20 percent of its dealerships in Germany and about 10 percent globally in favor of a more direct sales model, where the automaker sets the price and dealers deliver the vehicle to the customer for a commission.

Other automakers, including Volkswagen and Stellantis, are also experimenting with the agency model in Europe.

The change may be indicative of automakers' true desires globally. Manufacturers have long tried to influence more of the retail model in various ways, such as requiring expensive dealership facility upgrades or publicly shaming dealers who flex their pricing power. Dealers should be cognizant of changes that significantly impact their business and restrict their independence. Retailers who agree to an agency model should be aware of potential changes to delivery fees. Those who remain independent, forgoing an agency model, should be wary of allocation punishment.

Mercedes-Benz confirmed that there are no plans for dealership consolidation in the U.S.

State franchise laws prohibit legacy automakers from launching direct sales in the U.S. Still, the line between dealers and automakers as the sales agent has become murkier as many dealers become reliant on orders and reservations during the inventory shortage. Rather than helping customers select a vehicle from the lot, dealers have taken on the role of online-order concierge, delivery valet and eventual service center.

Especially as automakers roll out expensive electric vehicles, more control over the sales process has obvious automaker appeal. A set price prevents dealers from gouging, although some dealers continue to apply pricing adjustments despite automakers' stern warnings. It also prevents dealers from driving down the value of a vehicle with heavy incentives.

For now, franchise laws protect U.S. dealers' business practices. But if automakers find success with a direct model elsewhere, expect them to try to replicate it everywhere.