Disruption Ahead for Car Dealers

The new approach to automotive sales and distribution has come to Malaysia. Automologist MAC shares his observations…

A while back, Tesla decided that they wanted a bigger share of the cake and announced an online sales platform to purchase their cars. Sure, the car was still delivered via a dealer, but gone was the traditional haggling over price and getting some added extras to sweeten the deal.

Quietly, a slew of other manufacturers started to offer the same and now almost 30% of all car sales in Europe and the US of A are being done online. The trend now for the Original Manufacturer (OEM) is to try and switch all of their dealers to an agency model and this could be bad news for the ubiquitous car dealership as they struggle to find a role in the new normal.

Mercedes-Benz Malaysia is amongst those in Malaysia that have announced their very own agency arrangement. Recently, they announced they had reached an agreement with their retail partner, Hap Seng, to ‘provide a seamless purchasing journey with just the one price’. It sounded cutting-edge, new and innovative. Surely customers and investors would love it. But no, the market didn’t like it, and Hap Seng’s share price tanked, losing about 50% of its value in a month.

The traditional car sales model saw the franchised car dealer actually take ownership of the floor stock and cars, and sell them to the public— their public as they are responsible for collecting customer information. There was significant risk but, a good dealership would be able to go out and market the car, their services and their reputation themselves.

Under the agency model, the risk is mostly at the OEM level, with assets (cars) being held by them. But they can then control prices and any discounts and lower margins given away and, of course, they build the direct relationship with the customer. Many franchised dealers are not happy with the fact that they will become a mere intermediary.

The OEMs are trying to convince us that customers want to have the online experience, but I, for one, have never bought a car that I haven’t checked out in person first. But then, I am old school. Car dealerships will suffer. They have invested a lot of money into the very fabric that is a car dealership and now their ability to recoup their outlay will be severally restricted by the rules of the new order. As one leading industry player puts it, “the agency deal will leave the traditional distributor in the role of delivery boy and used car salesman. All we will get to do is to deliver cars and sell the old, used cars”.

The agency model is coming and may well be a benefit to the consumer, who will be able to configure their future ride from the comfort of their own home. I fear, though, that the friendly local car dealership will soon be a thing of the past as cars need less and less servicing (particularly the electric ones) and thus my chance to swing a better deal whilst talking to someone that truly knows and loves cars will be a thing of the past.