A new 500 page rewrite of Volkswagen’s European dealer agreement is set to take effect in April 2020. The new agreement is a result of 2 years of negotiation and is designed to ease infrastructure demands on dealers and help them remain profitable through revenue-sharing arrangements and other measures as dealers prepare for less service business due to the coming launch of VW’s new I.D. family of fully connected, battery-electric vehicles in Europe.
This is a significant reinvention of dealer-manufacturer relations and will likely form the basis of a new dealer agreement in the US as well. It could also have a reverberating effect on other manufacturer’s agreements as the landscape of automotive retailing continues to evolve.
What Does the New Agreement Entail?
As customers become better informed and educated, it is harder for dealerships to stay relevant. Customers complain that dealers don’t have the right car, and that sales personnel do not have the right answers. VW aims to fix this perception by partnering with dealers on a scale never before seen.
The new agreement allows for direct sales of vehicles to consumers through the internet, with a dealer sharing in the sale and the delivery process. Dealers can also earn incentives when customers buy “on-demand” performance software upgrades, even if they had no direct role in the sale.
With the new agreement, VW promises to end requirements for fancy dealership structures in favor of more cost efficient storefronts. The transition would effectively turn dealerships into more of a delivery and service point for manufacturer sales.
Along these lines, VW is also creating a global repository of customer profiles and preferences (with customer consent). Information that has been traditionally stored at the dealer level will now be available at the manufacturer level for more holistic marketing and customer retention.
What is the Reaction in Europe?
“It’s a matter of survival,” Matti Porho, who owns a group of VW dealerships in northern Finland, told Automotive News Europe.
Porho, who is also president of Volkswagen’s European Dealer Council, played a key role in the European renegotiations, helping define new contractual obligations for dealerships and the factory. The council represents VW’s 5,400 sales and service points in Europe.
Pohro said the majority of profits his members earn are generated not from sales, but from service and repair work. “But electric cars will only need about half the maintenance of a combustion-engine vehicle,” he said.
With the coming EVs and digitalization of retail in Europe, Porho said VW’s European network had reached an inflection point: Either its longstanding factory-dealer business relationship had to change, with dealerships learning to live on lower revenue, or the stores would face a financial crisis.
“The current system has essentially been in place ever since General Motors first created it in 1915,” Porho said. It is obvious that the world has changed since that time, and VW seems to be taking the lead in adapting to the new world of automotive retailing.
It will be interesting to see how soon similar changes come for US dealers.