Mercedes-Benz says it will proceed with its plan to offer fixed prices across its entire line-up in Australia from 2022, unless the Federal Government introduces laws to stop it.
The German car maker has already started offering fixed prices on the Mercedes EQC electric SUV since December 2019.
Now the company plans to ramp-up its fixed pricing model with subsequent electric cars, before the entire Mercedes range will be non-negotiable from 2022.
The company says the change is designed to “improve the customer experience”, however it means all buyers will be quoted identical prices on any new Mercedes – regardless of which showroom they visit.
As part of the changes, Mercedes will switch from franchised dealers to an “agency model”. This, too, will likely restrict any potential negotiating power of customers, as Mercedes will hold and allocate all vehicle stock.
Under current franchise arrangements widely used across the new-car industry, dealers buy in stock, pay for that stock, and then are responsible for selling that stock.This can lead to discounted prices if dealers end up with too much stock, or if they need to hit a monthly sales target.
Under the new arrangements, there will be no room for negotiation on price as the dealer is not holding the stock.It means buyers not only lose the ability to negotiate, but they will likely pay more for a new car, because Mercedes will control the supply by metering out each model.
Under the proposed changes, dealers will simply be paid a handling fee (or commission) for taking care of enquiries, and delivering the car to the customer.
In an interview with Australian media, the global boss of sales and marketing for Mercedes, Britta Seeger, says the fixed price “agency model” will go ahead unless changes to Federal Government regulations prevent it.
“As soon as a regulator (or) government is changing legal circumstances, we need to assess this again,” said Britta Seeger, member of the board of management of Daimler, Mercedes-Benz Cars, marketing and sales. “If this would be the case in any of the markets, we would need to reassess.”
While Mercedes has begun rolling out its fixed price “agency model” in South Africa and Sweden “after some intense discussion” with dealers – and it plans to switch to the new scheme in other countries in the coming years – US law does not allow such an arrangement.
“The US has very special franchise laws, so some of the logic that we can apply in some (countries) will not apply to the US,” said Ms Seeger. “So currently we are investigating what would be the right future business setup.”
A statement from the Australian Competition and Consumer Commission (ACCC) said it is “aware of announcements by some vehicle manufacturers to restructure how motor vehicles are sold to Australian consumers. In other industries, manufacturers have used an agency model to market and sell products.”
The peak consumer and business watchdog said it will “continue to monitor these changes, particularly any impact on consumers and small business motor vehicle dealers.”
The Australian Automotive Dealer Association (AADA) says it has reservations about the Mercedes fixed-price plan and questioned whether it would deliver a better outcome for customers.
“There are customers who really value the ability to negotiate on price with their dealer, particularly at the luxury end of the market,” said the CEO of the AADA, James Voortman.
“I think there is a real risk ... customers will simply go to the competition where they will still be able to negotiate,” said Mr Voortman.
“In other countries where this has been rolled out, we have seen examples where poor execution of process has led to adverse customer experiences, such as vehicle delivery times blowing out or the dealer not being able to give the consumer a price.”
The global Mercedes executive conceded there has been a widespread dealer backlash to the switch to an “agency model”, as showroom operators expressed concern about how it will impact their overall sales and profitability.
Industry insiders believe Mercedes will lose sales to rival brands whose dealers are prepared to negotiate. They also say Mercedes is aiming to take a slice of the retail profit margin to make up for revenue shortfalls across other parts of the business.
Mercedes says the fixed price “agency model” will “take the business risk away from our dealers” because they will not be required to hold millions of dollars worth of inventory.
Against the backdrop of rising costs associated with autonomous and electric cars – and new safety and emissions standards – Mercedes argues it needs to make the next step to survive, and to “safeguard our business for the future”.
Mercedes also believes other automotive brands will follow. Japanese carmaker Honda has already announced it will switch to a fixed price “agency model” from July 2021.
“In order to be ready for the future, we need to transform our business model,” said Ms Seeger. “I truly believe this is the future model of doing business in automotive … and not only for Mercedes.”
Ms Seeger said the fixed price “agency model” would enable dealers to focus on delivering an “even deeper relationship” with customers and to “provide the best luxury experience”.
“The more digital the world is getting, the more important we need to provide the right personal experience,” she said.
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