The Real Reason Mercedes Is Making It Hard To Buy A Car
Mercedes apparently wants to replicate the direct-to-customer sales model offered by Tesla, as the company is reportedly trying to overhaul its distribution model by cutting down on the number of dealerships, especially in its European markets. According to a report from Automotive News, the German luxury automaker is planning to reduce the number of dealership outlets in its home markets by around 15 to 20 percent.
Things are also going to change for the company's global customers. However, those plans apparently don't include the company's U.S. market. As claimed in the report, Mercedes also aims to bring the number of worldwide dealerships by a margin of up to 10 percent. With the dealership model reducing its footprint, Mercedes is targeting online sales to account for 25% of net shipments. The move is not surprising, though.
In December 2021, Mercedes inked a deal with the European Association of Mercedes-Benz Dealers that would allow customers to purchase cars and vans directly from the company. The carmaker hopes the "agency model" will account for nearly half of the vehicles sold in Europe by the end of 2023. The automaker already has the agency model in place for markets like Austria, India, and South Africa, as well, and plans to bring the same to Germany and the U.K. next year. Mercedes says the goal is to forge a more direct connection and seamless communication channel with its customers.
Lowered costs, deeper customer bond
In an internal presentation given last month, Chief Financial Officer Harald Wilhelm outlined that the "direct sales model allows grip on pricing." Wilhelm reiterated the point at Mercedes' capital markets day event, noting the direct sales model not only allows more control over the pricing of vehicles but also affords "proximity to the customer." Mercedes aspires to achieve its target of sales model overhaul by 2025 for the global audience and hopes to accomplish it by 2028 in its home market of Germany.
Director of Corporate Communications for Mercedes-Benz USA, Robert Moran, told Automotive News that the company will stick to its franchise model for the U.S. market, allowing dealers to sell cars via both offline and online channels. Aside from changing its vehicle sales approach, the company is also endeavoring to reduce the number of large showrooms in "mature" markets, further bringing down the management costs, and hopefully, passing down the benefits to customers.
Mercedes had previously expressed that the agency model, especially when executed online, enables greater transparency over the pricing of vehicles to customers and also allows it to offer a larger selection of cars. The company is currently at a critical juncture where it aims to cut down on lower-margin products and electrify its fleet for the future. With the pressure of guaranteeing profits for franchises reduced, thanks to the agency model, Mercedes would be in a better position to accomplish its goals.