Agency model: it’s coming to UK car dealers but what does it mean for buyers?

Most customers won’t be aware of it, but there’s a revolution taking place in the motor industry. The way new cars are sold is set to change forever, with the 'agency model' set to make haggling a thing of the past and the car makers taking direct control of the deals.

Alfa Romeo, DS, Jaguar, Land Rover and Genesis have already set timelines for introducing the agency model in 2024. Volkswagen Group brands including VW, Audi and Skoda aim to switch before the end of 2023, while Mercedes and Volvo have already adopted the agency model in their showrooms and Tesla has been doing it the agency way for years. 

Why is the agency model sweeping the car industry, though? It’s because a slew of brands are switching from traditional franchised dealerships to what’s known as agency agreements. These will, in effect, ensure there’s a single, fixed price across all dealers selling a particular new car model, whether they’re showroom-based or online. 

Buying a new car should be a simple task, but in reality it’s often very far from that once you get beyond the shortlist. Finding out how much a car will cost you is the first big hurdle. Yes, there are manufacturer recommended list prices, but almost every private new-car buyer uses one type of finance scheme or another and thinks more about the monthly payment than the headline cost of the car. After all, what does it matter if a vehicle’s list price is £29,999, when all you really need to know is that you can afford the £299 a month repayment to keep it on your driveway? 

Of course, that £299 figure will depend on a few factors, too. For instance, how much is your trade-in worth? And do you have additional funds for a deposit?  And that’s all before considering any haggling or discount that’s on offer when you get to the car dealership which, ultimately, is the company selling you the car. It’s a complicated process as things currently stand. 

Yet, in the UK, almost every private car is sold this way, through franchised dealers. It also means that even though you may be buying a Ford or Vauxhall or BMW, your contract is with the dealer and if anything goes wrong, it’s the dealer that’s, legally, on the hook. 

Franchised vs agency model: the key differences

Simpler selling and the end of haggling? 

After more than 100 years of new cars being sold via franchised dealers, there is a sea-change in the offing as manufacturers consider a new way of selling under the agency model. 

Haggling doesn’t translate well to the web, and that’s partly why manufacturers are looking at a system that will mean a single, fixed price is shown online to customers. But to do this, car makers must abandon the franchised system they’ve used ever since Henry Ford started mass-producing the Model T. 

That’s because in UK law, a manufacturer can’t control the price at which a dealer sells the car. So if the brand wants control, it can’t use the franchise model, and instead must look at a system where the company not only fixes the price of the car, but also makes a contract of sale directly between the consumer and itself.

What is the agency model?

The traditional franchise model sees a car maker giving its dealers a set profit margin, based on the recommended retail price. In addition, they will usually offer a bonus for reaching targets. It’s up to the dealer to decide the price the customer is ultimately charged, which is where ‘haggling’ comes in.

The customer is managed almost entirely by the dealer, who also has to take the financial risk of buying in new-car stock. Hit all the targets, retain the full margin and a dealer could earn around 14 per cent of the car’s price on a sale, an insider told us.

With the agency model the price is set – and fixed – by the car maker, which handles the transaction with the customer entirely, usually online. The dealer just receives, prepares and hands over the car in exchange for a fixed ‘handling fee’ of between five and seven per cent. While this seems less attractive for the dealer’s business, it’s a guaranteed income and can’t be reduced with haggling.

James Baggott, editor-in-chief of Car Dealer Magazine, has been following the changes. He said: “The switch to agency sales will mean car buyers will have a very different experience in dealerships in the future. There’s no haggling over price for a start, and no extras will be thrown in to get the deal over the line – the price will be set by the manufacturer with no room for manoeuvre.

“It might feel to buyers like they’re playing hard ball, but in reality their hands will be tied. In most cases you won’t even be able to buy the car in the dealership – most manufacturers want this all done online.”

Is it a good thing for car buyers?

The jury is still out. For the customer, fixing prices means there is more certainty that they’re getting the keenest deal and won’t be missing out on a better offer if they shop around. Given that most car buyers also hate the haggling element of the buying process, it reduces stress, too – in the same way as Apple deals with products such as the iPhone, where no discounts are allowed, and the price is the same in every shop.

James Baggott says: “Some brands know that dealers and their relationships with their customers are critical to the sale – many people buy from local family dealers and from people they trust. With agency a lot of that will be taken away and people will be buying from a machine.”

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Manufacturers who are keen on the agency model point out that not all dealers are so efficient at maintaining relationships with customers, however. By managing the process centrally, backed by advertising and other marketing, car companies will be able to improve the customer experience.

When will the agency model be introduced?

It already has been for some brands. Those that are set to make the switch include big names such as MINI, Skoda, Audi and Alfa Romeo, while Volvo has already moved to the model. Tesla and Polestar have been operating direct sales
since they launched in the UK.

