Mercedes-Benz’s switch to the direct sales ‘agency’ model in the UK from 1 January has helped increase the average sale price of its cars, said the company.
In the direct sales model, Mercedes assumes responsibility for setting pricing and selling cars, taking over from the dealer. The dealer accepts a fixed fee per sale for acting as Mercedes’ ‘agent’.
“The [switch to] direct sales in the UK went very smoothly,” said Mercedes chief financial officer Harald Wilhelm on the company’s recent earnings call. “Every move in [every] market so far to the direct sales model has had a supportive element in terms of the net pricing.”
Direct selling allows Mercedes to fix the price of new cars across the whole country, ending discounting by dealers. The move has helped the company achieve its aim of boosting average pricing and helping profits.
The company said that higher pricing as well as boosted volume in the quarter helped lift gross profit by €1.34 billion (£1.2 billion). However, extra costs associated with direct sales cut that profit by €127 million (£110.5 million) over the quarter, added Mercedes.
Under the direct sales model, Mercedes assumes responsibility for all inventory instead of wholesaling stock cars to the dealer. It also owns the dealer demonstrator fleet. However, the boost in pricing by removing discounting “offset these effects by a large portion”, said Wilhelm.
The UK was Mercedes’ first big switchover to the agency model after it was piloted it in smaller markets like Sweden, Austria and Australia. The company plans to adopt the model in Germany in the second half of this year with the goal of migrating 85% of new car sales to the model in Europe by 2025, said Wilhelm.
Last week, Penske, one of the biggest Mercedes dealers in the UK via its Sytner chain, said its profits on new car sales had increased compared with pre-Covid figures after the German car maker moved it to the agency model.
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