ICDP has questioned whether car manufacturers will retain a desire to switch from a franchise to an agency retail model if consumer demand and inflation “head on opposite directions” in 2023.
The automotive distribution and retail consultancy latest executive briefing, written by associate director Ben Waller, said that the centralised vehicle inventories of an agency model could deliver an increase in net profit of 2.8% alone.
But while the report was clear that the shift to agency could bring benefits for OEMs, it also highlighted the manufacturing and inventory management disciplines they would need to deliver success.
Waller said that the high demand and limited supply that had proved hugely profitable for OEMs and car dealers in recent years was not a strategic success but the result of “a bullwhip effect” caused by macro-economic factor in the post-COVID period.
And he added: “With the spectre of rising inflation and recession across the globe, can carmakers embed the recently proven solutions for inventory management, to sustain healthy profitability as demand weakens and supply chain capacity returns?”
ICDP concluded that agency model car retail would “present challenges” if any oversupply of vehicles was allowed to develop.
With franchised retailers unable to pre-register cars, it noted that OEMs own fleet, rental and subscription channels would have to attempt to mop-up any oversupply in a profitable way.
But the “biggest risk” to the planned switch – set to be made by the likes of Mercedes-Benz, Jaguar Land Rover, Stellantis and the Volkswagen Group in the near-term – and the risk to that balance between supply and demand will continue to be economic factors.
Waller wrote: “If demand softens into 2023 as many expect, then a supply shortage can very quickly become an oversupply problem, with all the costs and revenue losses that oversupply can generate.”
He added: “Whether carmakers will retain their interest in agency, especially if inflation and demand begin to head in opposite directions, remains open to question.
“But the opportunity exists to start with today’s efficient and profitable supply chain, make that sustainable and embedded, and drive very real benefits for all stakeholders before potentially making the second stage leap to agency.”
Suzuki GB director of automobile Dale Wyatt has emerged as one of the most vocal opponents to agency model car retail.
In a ‘guest opinion’ article written for AM Wyatt, who recently appeared on the AM News Show podcast, warned that, if applied without care, the shift could “cause trauma for both parties”.
To read the full ICDP sector report, click here.