Mercedes-Benz dealers consider legal action over corporate move to fixed-price agency model.

Mercedes-Benz dealers are considering legal action over a move by the auto giant forcing them to sell the luxury cars at a fixed price.

From January 2022 Mercedes will move to an agency model to sell cars in Australia Picture: Marc McCormack

Mercedes-Benz dealers across Australia are in discussions with lawyers over a legal challenge to the German auto giant’s move to sell cars to consumers at a fixed price, saying they weren’t offered compensation for the impact on their bottom line.

The prospect of a legal challenge comes as the auto retailing scene undergoes massive transformation in Australia, including the scrapping of the Holden brand by General Motors, a change to the franchise code, and a move by Japanese brand Honda to a fixed price model in July.

Starting January 2022 Mercedes-Benz will ditch the traditional franchise-based way of selling cars to dealers and adopt an agency model, selling cars at a fixed price through dealers, who receive a fixed commission.

The car brand has trumpeted the move as one that will increase transparency in pricing while killing the practice of haggling over a new car, but dealers say they were pressured into signing on to a less profitable new arrangement.

It could also help consumers overcome a global shortage of new cars caused by Covid-19 interruptions to microchip manufacturing, with customers able to pick a vehicle from a nationwide stock selection.

But Australian Automotive Dealer Association (AADA) CEO James Voortman said that although the nation’s 52 Mercedes dealers signed onto the deal by last Friday’s deadline, most did so under duress, with a failure to sign meaning they would lose their status as a dealer.

“They feel like Mercedes-Benz Australia has applied intense pressure on them to sign this agreement and have demonstrated very little willingness to negotiate on the terms of this agreement,” Mr Voortman said.

“These dealers have invested so much capital, time and skill in their businesses over a long period of time and they feel like all that goodwill is essentially being taken by Mercedes-Benz free of charge.”

He added the vast majority of Mercedes dealers were considering a legal challenge.

“While these Dealers have signed, they have done so under protest and are reserving their rights. They are currently considering their options,” he said.

CEO of the Australian Automotive Dealers Association James Voortman, is speaking out on behalf of a number of Mercedes dealers. Picture: Jamila Toderas

A regional Mercedes dealer speaking on the condition of anonymity told The Australian the profitability of their business would take a hit under the new model.

“The margin, or commission, available to dealers is substantially reduced,” he said.

“The move to agency will see the available margin get cut close to half from the maximum available, and then some of that is conditional upon achieving a range of other targets as well so it’s not guaranteed income at that level.”

Another dealer said that they wouldn’t be able to sell out of their business close to what they paid for it.

“It will be substantially less because someone who would operate a Benz dealership knows you don’t own the customer data anymore, you’re simply a delivery agent and your capacity to earn money is diminished dramatically,” they said.

Mercedes began discussing the shift with dealers closely more than three years ago, but dealers say they were only provided with a draft agency agreement in May and a final version in July, leaving them limited time to receive legal and financial advice on changes.

A spokesman for Mercedes said the company had been working in close collaboration with its dealers for years, and extended the final signing date for some dealers.

“A draft agency agreement was supplied to our retail network in May 2021 and any changes to the draft agency agreement were predominantly made in response to the requests from our retail network and other factors such as the recent changes introduced to the Franchising Code of Conduct,” he said.

“For operational reasons, we required dealers to respond by a specific date, however the date was extended to allow the dealers additional time to determine if the opportunity presented was right for their individual circumstances.

Regional Mercedes dealers say the profitability of their business would take a hit under the new pricing model.

“We are pleased that all existing Mercedes-Benz Cars retail partners in Australia have reconfirmed their commitment to the brand under the new agency model, and will join us in launching the next exciting chapter of the company’s history, starting January 2022.”

The AADA – which is backed by magnates like major Eagers Automotive shareholder and director Nick Politis and Peter Warren Automotive executive director Paul Warren – has also expressed concerns an agency model will reduce Mercedes sales.

Mercedes’ parent company Daimler has already flagged a shift to a lower-volume higher-margin strategy on the premium end of the market in order to lock in price gains made during the global car shortage.

Its CEO Harald Wilhelm told the Financial Times earlier this month it will “consciously undersupply demand levels.”

Mr Voortman said car companies had a right to change their model, so long as adequate compensation was paid.

“This is not about Dealers being opposed to the agency model, if manufacturers want to change their distribution model they have the right to do so, but they should fairly compensate the Australian businesses that established and grew the brand in Australia,” he said.

Tony Weber, head of the Federal Chamber for Automotive Industries, said the agency model was used for car sales overseas and for many other products in Australia, to the benefit of consumers.

“Apple products are sold through an agency model. Weber Barbecues sells through an agency model. One brand might use the traditional franchise model and the other might use an agency model. It’s about choice.”

Originally published as Mercedes-Benz dealers consider legal action over corporate move to fixed-price agency model.