On-off MCOs and continually mutating SOPs to combat the Covid-19 pandemic in Malaysia have diminished the income of car dealers and salespeople, while government subsidies, where applicable, cover barely a fraction of the losses incurred.

To prevent the attrition of valuable sales frontliners, the far-sighted car companies employ various means including salary subsidies and a top-up of sales commissions direct to the salesperson.

Bermaz Auto, the franchise holder for Mazda cars in Malaysia and the Philippines, goes further. It is understood that Bermaz has taken the opportunity to accelerate the transition of some of its dealers to an agency model where Bermaz pays for the stock of new cars, the rental for the showroom and service centre.

Mercedes-Benz Malaysia and UMW Toyota are probably also going in the same direction with the German car brand said to be two or three years away from the agency business model while the Japanese franchise holder was said to have had a meeting three weeks ago to discuss fast forwarding a move towards direct sales to customers.

The franchise model has been the time-honoured way of selling new cars. The switch to an agency-style arrangement is an example of how the internet is disrupting the old ways.

The agency model involves a different relationship between the dealer and the franchise holder or manufacturer. Basically, an agent does not own the stock of new cars in the showroom. The car remains the property of the manufacturer until it’s sold to the consumer, so the agent or dealer doesn’t take on the risk.

Agents are paid a handling fee for selling each vehicle unlike the traditional franchise arrangement where dealers buy the stock and sell at the recommended retail prices subject to the car buyer’s insistence for a discount.

The agency model removes the discounting element because prices are fixed by the franchise holder in Malaysia or the principal.

The agency and direct sales business models are not new. It was reintroduced by US-based Tesla Motors when it launched its first car, the Tesla Roadster, in 2011.

To the extent that it was driven to this model because it started with only 2,500 units of this pioneering electric vehicle (EV), its founder Elon Musk was betting that the direct sales model would work for EVs for a variety of reasons, including the reluctance of traditional dealers of internal combustion engine vehicles to push electric cars and the new element of over-the-air software updates for EVs.

About two months ago, Volkswagen group in Europe rolled out a sales model that is a sort of hybrid between a direct sales model and a traditional dealer model for its entire range of EVs.

Earlier this month, Mercedes-Benz introduced its new retail sales model called “Retail of the Future” (RoTF) for India. This would mean that Mercedes-Benz will offer one transparent price across India.

The new retail model will be applicable only for new car sales. The agent will perform and earn revenue from all the other verticals such as after-sales service, trade-ins and sales of pre-owned cars, insurance and finance.

India will be seen by car marketers as a good proof-of-concept of a one-fixed price business model because of the culture of intense bargaining. The obvious danger of course is that the car buyer will go to a competing German car seller.

Under this business model, Mercedes-Benz India will own the entire stock of cars, sell them via appointed “franchise partners”, invoice the new cars to the customers directly, process the order, and the salesperson becomes a product specialist and performs the hand-over of the car and key.

Commenting on Mercedes-Benz India’s new retail model, Vinkesh Gulati, president of the Federation of Automobile Dealers Associations India said: “The agency model introduced by Mercedes India will be an out-of-the-box thinking by the company. Even though the model has tested waters internationally, India is a unique market where customer physics are very different as they change dealers and even brands after any additional discount. Even though on the face of it, this model looks beneficial for the dealer community dealing in premium brands with low volume, we will need to see if this model can work with mass-market brands so that every dealer can benefit from it,” as reported in retailnews.asia.

In 2018, Toyota tested the agency model in New Zealand, which is a small and unique market. According to Toyota New Zealand’s CEO, Alistair Davis, boosting sales was never the motivation for switching to an agency model, rather it was to improve customer service and the sustainability of selling cars in the digital age, both of which are said to have improved under the new regime. Used cars imported from Japan and Europe dominate NZ’s annual car sales.

Taking the cue from the Oceania market, Honda rolled out its new business model in Australia last month. It will see the Australian operation own all stock, with fixed drive-away pricing and a new servicing programme to be rolled out nationwide from July 1.

Social media insight shows that most car buyers, Malaysians included, will browse the internet and complete 70% of the buying process online. The final step is to visit a showroom to do the traditional buying process of kicking the tyres, bargaining with the salesman for a discount and finally depositing a small refundable sum to confirm the car order.

It’s also observed that many car buyers are not entirely satisfied with the buying experience – pushy salespersons in the traditional dealers’ showrooms being one of their grievances.

Under the new direct-sales model where the focus is on customer satisfaction rather than sales volume, imagine that you, the car buyer, get to test drive the car over the weekend or for a few hours at least, rather than the 15 minutes we now get. Wouldn’t that make a huge difference to your buying experience?

The views expressed are those of the writer and do not necessarily reflect those of FMT.