Mercedes is cutting the cutthroat franchised dealership network by switching to a direct-sales business model in Germany after first piloting the scheme in South Africa, Austria, Sweden, and the United Kingdom. The so-called agency sales model effectively ends the traditional and current franchised wholesale business model and switches to that of a retailer. Under the current wholesale-retail model, dealer networks purchased cars from automakers in bulk and assumed the cost of maintaining the inventory and promotional activities.
Dealers would earn revenue and profits on each vehicle sold. With the introduction of the new agency business model, dealers earn a fixed fee per vehicle sold and earn further revenue from providing after-sales services. In effect, dealers will earn less money than they would have compared with the imminently bygone retail sales model.
The main purpose of switching to direct agency sales is to enable Mercedes to maximise profits by lowering distribution costs. In reality, it will allow Mercedes to control the price of every vehicle sold, causing an inflationary spike that otherwise has been avoided with the out-going wholesale business model.
In other words, the days of bargain discounting that franchise dealers offered are all but over despite Mercedes saying otherwise. Dealerships are entering an era of owning nothing and expecting to be happy about it. Those dealerships who have made the switch in Australia recently sued Mercedes citing lost income.
And dealers in Austria are also rumored to be on high court collision with Mercedes with complaints against the agency model fundamentally affecting previously stable revenue streams. For those franchised dealerships switching to the agency model, it appears that owning nothing and expecting to be happy about is becoming a miserable reality.