Honda’s new sales drive to cut out car dealers with agency model

Honda Australia is about to embrace a new way of doing business that could either spell ruin for the brand or the beginning of a revolution.

Honda is replacing the conventional dealer model with an agency set-up. Picture: Dylan Coker

Honda Australia is about to embrace a new way of doing business that could either spell ruin for the brand or the beginning of a revolution in the way people buy and sell cars.

From July, the company will adopt what it calls an “agency model”, which is a euphemism for cutting out the middle man, the franchised car dealer.

The brand plans to own all its stock, set a non-negotiable price and reduce the number of dealers in metropolitan areas.

The radical experiment will be watched closely by other brands struggling to stay profitable in a market that has roughly 50 competing car brands.

In December, Mercedes-Benz sent termination letters to all its dealers in preparation for a shift to an agency model from January next year and, while Hyundai’s luxury offshoot Genesis is selling cars straight to customers, others are eyeing changes in their distribution models.

Toyota, which dominates the local market with 20 per cent market share, has adopted the agency model in New Zealand but is adamant it will not happen here.

Australian Automotive Dealer Association chief executive James Voortman is concerned that other brands will follow Honda’s lead as they look to reduce costs in a cutthroat market.

“This is definitely something that manufacturers are looking at globally and it’s not just Mercedes and Honda,” Mr Voortman said.

He said while dealers accepted that change was inevitable, they were troubled by the Honda and Mercedes negotiations.

He said dealer groups that had invested heavily in dealerships and supported brands for decades were being cast aside without adequate compensation.

Car companies are banking on the assumption that customers will shed few tears for car dealers, as most do not enjoy the present buying process.

Honda Australia director Stephen Collins said the new fixed-price model would appeal to buyers. “That seamless, one-price-everywhere policy takes the haggle — and a lot of the aggro sometimes — out of the process,” Mr Collins said.

“We understand it’s not for everyone but we think the vast majority of people will be open to it, of course on the proviso that we’re still providing good value.”

Owning all the stock would also make it easier to find customers the right colour and model ­vehicle as quickly as possible.

But Mr Voortman said the move was more about brands reducing their distribution costs.

The transition hasn’t been smooth sailing for Honda. The company copped a grilling in parliament over claims it had intimidated dealers into accepting inadequate compensation offers.

In March last year, the brand terminated several high-profile dealer groups in metropolitan areas, including nine of the 12 dealers in Sydney.

At that time, about 80 dealer groups operated 106 Honda sites around Australia. From July, there will be about 95 sites operated by roughly 50 dealer groups. Most of the reduction has happened in metropolitan areas, where the number of owners has come down from 30 to 12.

Regional and rural areas will largely remain the same, although an industry source said dealers in those areas doubted that Honda would generate enough sales to keep their businesses viable.

Honda is aiming for 1650 sales a month, or 20,000 a year, from the new operation, a big drop from the 4300 sales a month it achieved in 2018. Last year it sold 29,040 vehicles, a 33 per cent decline in a market that fell 13 per cent.

In major cities, the brand will adopt a “hub-and-spoke” set-up, where a handful of major dealerships are supplemented by satellite service and sales centres.

The brand will also be part of two multi-brand Auto Malls in Brisbane planned by dealer group AP Eagers for Indooroopilly shopping centre and Brisbane Airport.