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BI & Data Analytics in the Evolving Vehicle Sales Model

A new form of vertical supply chain integration is coming to vehicle manufacturing and sales. This follows the trend in other industries which sees manufacturers engaging in direct sales to consumers. In effect, the traditional wholesale supply model is becoming defunct. Within the automotive sector, such vertical integration has been standard for new entrants to the electric vehicle market with Tesla widely considered as a pioneer and best-in-industry in terms of direct to customer sales (Ref. c). However, direct to customer sales is now gaining traction amongst long-established vehicle manufacturers. They too are starting to move away from the traditional wholesale model where franchised motor dealers represented the tangible face of the brand in front of the customer, towards an agency model where the dealer sells direct on behalf of the manufacturer.

From a customer perspective, this shift is subtle but underlying it is a complex change in relationships. The relationship between the manufacturer and dealer is changing to one whereby the manufacturer takes ownership of the selling process and costs of same, and the dealer becomes an agent, a business partner which fulfils the selling role on behalf of the manufacturer. The allocation of commercial risk between the parties is thereby changing with less risk being borne by the dealer. The agency model concept positions dealers as intermediaries/agents/fulfilment partners of the manufacturer (Ref. b) and by embracing this change, motor dealers can turn this industry disruption to their advantage.

Why is this happening now? Well, direct sales are a response to consumer expectations in the connected digital world. In excess of 80% of consumers say they would rather see a simplified pricing and buying experience just as online and digital has provided in other sectors (Ref. a). Over the past two years, the Covid-19 global pandemic has further accelerated this drive to online. However, despite this shift to online, research has shown that 83% of Tesla customers still want personal tangible contact with a real-world physical dealership prior to buying online (Ref. c). This creates an impetus and opportunity for manufacturers to really harness their existing franchise dealership networks and seamlessly integrate online sales channels with actual/physical point of sale channels.

In addition to gaining competitive advantage over rivals, it allows vehicle manufacturers to build a direct relationship with the customer, and in doing so, gain direct access to consumer buying preferences and behavioural data. In Europe, data-driven revenues are forecast to grow by 5.5 times the existing value by 2025 (Ref. a), and direct sales have been shown to provide more value to all industry stakeholders. Therefore, the agency sales model has been born and is becoming increasingly prolific as a talking and action point in academic and industry circles. Planned reform of the European block exemption rules in the coming years will effectively force vehicle manufacturers to either stay with the traditional wholesale model or fully embrace a new agency model, in whatever form (Ref. a). Various forms of the agency model are evolving and in general there are two main types, with variations on both.

Types of Agency Model

The purest type is genuine agency which is the agency model planned for adoption by Daimler, Smart and Volvo, amongst others. In this scenario, the former franchised dealer becomes an agent of the manufacturer which receives a commission on each vehicle sale but owns no vehicle stock and does not set prices or discounts. This effectively removes all the significant business risk for dealership business owners (Ref. a). Economic theory suggests that with lower risk comes lower reward for agents, but in practice dealership valuations actually increase. Under this form of agency, there is a clearer allocation of rights and risks between manufacturer and agent, and it has greater economic potential overall. Corroborating this is research by Accenture, which has shown that a vehicle manufacturer can increase margin by up to three percentage points while also increasing manufacturers’ bottom-line profits. Motor dealership company valuations could increase by between 10% and 12% under the genuine agency model (Ref. a). It would appear that genuine agency has the greatest overall economic potential for all industry stakeholders.

Another type is the non-genuine agency model. Volkswagen plan to adopt this model. In this scenario, the rights of the manufacturer remain limited as dealers control pricing and discretionary discounting. Not all the risk is removed for the dealership, but the manufacturer’s liabilities are also reduced (Ref. a). This form of agency exists somewhere between the traditional sales model and the genuine agency model described earlier.

As understanding of agency sales models is growing, more dealers are beginning to see the potential advantages. Profit margins on new car sales via the traditional sales model have been on a downward trend in recent years, so by switching to a commission-based system, dealers can protect their margins and their shareholders’ investments provided, of course, that commissions are set adequately (Ref. a). Agents will have a new role within a broader automotive ecosystem - as a service provider, capitalising on their physical footprints and trade infrastructure to offer their services (Ref. a). There are indications that this shift is already in progress with significant consolidation taking place among dealer groups in the UK. The number of individual brand-specific dealerships is reducing, and the shift to agency is prompting an increase in multi-franchise dealership sites. As customer experience management remains essential, it is likely that the physical dealership will continue to be the front line for the customer, even with online trading (Ref. b).

