Mercedes and Honda support fixed car pricing

Mercedes-Benz and Honda have stuck to their guns at a Senate inquiry today, insisting fixed pricing and agency retailing is the best way for them to successfully sell vehicles in the Australian automotive market.

Honda Australia director Stephen Collins described the current franchised dealer model as “broken” and predicted an “improved customer experience” under the no-haggle agency model.

Outgoing Mercedes-Benz Australia/Pacific boss Horst von Sanden told the inquiry – which is investigating the relationship between car manufacturers and dealers – that agency represented “a better way to service Australian customers than the traditional licensed dealer model”.

Honda will swap from franchising to the agency model from July 2021, while Mercedes-Benz is committed to making the change from January 1, 2022.

While both brands emphasised the benefits for customers from the change, members of the Senate Education and Employment References Committee, which is running the inquiry, focused more on the impact of the changes on dealers.

The most difficult time for Collins came when NSW Labor Senator Deborah O’Neill grilled him on the ownership of customer data.

Collins said Honda Australia believed this data was jointly owned by the car-maker and the dealers, although he admitted this was not specified in the dealer agreement.

This was in contrast to Toyota Australia’s confirmation in earlier testimony that customer data sharing was specifically written into its dealer agreement.

As carsales has reported, four dealers are taking Honda to the Supreme Court of Victoria over compensation arrangements that exclude data. Under current arrangements it is being transferred to Honda’s newly appointed agents free of charge.

One of the key grievances of Melbourne dealer Astoria Honda Brighton is that it has built its database up over 50 years and it is now being given away without compensation.

O’Neill asked: “In the shift of your business model from a dealer network to an agency model you are subsuming all of that data and claiming it as your own for redistribution at your discretion. Is that correct Mr Collins?”

“Senator, we believe it is jointly owned,” Collins said.

“You believe it is, but you have no documentation and you don’t have formal agreement from your dealers,” O’Neill said.

“Our view is it is jointly owned,” Collins repeated.

O’Neill: “If a car dealership has data and it is of so little value you are not willing to pay for it, why are you taking their data Mr Collins?”

And so on.

For von Sanden and Jason Nomikos, Mercedes-Benz Australia/Pacific network development director, an awkward moment came when the discussion turned to Benz’s decision in February 2020 to proceed with the agency model when 90 per cent of dealers had rejected it in a November 2019 vote.

“They said the model, as was presented to them in November last year, they didn’t want to shift to,” said Nomikos. “But since November last year we have done significant changes – also many as per the suggestions from our dealers – to adapt the model so it aligns much more closely with them.”

O’Neill: “Did you take another vote in February 2020?”

Nomikos: “No we did not.”

Von Sanden also confirmed he had said early in negotiations that Mercedes would not adopt an agency model unless dealers supported it.

Von Sanden said the company would offer all 53 current Benz dealers the chance to take up the agency model, which would mean they no longer buy cars from the manufacturer but gain a set fee for each one they sell.

“Australian consumers are at the heart of this initiative and we firmly believe they will benefit under the retail of the future model,” von Sanden said in his opening a statement.

“It will increase transparency and trust for our customers, shifting the experience from a price-centric approach to a service-based one.

“Our research tells us 60 per cent of customers would prefer the haggle-free purchasing experience; 74 per cent found the negotiating process difficult and wishes there was a better way; and 65 per cent find the overall purchase process mistrustful and lacking transparency.”

Collins’ dramatic claim that franchising was broken came in his opening statement as he explained the Honda Australia agency move.

“The business model today (franchising) has served us well but in our view it is outdated and broken and must change,” he said. “It is simply not sustainable and the outcome will be disastrous unless we at Honda change.

“We are very excited about the introduction of the agency model.

“We believe that the changes to our model will lead to an improved customer experience, making it more transparent, making it simpler and more enjoyable for customers.”

The depiction by both brands of a rosy future for car buyers under an agency model was questioned in evidence given by industry veteran David Blackhall, who has worked for manufacturers and dealers.

“I examined the rolling out of similar (set-price) models to this in other countries and the pricing models all failed out of the gate,” he said.

“It’s one thing to talk about clever algorithms and big data sets, it’s another thing to put them together so they work as they are intended.

“I think the jury is out on whether fixed-price model will deliver lower transaction prices to consumers.”