Just a few months ago, Ford shook up the automotive industry and ignited rumors that brought anxiety for Ford dealers. Ford’s announcement to separate all-electric and internal combustion engine (ICE) sales was seen as a nod to Tesla, and a threat to the dealership model. Direct-to-consumer sales are in the works for the maker of the top-selling vehicle in America, and others are warming up to the idea. Who’s next?
Months later, other automakers have been cornered into taking a stance with regards to the future of their franchise dealership relationship. Volkswagen’s surprise revival of the Scout brand is the latest headline to force this conversation to the forefront. Mercedes, BMW and MINI are considering similar moves. What does it all mean for the consumer? Are car dealerships going away, or is the auto industry going through an inevitable transition?
Is the Golden Age of Dealerships Coming to an End?
In 2022, there are nearly 18,000 car dealerships in the United States. Despite all of the talk from automakers over the last several months, this figure has risen by 0.6% since last year. Take into account that dealer consolidations are also changing the game, 2022 is shaping up to be a turning point for dealerships.
Volkswagen Surprises Us With the Scout Revival
I don’t think anyone saw this coming. In early May, Volkswagen announced that it intends to revive the legendary Scout brand as an all-electric line of pickup trucks and SUVs. Volkswagen was already a leading force in the electrification of the industry, and has seen success with the ID.4 crossover in America. The revived VW Scout brand isn’t going to be a niche product with low sales volume. Scout will aim for 250,000 annual sales in America, with the first vehicles arriving off production lines in just four year’s time.
While overlanding enthusiasts were serving up plenty of skepticism for VW’s Scout ambitions, Volkswagen dealers were having a bit of a freak-out. Automotive News journalist Larry Vellequette said that the move was “enough to roil hundreds of U.S. dealers of the automaker’s eponymous brand over the last few weeks like nothing since the German automaker’s costly diesel emissions scandal.” Such a bold claim isn’t made lightly considering the long-lasting impacts of the 2015 dieselgate scandal.
Volkswagen of America CEO Scott Keogh told Automotive News what he was able to share publicly.
“Everything that I know has been reported and you have reported it,” Keogh said. “First and foremost, Scout is and always was a unique and distinctly American brand — big-time Americana — so it won’t be operated through the Volkswagen brand. In fact, it won’t be operated through Volkswagen Group of America. It will be operated independently.”
Dealers React to Volkswagen’s Scout Announcement
National Automobile Dealer Association CEO Mike Stanton reached out to Keogh in a letter. The letter urged VW of America to “quickly and clearly communicate Scout’s distribution plan to your dealers who have made significant investments to support VW’s business model and transformation to electrification.”
Stanton warned that “the longer your dealers go without information and answers to their questions, the more that speculation will fill the void.”
Concerns are amplified at the state level, too. North Carolina Automobile Dealers Association President Robert Glaser told Automotive News that “despite repeated assurances throughout the years by Volkswagen that its dealers are ‘partners’ in advancing and promoting VW products, this announcement produced instant dismay and concern among all VW dealers.”
Clearly, if Volkswagen wasn’t considering a direct-to-consumer sales model for at least some of their brands, they would have reassured their dealers swiftly. Now, all dealers can do is speculate and hope for the best.
Mercedes-Benz Slashes Dealer Numbers – Will It Happen Here?
One might approach comparisons between the U.S. and European automotive industries with reluctancy, but we’ve seen the connection time and time again. Take Mercedes-Benz for example. When Mercedes announced it would begin enabling level 3 autonomous driving under certain conditions in Germany, most dismissed it as a European experiment. Not even Tesla had pulled that off. Just months later, Mercedes-Benz shared their goal of bringing level 3 autonomy to American roads, where it will complement the dazzling new EQS electric luxury sedan.
Now, Mercedes has announced their intention to downsize their dealership network in Europe, and to a lesser extent elsewhere, for now. In the automaker’s homeland of Germany, Mercedes says that 15 to 20 percent of its dealers will be effectively let go. Globally, they plan to cut 10 percent of their dealerships. Right now, Mercedes says that there are no plans for ‘dealer consolidation’ in America.
Why is Mercedes-Benz cutting dealers from the brand? One of their fiercest and most recent competitors has risen to fame by adopting direct-to-consumer sales, and they want a bigger piece of the DTC pie. Tesla has managed to achieve 14% EV market share in Europe in just a decade, already having surpassed Mercedes when it comes to electric vehicles sales.
Consumers are REALLY tired of haggling with salespeople at dealerships. Tesla has shown that there are alternatives. Therefore, Mercedes-Benz is pursuing a direct-to-consumer “agency” sales model. They believe 80 percent of European sales will be direct-to-consumer by 2025.
In the dealer agency model, automakers invoice customers directly, and dealers receive a fixed fee for every vehicle sold.
BMW and MINI Pursue “Agency” Sales Model
Ford’s bold Model e plan doesn’t cut dealers outright. Instead, Ford Model e re-envisions the role of dealers as delivery centers for online sales. It sounds like BMW Group is a fan of Ford’s plan.
BMW Group executive Pieter Nota confirmed that both BMW and MINI are looking hard at pursuing an agency model in which authorized dealers are transitioned into a delivery and customer experience role. Nota told Automotive News that talks are underway.
“We are currently talking with our European dealers about a move to a genuine agency model,” Nota told Automotive News Europe.
Back in March, Germany’s Autohaus magazine reported that BMW plans to end MINI’s authorized dealer system in Europe in 2024 before doing the same for BMW in 2026.
When Will Direct-to-Consumer Sales Come to America?
Ford’s Model e plans aside, dealers continue to have a strong grip on auto sales in America. Tesla is the face of DTC sales in the U.S. for the time being. However, the tides are turning. It’s only a matter of time before European automakers bring their “agency” sales models to the U.S. Direct-to-consumer sales equal higher profits for automakers, and they’re not going to pass up the opportunity for some extra cash, especially as the costs of electrifying their lineups are approaching one trillion dollars. In other words, it’s not “if”, but “when”.
I buy a vehicle every 7 years and I pay cash. I want to test drive numerous suv’s and trucks to help me make my decision. I would never buy a vehicle without a test drive, hearing the doors close, feeling the transmission shift, checking the blind spots, determining how comfortable the drivers area is, measuring the cargo area. I would never buy the Carvana way. The Tesla sales model is an anomaly albiet a fruitful one. The nerds already know the car before they buy. Good luck to the rest of the automakers as they try to apply those nerdly qualities to the general car buying public.