Mercedes' agency switch means 'more profit from fewer sales'

Mercedes' agency model was introduced at the request of retailers in response to weak new car profit margins, according to the German brand's UK CEO, Gary Savage. Before the pandemic, when sales volumes were forced by factories pumping out cars, Mercedes-Benz, in common with almost all manufacturers, chased sales volumes. Despite its premium image, Mercedes was also one of the biggest discounters, What Car? Target Price data suggests. Now, the company has more control: of its pricing, its stock levels and more. Despite a tough start, Savage says, the centralised sales process and common pricing structure nationwide are finding approval with retailers and customers. “We’re on track,” he said. “Sales figures are still front and centre of minds, but we are less obsessive about volume and where we stand versus the opposition. The agency model is part of how we will leverage that to earn more profit from fewer sales. It is about upping the value of sales for the OEM, retailer and customers. “At the end of Q1, profitability is in the same place it was in 2021 and 2020 and better than it was in 2019, 2018 and so on. It’s not where it was in 2022, but for us - and I think for most people - last year was an aberration that was always going to be hard to repeat.” Official registration figures underline that narrative. While the UK market has risen 16.8% this year as a whole, Mercedes’ registrations are down 11.5%. Crucially, says Savage, its retail share - traditionally the most profitable area of the market - is up against its German rivals. “Last year, we took 26% of the retail share between the three German manufacturers. This year, so far, we are at 30%. Agency certainly hasn’t harmed our retail standing,” said Savage. He also highlights data that shows 98% of buyers now live within 20 minutes' drive of the dealership they buy from. Last year it was 76%, suggesting that the one national price (which isn’t, Savage stresses, fixed, because it can still include special offers and incentives) is finding favour with customers, who no longer have to schlep around hoping to find a dealer closing on a month-end target, or with a surplus of stock to shift. “Our own tracking puts us at a score of 4.7 out of five with customers, which is encouraging,” said Savage, who added that the hard work hasn’t stopped even after the two years of planning and preparing to launch the agency model. “We launched with a platform and sales process we were confident was as good as it can be. Well, we’ve made 333 changes to the process since then, not because there was anything wrong initially, but because we learn, we adapt, we change and we constantly look to finesse the product and make the sales process as frictionless as possible. “It’s easy to lose sight of the fact that customers didn’t always enjoy the old process of buying a car. I’m not here to knock the distribution model, but we’ve moved to provide a better customer experience and improve the viability of the dealer network. So far, all the metrics suggest we are achieving both. “Customers are buying our cars, and the feedback is overwhelmingly that they are enjoying the process.” By John Neville