Mercedes-Benz feared huge trends in technology and customer tastes would destroy the traditional car dealership model

Mercedes-Benz executives will testify in court they feared online sales, new technology and changing consumer tastes would wipe their profits.

Former and current senior executives at Mercedes-Benz will testify that a new agency model introduced into Australia was commercially the “right thing to do”.

Former and current senior executives at German car giant Mercedes-Benz will testify in the Federal Court in coming weeks that a new agency model introduced into Australia — now the centre of a $650m lawsuit — was commercially the “right thing to do” for both the car maker and its aggrieved car dealers in Australia.

Mercedes-Benz bosses feared digital disrupters, such as online car sales sites, as well shifting trends in the retail sector and consumer tastes could destroy the profitability of its car dealers, and this drove it to introduce a new sales model in Australia, a court was told on Friday.

Counsel for Mercedes-Benz, Robert Craig QC, told the Federal Court in Melbourne that Mercedes-Benz Australia worked with its network of local car dealers to create a new sales model that would answer the challenge of the changing retail world brought about by the online sales channel, as well as other disruptive forces that directly threatened their profits.

Mr Craig told Federal Court judge Jonathan Beach Mercedes-Benz Australia was not “slavishly” following the dictates of Mercedes-Benz headquarters in Stuttgart to push through the new sales model in Australia, as is claimed by the car dealers, but was done having regard to the “legitimate interests of the dealers”.

“Mercedes-Benz Australia is calling at this trial the current and former leaders of the business over the entirety of the relevant period to explain to your honour why they pursued and implemented an agency model in this country,” Mr Craig said.

“Each of those witnesses categorically rejects the assertion that they slavishly followed the dictates of Mercedes AG to introduce an agency model in Australia.”

Mr Craig said one witness, the current CEO of Mercedes-Benz Australia Florian Seidler, will testify that when he was formerly the boss of the carmaker in South Africa in 2012 he first developed concerns about how new technology could destroy businesses, especially in the car sector.

“And that he considered that the traditional way of selling cars was not going to be the way of the future.”

Under the new agency model that commenced this year, dealers will no longer purchase cars from Mercedes-Benz to resell to consumers. Instead, Mercedes-Benz will retain ownership of the vehicles, which the dealer will sell to the consumer for a fixed price in exchange for a commission. This has now formed the crux of the court battle where 38 Mercedes-Benz car dealers claim their businesses will be greatly damaged by the new model and that they weren’t properly consulted over the new sales model nor adequately compensated.

Mr Craig said Mercedes-Benz realised it needed to adapt in the face of new retail and consumer trends or die, quoting from the creator of the modern auto company Henry Ford to underline his argument to the court.

“Your honour, in 1923, almost 100 years ago, Henry Ford said, that businesses that grow by development and improvement do not die.

“The reason I start with that quote is that this case has at its core a decision by the leadership of Mercedes-Benz Australia approved, reported and encouraged by its parent company to address what in Mercedes-Benz Australia’s assessment was a number of matters.”

These matters, Mr Craig went on to tell the court, included the changing retail world brought about by the online sales channel and a downward trend in profitability for car dealers in the face of heated competition and the changing retail landscape.

Mr Craig said car dealers were consulted at workshops stretching back as far as 2016 to discuss the challenges and threats to their businesses, and how a new sales model could deal with that.

At one workshop a Mercedes-Benz car dealer suggested Mercedes-Benz Australia should be able to fix prices as a way of combating the aggressive discounting process and new retail threats, which was widely supported by other dealers in a discussion group, Mr Craig told the court.

However, under the then dealership model fixed pricing would have been a breach of competition law, he added.

The case is continuing.