Following word that Mercedes-Benz wanted to refocus on producing high-end luxury vehicles with loftier profit margins, the German automaker has decided to eliminate dealerships in Europe so it can move on a direct-sales model similar to what’s offered by Tesla.
The company is reportedly eliminating up to 20 percent of its dealerships in its home country and roughly 10 percent globally (with a focus on Europe). This follows previous assertions by Mercedes that half of the brand’s domestic sales will be done via an “agency model” by 2023. Following an agreement with its own dealer network, the company said late in 2021 that it would begin eliminating the traditional scheme of dealers buying their vehicle stock based on market conditions with consumers coming in to haggle. The new plan puts more financial pressure on Mercedes and eliminates any chance of price negotiation. Meanwhile, dealers will get some cash for every vehicle sold and whatever after-sales services they can render.
The European Association of Mercedes-Benz Dealers has already signed onto the plan, with the assumption being they’ll have to assume lower financial risks despite still getting a cut of every sale made.
According to Automotive News, the automaker is already planning to expand the strategy and is now targeting 80 percent of European sales through the agency model by 2025. It also wants to expand the scheme to an additional fifteen markets, for a grand total of twenty, and to begin pivoting to online transactions wherever possible.
“We want to have more proximity to the customer and therefore have better control over pricing,” CFO Harald Wilhelm said last week at Mercedes’ capital markets day. “That’s why we are moving from the current dealer role.”
The cuts in Mercedes’ global dealer footprint will take place by 2025, with the German dealership reduction in place by 2028, said Bettina Fetzer, vice president communications and marketing.
“We need fewer large showrooms in mature markets,” she said, while noting that Mercedes is adding showrooms in China. “We will move away from large showrooms, especially when we move to direct sales.”
That’s not the case in the U.S. market.
“We are committed to support our existing franchise model together with our dealer partners,” Robert Moran, director of corporate communications for Mercedes-Benz USA, said in an emailed statement on Monday. “Despite the growing number of changes in trends and direct sales in other markets (agent model; model D in Europe etc.), our franchised dealers will continue to play a central role in managing the transaction and sale of vehicles with our customers in offline and online transactions.”
Additional changes include expanding on extravagant storefronts in places like Dubai and Shanghai. Here, Mercedes will showcase some of its most expensive products (Maybach and AMG) in lounge-like showrooms for the kind of people that can afford them. It sounds extravagant but it also represents a coy bit of restructuring for the automaker. Mercedes-Benz head Ola Källenius announced numerous cost-cutting endeavors in 2020 and the business culled over two-dozen dealerships in Europe last year. It’s also been reducing overhead as part of its plan to consolidate control over numerous markets and restore its image as a purveyor of premium products.
“All of these efforts combined give us a competitive advantage, but the full leap comes when we combine that with direct sales,” Fetzer explained. “This gives us a direct management of the customer relationship, and we will know our customers even better.”
That’ll be made easier thanks to modern data collection. Rather than dealers targeting people locally, Mercedes can cast a much wider net by leveraging analytics to home in on potential ups. Er… customers. We’re actually seeing a lot of automakers testing the waters with direct sales in Europe right now — with the German brands appearing the most interested. However, other companies (e.g. Toyota) have stated they’ll probably never abandon the traditional dealer model, regardless of the market.
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