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[NEWS] Inside the industry: is agency pricing the future?

Inside the industry: is agency pricing the future?

99 car dealers

The days of negotiating for a bargain on a new car may soon become a thing of the past thanks to new pricing models, but are they here to stay?

Haggling over the price of your new car may soon be a thing of the past, if you believe the hype, with the price you see being the price you pay. Already manufacturers have tried this with some success in smaller markets. The UK won’t be far behind. 

Under this so-called agency model, car makers are seeking to take ownership of the customer journey from enquiry to sale, with the retailer involved only to hand over the car and handle aftersales. Instead of having to commit to stock and work to margins and targets, the retailer will receive a flat handling fee, a deal many are happy to accept, given the amount of work and small profits from new cars.

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For the manufacturer, price control is a key part of the story, as is controlling the buying experience and owning the customer’s data thereafter. One thing the current chip crisis has laid bare is just how strong car manufacturing profit margins can be when supply is lower than demand. Cash flow may be critical but margins buoyed by desperate buyers willing to pay list prices are largely at record levels, and all makers are eager to hang on to that. 

But can it really work in a market as big, sophisticated and competitive as the UK? Not everyone thinks so and there are examples already that undermine the theory.

Volkswagen’s ID range was supposed to usher in an era of no discounting, yet right now, amid the biggest new car supply crunch in living memory, discounts of up to 15% are readily available online. Likewise, Mercedes, Stellantis and the VW Group are said to be at the forefront of the agency model shift yet there is barely a vehicle they sell that isn’t one click away from a pre-haggled discount. 

If that’s the case now, how will these manufacturers fare when the market opens up and the factories they have invested billions in building need to run at full capacity again? If we accept that most buyers are price sensitive – that they may, for instance, swap loyalty from a three-pointed star to a Bavarian roundel for the sake of a few thousand pounds – then it takes only one maker to discount for the deck of cards to come tumbling down.

Or what will happen if a car maker needs to shift a few thousand EVs to hit its CO2 targets and avoid major fines? Or what if a credible new car maker comes over from China or Korea and undercuts the market? Then there’s the problem of what to do if your market share threatens to fall below a certain critical mass. 

There’s no question that change is coming, but also no certainty that it’s for the better, for either the consumer or the manufacturer.

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