The automotive industry has come a long way from the early 20th century when automotive manufacturers (OEMs) sold cars directly to consumers through mail-order catalogs.

Today, the franchised retail model has become the norm, despite being pioneered by Ford in 1913 when it started mass-producing vehicles, including the iconic Model T. Yet, OEMs are now planning or exploring the possibility of using digital tools to reach car buyers directly, much like the mail-order catalogs of the past.

However, this model is not a viable choice for all geographies. For example, switching to the agency model would involve navigating significant state and federal regulatory challenges in the US. Consumer knowledge and demand in different locations are also a differentiation to consider.

In this article, we explore the pros and cons of the agency model and compare its relevance to the franchise model in different geographies.

What is an agency model?

While there are a few different forms of the agency model, we focus on the legally recognizable genuine agency model in this comparison.

Agency models reflect a direct-to-consumer (D2C) approach. The OEM produces a vehicle, sets the fixed selling price, and retails it to buyers. Within this model, dealers remain the point-of-sale contact to undertake test drives and handovers and provide aftersales support, but far fewer outlets will be required.

Dealers typically receive a fixed commission for each transaction and cannot use previous sales tactics, discounts, or price reductions to win sales. They are reliant on the OEM to attract customers with strong marketing.

Agency models reflect a direct-to-consumer (D2C) approach. © Getty Images

The two agreements explained:

Under a franchise agreement:Under an agency agreement:
The retail price of the vehicle is set by the dealer, so haggling is possible. The sale contract is between the dealer and the customer. Stock is owned by the dealer. Dealers can pre-register cars to hit a target. Specific costs associated with the brand, such as signage, are borne by the dealer. Dealers can discount cars by “giving away” some of their margins.The retail price of the vehicle is set by the manufacturer, so there is no haggling. Sale contract is between the brand and the buyer. Stock is owned by the manufacturer. Dealers can’t pre-register cars. Specific costs, such as signage, associated with the brand are borne by the carmaker. Dealers cannot discount models by “giving away” the manufacturer’s margin.

While the agency model is not widely operational in countries like the US or UK, brands such as Mercedes-Benz have recently started using it. Recent investments in the UK have shown that despite the reluctance to change, some global brands are not worried about a move to agency agreements. 

These two models will attract different customers for different reasons. Still, there are several benefits and challenges to consider before choosing what suits your business objectives and regional market.


Customer Experience

Market Approach

Reduce Costs & Dealer Risk


Consumer Complexity

Regulatory Challenges

Lack of Knowledge & Flexibility

Agency model: learnings to date

Recently announced delays to planned introductions of agency models may reflect continuing legal issues, increased new car supply, and decreased demand.

Tesla and Mercedes-Benz announced price cuts on some models, with supply outstripping demand for the first time in several years. Sharp discounts contrast with the fixed-price agency model principle but point to a challenge for OEMs of holding excess production on their balance sheets, which they could avoid under the franchise model by offering such stock to their dealers.

Tesla & Mercedes Benz announced price cuts on some models. © Getty Images

Looking ahead

Agency sales are coming, and while some OEMs have said they are committed to the franchise model, the number of brands looking to go direct is so significant that it is hard to see that the current delays in launching are little more than refining the models.

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