Which brands are making the switch to the agency model? 

Alfa Romeo and DS have been the most vocal about the new no-haggle sales system, but many other brands are known to be working on an agency plan for new-car sales, too. Volvo and Mercedes have already made the change in the UK and the Volkswagen Group brands will follow soon.

Research by Car Dealer magazine has indicated the 18 UK car brands that have either already moved to the agency model or have plans to do so in the near future. Only eight brands were willing to rule-out making the change. Of course, plenty of car makers have already implemented this system in other countries, most notably Toyota in New Zealand, BMW in South Africa, and Honda in Australia. 

Honda Australia is now more than a year into the new way of selling and has recently claimed that “89 per cent of customers strongly agree that buying a Honda was exceptionally easy, while 87 per cent gave the new sales experience a top rating of nine or 10 out of 10”.

Manufacturer A-Z: Who’s in and who’s out?

Some car brands remain 'pro-haggle'

It’s clear, not all manufacturers will move to this new system, with many in the UK already coming out to say they will be sticking with the traditional franchise model. These include Suzuki, Mazda, Toyota and Kia. 

Kia’s UK president Paul Philpott argues that franchised dealers are still the best way to maintain high levels of customer care. “Obviously we’re watching what’s going on in the marketplace, but right now we have no intention of moving toward an agency agreement,” he explained. “I continue to believe that the value a franchise dealer can bring to the customer is very significant indeed. 

“Most customers, firstly, want to try a model before they buy and, secondly, (particularly around new technology) want access to someone they trust who they can talk them through the options.” 

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Commenting on how to tackle a single online list price in a franchised model, Philpott said this wasn’t as important as communicating a monthly price to the customer. 

“No one goes out and spends £20,000 on their car, they spend £400 a month,” the Kia boss said. 

“What really matters to the consumer is 'what can I get on my monthly budget?’ and that depends on residual values. It depends on the acquisition price. It depends on any discount the manufacturer is putting in, and any discount that the dealer is putting in. And that’s a complex calculation,” Philpott added.

Selling cars online

Nissan is currently demonstrating that it is possible for a manufacturer to use the latest technology to sell cars online and still have traditional dealers. 

Using a studio as a showroom and an actor as a guide, visitors to the firm’s website can take a live Zoom or Teams-style tour of a Qashqai, Leaf or the firm’s new Ariya all-electric SUV. The guide can then walk around the car, answer any specific questions from the customer and if the visitor wishes to buy the car, they are put in contact with their nearest dealer to negotiate the sale. 

John Parslow, Nissan’s head of digital, said: “The Live Showroom has only been live for a few weeks, however we’ve had really positive feedback from our customers. They love that it’s a really personalised experience, offers a service geared around their needs, and means they can enjoy the excitement of choosing their next new car from the comfort of their own home. 

“Depending on the enquiry, we will normally progress more than 60 per cent to a quotation, but the core measurement for us is about customer satisfaction and simplifying their buying journey, and for this we have 95 per cent-plus satisfaction levels.” 

Parslow also revealed that existing Nissan owners as well as prospective buyers are using the system. “We do get customers who will use the Live Showroom after purchasing a Nissan,” he said. “In some cases, if they’ve forgotten how something works, they’ve been taking advantage of the on-hand product experts that they can contact from home.” 

The multitude of different ways of selling a car either in use now, being considered, or being tested, shows there’s clearly a need to simplify the way vehicles are sold, both online and in the showroom. And while haggling may become a thing of the past for some brands, for as long as it works for other car makers, it’s here to stay.

What about used cars?

This is the one area where dealers will still have a degree of control over price and may be able to haggle, although some car makers are trying to get involved in this side of the business too, by offering online valuations and purchasing.

An insider told us that at least two prestige brands have suggested that they would like to take control of all newer used cars which are less than three years old, so that they can sell them on a national platform online, in a similar way to Tesla. However, both manufacturers backed off after resistance from their dealers.

All in favour of the agency model? Not quite…

Sue Robinson, chief executive of the UK’s National Franchised Dealers Association (NFDA), suggests buyers risk losing out, because greater control by brands will eradicate the competition aspect of the car-buying process. “An agency model will have a detrimental impact on customers’ choice,” she said. “Essentially, OEMs [car makers] will own the stock and set fixed prices.”

“Ultimately, with the introduction of uniform pricing, it will mark the end of intra-brand  competition. It is crucial that market regulators take steps to mitigate any adverse impact the agency model can have on consumer choice, as well as dealer employment and investment.”

If you're looking for a cheaper way to buy a nearly-new car from your local dealership, read our guide to buying a pre-registered car...