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The automotive industry is facing a number of major challenges. OEMs’ recent quest for growth has clearly led to an oversupply of products. Meanwhile, younger customers in particular prefer to purchase vehicles through digital channels, and expect more flexible ownership models. Having studied the key European markets, neither OEMs nor dealers have been adequately prepared for these dynamic market developments.
A distribution strategy for new cars must meet changing customer demand, while maintaining profitability for both OEMs and dealers, and helping them to know and serve customers better in the future. A direct sales or agent model, in which the manufacturer sells the vehicle directly to the customer, can fulfil these objectives. To make this model work, OEMs will have to build up capabilities that currently lie with retailers, or don’t even yet exist. Dealers will have to adapt to a different business model based on a new system of revenue generation, while their responsibilities and incentives will change.
A transition to a new distribution model will demand substantial investment. If implemented successfully, however, there will be significant benefits for customers, as well as for both OEMs and dealers.
Considerations when implementing a direct sales/agent model and ways to play
Despite the necessary mid-to-long-term transformation and investment for a direct sales/agent model, there are potential benefits further down the line which in most cases would more than compensate for the initial commitment.
Most importantly, OEMs will need to build up certain capabilities which today either lie with the retailers or don’t even yet exist. For their part, dealers will need to operate a different business model based on a new system of revenue generation, while their responsibilities and incentives will change.
However, not all OEMs should necessarily aspire to a direct sales/agent model for their distribution. As with many strategy-related questions, any such decision is based on complex considerations. In the report, we discuss which factors OEMs need to take into account when choosing to transform their distribution strategy.
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