Mercedes-Benz plans to cut dealerships globally, targets more online sales

Mercedes-Benz is moving away from its traditional dealership model and instead investing in direct sales, say industry reports.

According to Automotive News Europe, Mercedes-Benz is looking to cut around 10 per cent of its 6500 global dealerships and roughly 15 to 20 per cent of those in its native Germany, freeing up cash for it to instead back a direct/agency sales model.

To that end, last year Mercedes began looking to sell around 25 of its European dealerships, which would result in the manufacturer securing around €1 billion (AU$1.5bn) of capital – while also reducing ongoing costs.

Rather than using traditional dealerships which are typically franchised and own the vehicles they're selling – allowing for negotiation – the agency model involves the manufacturer taking ownership of the stock and selling it for a non-negotiable, fixed price.

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"We want to have more proximity to the customer and therefore have better control over pricing," said Chief Financial Officer Harald Wilhelm, as reported by Automotive News Europe at the time.

"That's why we are moving from the current dealer role."

On top of its projection for 25 per cent of sales to come from online transactions by 2025, the German marque plans to transition to an agency model in 20 markets and reach 80 per cent of its sales volume through such means by the same point in time.

So far five markets – which includes India, Austria, South Africa, Sweden and Australia – have already been switched over to the agency model, with the details and timings of the remaining 15 as yet unconfirmed.

Mercedes moved its Australian dealerships to the agency model as of January 1 this year – however the transition has triggered legal action in the Federal Court with a trail due this coming August, as a group of 38 dealerships are seeking compensation claiming they signed the new agency agreement under duress.

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The upcoming court case in August could set a precedent for how Mercedes implements the agency model worldwide, having been criticised by the Australian Automotive Dealers Association for not acknowledging the work put in by its dealership network through compensation.

"We accept that Mercedes-Benz is perfectly entitled to change its business model, however, we do not accept the appropriation of hundreds of millions of dollars in value built up by the local industry over many years without the payment of compensation,” AADA CEO James Voortman said last year.

Mercedes-Benz defended its position, telling WhichCar in December it was adapting to survive in the industry.

“Mercedes-Benz Australia has developed Retail of the Future in consultation with our passenger car dealer network in response to changes in the industry, consumer behaviour and in the way new passenger vehicles are sold,” said a Mercedes-Benz spokesperson.

“At the heart of this transformation is our key focus to create a customer-centric experience that enhances the buying process by providing all customers with transparent, market driven pricing, more choice and greater convenience.”

In March, the Federal Government introduced tougher penalties for breaking the Franchising Code of Conduct, threatening corporations with fines of up to $10 million if they fall foul of the rules.