Agents of change: how car buying is changing

“If you look at the history of car buying, there has always been a surge in used car prices. Prices rise until they’re the same as new, so people start buying new cars with incentivised finance and used car prices fall. The big change as far as I’m concerned will be the increase in the number of leasing companies selling their cars at fixed prices with no buyer’s fee direct to buyers like us, who buy 2000 cars at a time. It means fewer cars will be bought at auction. These leasing companies are disrupting the market. 

“Our online Carzam business has exceeded our expectations, but buyers will always like to touch and try a car before they buy. It’s why our used car supermarket sites are having a fantastic year, and by the end of 2022, we will have 10 of them.”

Robert Forrester: CEO, Vertu Motors

“Our financial results show what happens when there isn’t oversupply in a market. I’ve always said manufacturers should produce one less car than the market demands. That said, it’s always tempting for a car maker with high fixed production costs to make just one more car and, with the removal of tariffs from Korean and Japanese cars, we could see oversupply return. 

“Regarding used cars, dealers will be more open to stocking older ones. Our average preparation cost has risen from £450 to £650, which shows you how much deeper we’re going into them. For younger used cars, we will face competition from retailers such as Cazoo. But if, thanks to the sales agency model, fewer quality used cars leave the network, we won’t suffer. 

“As for the threat from online retailers, we have a customer conversion rate at our showrooms of 30%, while a fully online, e-commerce retailer has one of just 0.8%. We have an online offering, but four out of five of our customers want to have test drives, and you can’t do that online.” 

Daksh Gupta: Group CEO, Marshall Motor Holdings

“For a lot of people, buying a car and negotiating the price is an uncomfortable process. The sales agency model will provide a level of transparency, because everyone will get the same deal. Dealers may offer different part-exchange valuations, but not by much, since customers will check prices and check they’re getting a good deal. 

“With new cars so hard to get hold of, our margins are going through the roof and residuals are strengthening. A number of car makers have now said they’re not going to push volume. I totally embrace online, but most customers will still want to feel, touch and smell their car at a dealership.

“We’ve just purchased the Motorline Group of 48 dealerships.” 

Duncan McPhee: COO, Lookers

“We have an agency model with Polestar that’s straightforward and works well. We look after the customer and Polestar looks after the purchase side. Customers are looking for fairness and transparency, which it provides. 

“Regarding used cars, the industry is seeing very strong margins. It’s why we’re being more transparent with our pricing by pricing our cars to the market. We will continue to do so. If a customer finds the same car for less, we will match the price. 

“The current market reminds me of the old saying ‘registrations for vanity but profit for sanity’. I think car makers will recognise they pushed registrations in the past and will be reluctant to do so again. ‘Bricks and clicks’ are here to stay, but the majority of customers will research online and come to us to try the car.”

What is the sales agency model?

The hot topic among car makers and dealers goes to the heart of their relationship with the customer. In this new world, the dealer becomes the product expert and the car maker the sales expert. The dealer presents the car, gives test drives, handles the part-exchange and hands over the new vehicle but the car maker takes care of the purchase. This arrangement applies to any business done online, too. 

Prices are fixed, the aim being to prevent discounting between dealers, which, depending on the franchise and before Covid-19, averaged 12%. Dealers, with the exception of those who are likely to lose their business in this new streamlined world or who prefer to control their margins, like the arrangement because it reduces their overheads, deepens their relationship with car makers and ensures a good supply of used cars. 

Mercedes-Benz, Polestar, Tesla and Volkswagen are implementing sales-agency approaches across most or all of their models already.

Pros

Consistent pricing across showrooms and online  

A more informed showroom experience  

Greater choice of quality used cars

Cons

No scope for negotiating 

Arm’s-length purchase experience

Dealer still values trade-in, leading to potential cost-to-change inconsistencies

The future of car buying at a glance

Car makers will sell new cars; main dealers will facilitate the process.  

Main dealers will have better access to nearly new cars and sell more older ones, too.  

New car supply will match demand more closely, at least until someone breaks ranks.  

New car discounts will become theoretically harder to achieve.