Lamenting the Demise of Commission-Based Sales Methods
In a private statement made early this year, a dealer group executive expressed doubts about the success of the direct sales model for car manufacturers. The executive suggested that car manufacturers may have made a mistake in considering this model, implying that it is no longer viable.
The statement does not provide specific reasons for the perceived failure of the direct sales model, but it does suggest that traditional dealer networks remain essential for car sales. The executive's comment comes amidst a trend of car manufacturers, including Mercedes-Benz, Ford, Volkswagen, and Stellantis, scaling back or abandoning plans to switch to the agency model for car sales.
The agency model, which envisages dealers acting as mere agents handling delivery and paperwork, with manufacturers controlling pricing and customer interaction, has shown to be ineffective in motivating salespeople and moving inventory in challenging market conditions.
As manufacturers face complexities in adapting to new business models, navigating technological transformations, and complying with regulatory environments, they have redirected their software and digital strategy efforts elsewhere. This shift in priorities in the auto industry towards partnerships and in-house technology development rather than sales model experimentation is indicative of a cautious approach in restructuring sales channels.
The broader challenges in attracting younger buyers and adjusting to electric vehicle mandates also contribute to this cautious approach. The Covid pandemic has further highlighted the importance of properly incentivized salespeople in selling cars effectively, especially in tough market conditions.
In summary, car manufacturers have abandoned or downscaled agency sales models primarily because such models have not delivered the anticipated sales efficiency or adaptability, especially in volatile markets, and because traditional dealer networks remain critical in incentivizing and selling vehicles directly to customers. The executive's comment, while not providing specific details, underscores the belief that the traditional dealer model is essential for car sales.
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