Browse over 9,000 car reviews

Goodbye, car dealers? Why the way you buy a new car in Australia is changing

Car dealers have been a staple of the new-vehicle sale, but maybe not for much longer.

“Dealers will be gone eventually; it’s just whether it’s five, 10 or 15 years from now.”

That’s the view of one car company insider, who believes the days of car dealers are numbered, as we are currently in the middle of a revolution that threatens to fundamentally change the way we buy cars in Australia.

It has been going on in the background for years now, and after some tentative steps from one side, to see how the other would react, we are now faced with the potential for widespread change.

It’s called ‘The Agency Model’, a phrase you’ve probably heard a lot if you’re a regular reader of Honda stories. That’s because the agency model is the newer, and theoretically better, way to buy cars, because it effectively cuts the dealer out of the sale.

But in order to understand how it works fully, let’s just take a quick refresher on how cars have traditionally been sold in Australia - the so-called ‘Dealership Model’. This method is what you are probably all familiar with, your local car showroom will have a variety of stock, either on the showroom floor or in a yard.

This stock is bought from the car manufacturer, so the dealer is effectively a middle-man, facilitating the customers sales process and servicing of the vehicles.

You, the customer, can take a test drive and ask questions of the dealership staff. If you decide to buy the car, the dealer will want to sell you the car they have in stock. Which means, if you want a white car, but they don’t have one, the salesperson will try and convince you to pick a different colour, rather than going to a different dealer, which means they lose the sale.

The agency model is completely different, with the car company itself owning all the stock and holding it in strategically placed holding yards around the country. Under this system, the dealership effectively becomes a venue for hosting test drives and deliveries.

Under the agency model, the actual purchasing of the new car is done online, with a centralised, carmaker-run website able to show customers around the country whatever stock is available. The key selling point here is that because the carmaker has control of all supply, it’s able to set a single price. That means there’s no haggling for a better deal - which some consumers will be disappointed by - but it also means transparency and stops individual dealers marking up the price of supply-constrained models. 

It also means, if you want to buy a white car and live in Melbourne, you can simply order the white model available in the Sydney holding yard and have it delivered to your local showroom for collection.

The catch, at least for the dealers, is that they can no longer haggle and potentially earn a greater margin on a particular car. Instead, they will simply get a fixed fee for delivering the car to the customer.

Tesla was a pioneer in the Australian market, with its limited footprint, and Honda became the first established car brand to make the switch to an agency model this year. The Japanese brand will be joined by Mercedes-Benz on January 1, 2022 - after the German firm tested the water with its agency model for selling its EQ electric models.

The benefits for the agency model are obvious for both the carmakers and the car buyer - the price is transparent and supply is more open around the country. The challenges are just as obvious though, with car companies intertwined with dealerships, some of which are large, powerful conglomerates, it makes switching to the agency model difficult.

Mercedes-Benz Australia is currently contesting a lawsuit filed by dealers that are unhappy about its switch to the agency model.

But this is only the beginning, and there is scope for more change in the future as customers become more accepting of this new way of doing business.

Hyundai is in the unique position of not only offering models through both the dealership model (its current Hyundai range) and agency model (which is how it sold the Ioniq 5), but also has its own way of selling its luxury spin-off brand, Genesis. Because it’s a new brand, Genesis Motors Australia was able to set itself up completely independently of any previous way of doing business. Its so-called ‘Studios’ and ‘Test Drive Centres’ are all company-owned and so the entire process, from beginning to end, including test drives and deliveries, are all handled directly by the manufacturer.

This would seem to be the ideal for the carmakers, but it would be very difficult to achieve for anything other than a new brand - like Genesis - given the existing dealers are unlikely to give up their piece of the action completely.

But don’t be surprised to see more and more car brands join the likes of Honda and Mercedes-Benz in switching to the agency model in the near future. And the reason is simple - it’s better for customers and we, the car buying public, are ready to accept it.

In the not-too-distant past, the idea of buying a car online would have a hard sell, but in the modern age, people are not only more comfortable making large purchases online, but in many cases prefer it. Particularly in the last two years, as company’s adapted to the global pandemic and made online ordering and deliveries easier.

Now it seems that it’s a matter of when, not if, car dealers evolve into delivery centres as customers demand a new type of car buying process.