As the vehicle supply chain model continues to evolve, manufacturers and dealerships alike, irrespective of the retail model in use, will have to invest in the tools that allow them to support the customer journey. Accessing and interpreting data and Business Intelligence (BI) is one such tool and will be even more important if manufacturers are to anticipate and respond to future trends in buyer behaviour, as well as further innovating the supply model. BI will become an increasingly valuable tool for agents too as they seek to maximise their selling and service opportunities. For dealer groups using disparate information systems, it is critical to have all proprietary data compiled in one place so they can become agile and make timely decisions while adapting to the fast paced and ever-changing industry landscape.

RWA’s BI tools based on data analytics provide businesses with insights about what motorists need and when they need it, and it will direct how manufacturers/dealerships/agents adapt their operations to respond accordingly. These tools are key to matching the right consumer to the right experience, and so, presents manufacturers/dealerships/agents with genuine opportunities to meet customer preferences. The insights provided by RWA’s BI dashboards help dealers make their service offerings cost-effective and efficient, while optimising vehicles and parts stock levels to meet customers’ needs in a timely manner.

Here are some examples of reports and dashboards that RWA’s BI tool provides to deliver actionable insights:

Customer Retention Information

The Service Retention Dashboard illustrated in Figure 1.0 below provides customer retention information in real time as well as insights into vehicle throughput, vehicle fall-off and customer retention rates across all brands. In an intensely competitive marketplace, customer retention is critically important, and this report provides the means to monitor and measure it in real time.

Figure 1.0 RWA Customer Retention Report

VHC Reporting

The Vehicle Health Check (VHC) Summary dashboard illustrated in Figure 1.1 below assists dealership aftersales personnel with the identification and analyses of upselling opportunities. It provides key insights on workshop throughput analyses, the conversion of sales opportunities across the amber and red categories of identified works and a dynamic pipeline view of deferred opportunities.

Figure 1.1 RWA VHC Summary Dashboard

Maximise Used Vehicle Profitability

Used vehicle sales are more relevant than ever in the evolving sales model and used cars profit opportunities must be maximised. The RWA PriceSmart tool in Figure 1.2 below helps to do this by providing insights on used car sales performance by comparison with the used car market and identifies the profit opportunity available within existing stock. To achieve this, RWA have collaborated with Auto Trader to create actionable data for sales managers. Large dealer groups apply strategic pricing policy across their used stock, and the PriceSmart tool can be used to ensure all vehicle stock is priced to maximise profit opportunity. Exception reports are automatically shipped to sales managers which provide a list of vehicles that are either under or overpriced by a specified threshold, and a decision can be made accordingly. Reporting by exception provides assurance to the busy sales manager that all vehicles are priced correctly, and stock movement is not hindered in any way.

Figure 1.2 RWA PriceSmart Dashboard

Conclusion

A well implemented BI solution will provide accurate tracking on a day by day and week by week basis so that dealership management know exactly how the business is performing in the key areas required to maximise business value in the agency sales model. More than ever before, a data-driven, forward-looking perspective in relation to decision making facilitated by the power of BI reporting will provide the edge required in the rapidly evolving automotive landscape.

If you’re interested in more details of the dashboards mentioned in the blog and finding out what else RWA can do for you, please visit our Automotive BI Solution page or email us at auto@realworldanalytics.com

Garry Keane has more than 25 years of experience in the automotive industry having fulfilled roles at a senior managerial level with two Irish auto dealership groups and as a dealer management systems (DMS) consultant in Ireland and the UK. His great interests are retail auto business and BI and data analytics for the auto industry. Garry is the Product Manager at RWA Automotive.

Cited Research References:

a. The Agency Model is coming: Why this is good news for dealers, Automotive News Europe. https://europe.autonews.com/guest-columnist/agency-model-coming-why-good-news-dealers. Maximilian Holtgrave, Axel Schmidt & Johannes Trenka, 2021.

b. Trend Definition Document # 4: ‘The advent of new retail models that are disrupting the status quo.’ Cox Automotive, 2021.

c. ‘Agency Sales Model: Accelerating the future of automotive sales.’ Tschodrich, Mathies, Junge & Kessler, Capgemini Invent, 2021.


About RWA Automotive

RWA Automotive provides a cloud-based Business Intelligence (BI) solution that helps you become a complete data-driven dealer group. By bringing all your data into one place and delivering actionable insights to different levels in the business, everyone has the right information at the right time to do their job efficiently.

The management will be presented with executive dashboards where they can drill down to the details for further investigation. Your managers in the outlets get reports such as DOCs delivered to them automatically so that they can action issues on the spot. The solution is designed to help you stay on top of your business with all the information you need at your fingertips.

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