The advent of electric vehicles is changing the car sales model

Young, electric-only carmakers such as Tesla and Polestar have upended the automotive industry’s traditional three-tier sales model, in which car manufacturers sell their vehicles to dealers and dealers sell on to customers. Instead, both companies sell directly to the public.

Until now, most original equipment manufacturers (OEMs) have focused on product design, production and marketing, leaving sales, financing and customer relationships mostly in the hands of dealers. So why have the new electric vehicle (EV) makers chosen to take on the sales role too? And as established OEMs switch to selling EVs, can they benefit from following suit?

The first positive is that OEMs get control over pricing by selling directly and this should improve profitability and transparency. Secondly, they will have a direct relationship with car buyers and this opens the door to offer new connected services, predictive maintenance packages and loyalty rewards.

Dealers also have much to gain from switching to an agency model. Dealerships won’t be competing among themselves to offer lower prices, for one. They will also have less financial risk because they don’t have to buy the cars in order to sell them, and they can streamline and digitalise the sales process so they can spend more time with customers and less on paperwork.

In addition, even carmakers that have started down the direct sales path still need dealers for a number of services: 92 per cent of customers still consider at least one direct interaction with a dealer to be essential when buying a car.

So while some new entrants are selling directly online with no dealership involvement, many OEMs are unwilling to cut off their trusted dealer networks. Mercedes-Benz and Lotus, which use an agency model, send customers to dealerships for a test drive and for help with the sales process, for example. The difference is that the sales contract is signed with the OEM and the dealer receives a service fee, rather than making a profit from the sale.

For customers, buying cars online saves time and money. According to our research , 75 per cent of consumers expect to be able to purchase their next car online. Younger customers in particular, used to dealing with companies such as Apple whose products cost the same wherever you buy them, do not want to spend time haggling.

Making the concept a reality

Switching to an agency model may sound like just a small contractual change to the sales process. It is anything but. Reaping the full benefits of selling directly to customers requires OEMs to transform their organisation.

Just to get started, almost all established OEMs will need to put in place the right e-commerce capability. They also face challenges around people and skills, systems, processes and data – contact centres will need individuals with sales and customer management skills, for example – and the right legal framework for the new sales model, including data protection measures, must be put in place. However, the rewards of higher profitability and a direct relationship with customers make this a mountain worth climbing.

Start small and capitalise on the shift to electric

These changes are not straightforward and that is why established OEMs should not try to change their entire sales model in one go. The shift to EVs is the ideal catalyst, because it allows carmakers to test the agency model and start small. All OEMs now have at least one EV in their range.

EVs are also expensive and not yet profitable due to the relatively low sales volumes, although this will improve as sales increase. Making a change to direct sales would help this by streamlining the process and cutting out fat.

There is a precedent for this approach. Volkswagen, for example, started using an agency model in Germany and Austria for its ID EV range in 2020.

Buying an EV for the first time is more complicated than buying a traditional car because customers need help to arrange home-charging solutions, or want advice on how driving style impacts range. Early-adopter customers, keen to try out the new engine technology, have tolerated shortfalls in the buying experience. However, now that EVs are going increasingly mainstream, accounting for 16 per cent of UK new vehicle sales in March this year, OEMS have to improve the customer journey.
Using an agency model is an opportunity to own the ‘end to end’ customer experience and introduce new features such as digital sales assistants, as well as to gain a 360-degree view of customer data to offer personalised services.

In addition, as cars become increasingly digitalised and require software updates throughout their lifetime, a direct relationship between OEM and customer makes it easier to carry these out remotely as needed. Tesla, for example, can send software upgrades to allow autonomous driving to customers who want to buy them, because it already has a direct transactional relationship with owners.

Seven success factors will drive the change

We have worked with a number of large OEMs on sales transformation and understand the challenges of creating an agency model. The essential first step for each OEM is to work out the business case for their organisation. What is their future operating model and how will direct sales contribute to it?

They then need to assess the consequences of changing the business model – the impact on the workforce and skills, and the technology impact of putting new systems in place across new in-house capabilities and points of sale (POS) for dealers and customers. They need to carefully manage the change with their dealer network and make the most of the customer data they will be collecting to deliver a more personalised service.

The key success factors to get right are:

• Start from customer insights: how can you make the experience of buying and owning a car better for customers? The financial perspective should not be the only consideration. Use EVs as a catalyst to rethink the customer journey, and frame problems and propositions using customer research and analytics. How can a 360-degree view of customer data all along the sales journey allow you to personalise your service and add new benefits such as ‘one click’ reordering for loyal customers?
• Use launch timing: OEMs are oriented around new product launches, which provide a drumbeat for the way people work. So, when a new EV launches, extend the ability to buy it online at the same time. Introducing a new sales model and buying experience with a new EV offers the chance to start afresh alongside the old model. Capitalise on this to drive change.
• Take ownership from the top of the organisation: a sales transformation is not an IT project, and requires engagement from senior leadership as well as product owners throughout the organisation. This creates buy-in, focus and consistency for the future solution.
• Involve stakeholders: OEMs must ensure all the parties involved, including financing arms and suppliers, are part of the transformation from the start. This is most important for dealers, who need to be engaged from the outset, with two or three lead dealers helping to design the new model. OEMs have a tendency to underestimate how much dealers do – managing sales leads, test drives, customer orders and enquiries, as well as financing, returns and aftersales services, for example – and there are many questions to be answered in an agency model. For example, when someone books a test drive online through the OEM’s site, then the dealership they have booked it at follows up with a call, who is paying the person making that call – the OEM or the dealer?
• Don’t ignore legal and data decisions: OEMs must tread carefully and work with a legal adviser to build the correct legal bounds into the new business model. At the same time, the transfer of customer and transaction data from dealers to OEMs is undoubtedly an opportunity on which they should align early with dealers and with the right customer consent model.
• Start small, learn and scale: OEMs should make the change in a smaller part of the business first, using EVs as the catalyst today. By doing so, they will establish guiding principles that will help to prove the value of the change quickly.
• Get the technology right: OEMs will need to bring in new capabilities including e-commerce, but they must ensure they can make them work with their legacy systems. To do this, they need a dedicated technology workstream that starts by creating a minimum viable product, before expanding with further integrations and complexity. Carmakers should bring in a partner that understands e-commerce, but which can also build the full technology roadmap for every part of the customer journey.

After decades of focusing on the product and relying on dealers to manage the process of selling cars, it’s time for OEMs to address changes in the way customers want to buy vehicles, as well as new brands with new business models. An agency sales model can be a win for all three parties involved – OEM, dealer and customer – but carmakers must be prepared for the scale and complexity of the transition and work to create a seamless buying journey that combines online and in-person expertise.

Brad Young

Senior Director, Automotive & Mobility