5 May 2021
Electric vehicles are rapidly disrupting the car industry landscape. But not necessarily in the way you might think.
It’s the regulated franchising relationship between car manufacturers and the automotive dealerships that’s changing in a way we’ve never seen previously.
Traditionally, automotive sales are based on a franchise channel, with privately-owned car dealers acting as the intermediary between corporate car manufacturers and consumers. The dealers own the stock of vehicles, they have sales targets – among other responsibilities – and they enjoy a level of freedom to run their business.
But for some time, we have seen car giants attempt to gain a full control of their distribution channel, with new market players such as Polestar, Tesla, and Geely successfully disrupting the traditional franchising model.
Take Tesla for instance, the company doesn’t have dealerships – it has ‘Tesla galleries’, usually located in areas with heavy foot traffic.
These ‘galleries’ are company-owned. There are no franchised dealers to absorb the big costs associated with running them, so it comes with a high price for the car manufacturer.
But it’s a price they are willing to pay because it means they have full control of the sales operations, the consumer experience, consumer and market data and strategic decisions to rationalise their distribution network.
In the US, there are state laws that prohibit car manufacturers selling directly to customers and Tesla had to sue state by state to be allowed to sell directly there.
But that’s in the US – it’s moving a lot slower compared to Australia.
Just last year in Australia, four car manufacturers announced radical changes to their distribution model, which has been either detrimental or created a lot of uncertainty for the future of dealers.
First, Holden completely exited the Aussie market, terminating 185 dealerships without proper compensation and taking many jobs away.
Then, Honda and Mercedes-Benz both announced ‘the agency sales model’.
In this new process, Honda terminated around 30 dealerships while Mercedes-Benz chose to trial this new model for its electric vehicle only – the EQ.
Finally, Renault went on a different route. They decided to shut down their head office in Melbourne and left their distribution in the hands of an independent distributor – an old sales model used in the 1900s before the advent of franchising.
As consumers, we already know that the experience of buying a vehicle under the agency model will be similar to buying an Apple product – there is no negotiating when it comes to price, options, add-ons and extras. There’s one price for everyone.
What’s also going to be interesting, is to see whether Tesla will survive in the face of expanding market competition for electric vehicles. Compared to many of the world’s established car manufacturers, Tesla has only been active in the market for a relatively short amount of time.
What I hope to achieve with my research is an in-depth understanding about the nature of the relationship between these large corporations and dealers. I am looking into different franchising issues based on three aspects: the contractual, the legal, and the social franchising relationships.
There are particularities that differentiate one dealer from the next – whether it’s size or location or even the brands they are selling.
While the government regulations have improved, there is still much work to be done in this space. I believe that my research will offer strong grounds to craft better regulations for the future of the Australian automotive industry to make it stronger and more resilient in the future.
Adiba Fattah is a PhD candidate working under Professor Lorelle Frazer – one of Australia’s leading franchising experts.