The Agency Model – What is it? Who does it? Who might do it?

The Agency Model. It sounds vaguely like a 1980s TV series about a fashion model who’s also a spy. Actually it’s the way in which car sales are currently changing in Ireland, and it’s going to totally change the way we buy our new cars.

What is The Agency Model?

OK, so a little history first. Up until now, most car sales have been done via the wholesale model, where the car maker makes the cars and sells them at wholesale prices to a franchised dealership. That dealership is a private business, which buys the new cars from the car maker, adds a mark-up for profit and sells them on to you.

In an agency model, that changes a little. This time, you’re buying the car directly from the car manufacturer, and the dealership is now an intermediary, arranging the collection or delivery of the car for you. At no stage does the dealership own the car nor hold it in stock; it’s there purely to function as an agent (hence the name) for the sale, taking a fixed fee from the car maker for doing that.

Why are companies switching to The Agency Model?

Basically, car makers are keen on the idea of the agency model because it cuts out an entire layer of sales, and this has the potential to allow a car maker to maximise its profits. If the car maker is selling directly to you, then it’s not having to price the car at a wholesale rate for the dealer - leaving enough room in the price for a dealer to apply discounts or other special deals - and still turn a profit. So, if you’re buying a car for the same basic price, all that money is now going directly to the car maker, with a fixed portion — easier to budget for — going to the dealer as their agency fee.

The agency model is also being seen as a better fit for internet-based sales. With car buyers around the world becoming keener and keener on online clicks rather than in-person tyre-kicks, it makes sense for car makers to take more control of the sales process, rather than just selling cars wholesale to independent dealers.

Who’s switching to The Agency Model in Ireland?

So far, BMW, MINI, Volkswagen, Skoda, SEAT, Audi and Cupra have all announced plans to switch to the agency model or have already begun that process. Tesla and Polestar have always worked on an agency model, and the Stellantis Group — which is made up of Peugeot, Citroen, Opel, DS, Fiat, Jeep and Alfa Romeo — has plans to switch to agency sales in the coming years.

Not everyone’s keen on the idea, though. Major brands such as Toyota, Hyundai and Mercedes-Benz have all said that they’ll stick to the current franchised dealer model for now. Same for Renault and Nissan.

What are the benefits of The Agency Model?

Aside from the benefit to the car maker of having more control of the sales process, the benefit to you should be in clearer pricing. Most car buyers say that they hate the idea of haggling, and just want to know the actual price that they will pay for a car before they commit to buying, so the agency model is ideal for that. Much of the sales process will migrate online, and prices can be easily displayed and understood (and easily updated when needed too). The theory is that the entire process of buying a car becomes simpler and more transparent.

What are the downsides of The Agency Model?

That remains to be seen. Consumer organisations — including the CCPC in Ireland — are concerned that there’s not going to be as much opportunity for car buyers to find a bargain, given that dealers will now be operating to a fixed fee and car makers will be setting the prices for the cars. Under the current franchise model, dealers are free to set whatever price they see fit for a car, even if few will stray much from the recommended retail price. Even so, there is at least the opportunity to play one dealer off against another and get a better price for your purchase.

Equally, a franchise dealer can take the view that it’s better to make a small loss on a new car sale to keep a customer happy, knowing that they’ll be back again for servicing and maintenance work. Under the agency model, that will not really be possible. It’s also possible that dealers will struggle to build a rapport with customers — something that’s so vital in the hugely personal Irish car market, where often entire families will be loyal customers of one dealer.

What about used car trade-ins?

Here at least is an opportunity for both a dealer and a customer to have some wiggle room for pricing under the agency models. Dealers have access to tables of used car values, so they’ll have a good idea — condition allowing — of what your trade-in is worth and will be mindful that offering a better trade-in might make the difference between you nominating them as the agent for the new sale or going to a competitor.

Will I notice any difference?

If you’re someone who’s already used to going onto car brand websites and playing with configurators, then in theory you shouldn’t notice too much difference. Click on the model and the options, and send your completed choices to the car maker, and then wait for the nominated dealer to ring you to tell you your new car has arrived. All done. Where you will notice a difference is if you’re a committed haggler, as dealers will have far less room for manoeuvre — possibly none — when it comes to offering discounts and deals.

Will cars become cheaper?

Doubtful. Even though car makers working to the agency model will be cutting out an entire layer of wholesale sales, this is being done to maximise profits, not to offer better value.