Mercedes-Benz dealers across Australia have been in tense negotiations with the German car giant over a switch to fixed-price new-car sales from next year.
A showdown is brewing between Mercedes-Benz dealers across Australia and the German car giant over a plan to switch to non-negotiable fixed prices for new cars from 1 January 2022.
After three years of negotiations and extended deadlines, Mercedes-Benz dealers across Australia have until the close of business this Friday to sign the new deal or walk away from businesses they have built up over years and in some cases over several decades.
The changes will affect each of the approximately 60 Mercedes-Benz dealers nationally and the staff they employ, and the approximately 30,000 people in Australia who buy a new Mercedes car or SUV each year.
Mercedes-Benz says the new structure will provide fairer prices and fairer access to new cars for customers across all regions in Australia, not just metropolitan areas.
Under the proposed scheme, Mercedes-Benz will retain the vehicle stock and dealers will simply become agents that do the vehicle handover, and be paid a percentage of the profit from the sale.
Detractors of the fixed-price sales structure say the scheme will lead to higher prices, because buyers lose their negotiating power regardless of which dealer they visit.
Furthermore, because Mercedes dealers will no longer own the floor stock, there is less incentive for them to “move metal” and get cars out the door.
A Mercedes-Benz dealer speaking on condition of anonymity believes the fixed-price sales model is destined to fail because car companies underestimate the effort and stress involved in “pushing cars out the door.”
“Let me tell you, when you own the floor stock, and that car is costing you money every day it sits there, you want to do a deal and get it sold, because that puts food on your table every night and gets your staff wages paid,” said the car dealer.
Mercedes-Benz dealers and representatives for the German car giant held a marathon mediation session last Friday – the second round of negotiations after dealers were issued contracts in July 2021.
A new version of the dealer agreement – with the latest round of revisions – was sent out last Monday, giving dealers five business days to sign on the dotted line after negotiations started three years ago.
Drive understands Mercedes-Benz has responded to some but not all requests for amendments to the dealer agreements.
People familiar with the negotiations say there is a mix of dealers who are pleased with the deal, while others claim they are signing reluctantly because they feel they don’t have a choice.
A spokesperson for Mercedes-Benz Australia contacted by Drive declined to comment on the negotiations.
Another dealer, also speaking on condition of anonymity, said: “The fixed-price business model might look good on a spreadsheet in Germany, because they multiply volume by profit margin.
“But there’s no appreciation for how hard dealers need to work to get these cars off the showroom floor. When it’s not your car to sell, you’re less invested (in selling it),” he said. “When you have skin in the game and your house is on the line, you want to push cars out the door.”
Some industry insiders claim the scheme is destined to fail and have forecast the business structure will eventually return to the traditional negotiable price sales model, as it is today.
Japanese car giant Honda has also recently made the switch to fixed-prices for new cars in Australia – since 1 July 2021 – and sales have tanked.
However, Honda argues it takes time for new orders to flow through after restarting with a clean sheet, and that it is not fair to judge the success or otherwise of the fixed-price structure after just two months worth of results.
Honda says it could take up to a year for its new fixed-price business model to adjust in Australia.
Drive has been told there are no laws preventing the introduction of direct sales, even though a number of states in the US ban the practice.
John Krafcik, a former heavyweight in the US automotive industry, having previously worked in senior executive roles for Ford, Hyundai, Google and, until recently, the Waymo autonomous car start-up, told industry podcast, Autoline After Hours earlier this year: “In a one-price environment for direct to consumer, the manufacturer sets the (RRP) and there’s no room for negotiation, so it will result in higher transaction prices.”
Last week, executives for BMW and Mercedes told UK press they plan to maintain or increase prices once the current stock shortages end, after experiencing the benefits of restricted vehicle supply and high demand.