In a recent announcement, Ford CEO, Jim Farley, confirmed that the company is finally moving forward with its “agency model” for dealerships. This new model is a significant departure from the traditional dealership model, and it has the potential to change the way people buy and sell cars.
Under the agency model, the dealership only serves as the transaction processor and delivery location. The price and dealership markup or commission are fixed and established by the automaker. This means that customers will be able to buy cars at a fixed price without the added markup that some dealerships have been known to charge. Additionally, the dealer is given an enticing lease program for demos and loaners, and all floor plans or finance costs are covered by the automaker. The dealer is no longer required to finance an inventory of cars that are for sale, reducing their financial burden and allowing them to focus on providing excellent customer service.
Ford’s move towards the agency model is in response to frustration people have had with dealers charging high markups, and Ford’s constant battle with dealers over markups. In the past, Ford has tried to stop dealerships from adding markups by introducing the “name matching policy,” but it didn’t work. Ford also made dealers pay a fee to sell electric cars, with fees ranging from $500k to 1.2 million. These efforts were met with resistance from dealerships who saw them as an infringement on their ability to operate their businesses as they saw fit.
Laws protecting dealerships have been in place for many years, but they are becoming increasingly outdated. These laws, known as “franchise laws,” were put in place to protect dealerships from being pushed out of business by automakers. However, as the industry has evolved, these laws have become more of a hindrance than a help.
The agency model is being tested first in Europe, where Ford is slashing the number of dealerships there. The first agency location for the business will open in the Netherlands. By moving towards an agency model, Ford hopes to develop a long-term relationship with customers, which they believe will ultimately lead to more sales and customer loyalty.
Tesla has taken a different approach to selling cars, by using a direct sales model. Tesla has very few dealerships, and they sell most of their cars online or through company-owned stores. While this model has worked well for Tesla, it remains to be seen if other automakers will follow suit.
The agency model represents a notable departure from the conventional dealership model and has the potential to revolutionize the car buying and selling experience. By removing the markup that certain dealerships have been infamous for charging, customers can now purchase vehicles at a predetermined price. Furthermore, the agency model relieves dealerships of their financial obligations and frees them to concentrate on delivering excellent customer service. Although Europe is the first region to test this model, it is yet to be determined whether it will be successful in other parts of the world.