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When it comes to restructuring the automotive industry, everyone thinks of battery cells, electric vehicles and software. But the car trade thinks of agency sales. The size and importance of a manufacturer’s distribution network is often overlooked. The difficulties of Chinese importers in establishing themselves in the European market indicate how important a functioning distribution network can be.
The biggest restructuring is taking place in the trade. And according to the German Association of the Motor Trade (ZDK), this affects almost 400,000 people in Germany alone. Today I’m talking to Tobias Bald about this. Tobias once ran one of the oldest Mercedes dealerships in Germany and later founded Panoff Consulting with partners. Panoff is a German-speaking boutique consultancy specializing in the car trade, and Tobias Bald is one of the practitioners among the consultants.
Tobias Bald, Partner at Panoff Consulting
Very first question. Tobias, what is your dream car?
Tobias Bald: My dream car is a Mercedes Benz 1969 280 SL, called the Pagoda.
And I used to have one, but unfortunately I sold it in a fit of emotion, which I now regret very much.
I can do much more with the old cars. The design alone comes much closer to my ideas of aesthetics and beauty than most of what is being developed today.
Do you have an explanation for this? Many people in the industry love old cars. It’s all there, lots of Porsches, but we’ve also had Maserati cars. Why do you think that is?
Tobias Bald: These cars speak to my need for clarity, simplicity and authenticity. It was a car where you knew it had a mechanism. If something was broken, you knew what was wrong with the mechanics. It was transparent, it was alive, you could work on it.
Now modern cars are intransparent and no longer comprehensible for me. The complexity has become too great and with it the dependence on specialists.
Keeping the brand promise.
When I look at how long it takes to carry out a diagnosis on the current models, how much software is involved, it’s no longer within my grasp and that’s why it no longer appeals to me.
What appeals to me is something that also reaches me emotionally. And that’s what the Pagoda did. In addition, the way of life when you go on a trip in a car like this is of course completely different, because you can still feel the power, the weight of the vehicle and the environment much more directly.
This simplicity, clarity and transparency of cars in the past makes selling cars today more challenging.
Tobias Bald: I think so.
If I put myself in the shoes of potential customers, it is a great challenge to identify the differentiating features between different models. Cars have become more comparable in terms of design and technology. What is the actual advantage of this product?
The traceability of brand promises is no longer guaranteed.
In the direct sales and agency model, the approach to selling cars is largely standardized. Cars are becoming more complex and less transparent and at the same time we are trying to standardize the sales process.
Tobias Bald: Yes. I wonder what the standardization you mentioned is supposed to achieve in essence.
Manufacturers are going into the agency business model to transform something, to change something. It is stated that we are facing the biggest transformational challenge in the history of automotive sales. And every time I read that, I ask myself: where is this transformational challenge leading?
The motivational psychologist Heinz Heckhausen taught us to ask questions:
From where to where exactly do we want to transform ourselves? Which state do we want to leave? Which state do we want to reach and why?
Applied to this situation, the question is: How exactly do we want to act in the future when we are in the agency business model? And what exactly do we want to achieve? The agency business model is there to change things. And many goals were pursued. We wanted to reduce sales costs. Serve the customer more directly. Give fewer discounts. In other words, business objectives.
But what exactly is the guiding principle that should change in the cooperation in vertical sales structures between OEMs, NSCs, agents and customers? And what advantage do we have? What advantage does the end customer have? With the current focus on functions and processes, we have lost sight of exactly what we want to achieve with this transformation.
Let’s take standardization. Is that a goal? Is it a solution? Because if it is a solution, what exactly do we want to achieve through standardization? Why are we doing this? Does it give the customer more security? Does it create more transparency? Or is it about working more efficiently and saving costs? Or both?
So we transform for the sake of transforming, without knowing exactly what our target image is.
Tobias Bald: I have a hunch about the target image because I was confronted with it 15 years ago. It’s a legitimate assumption that the OEMs and NSCs have their eye on the biggest asset that the retailer still has today: customer data.
In the old business model, these were held by the retailer. The retailer also locked them away in his vault, did not make them available in his DMS or in his systems. That’s where we want to go now.
And the agency business model is of course a way of accessing this data, which has never been achieved to date.
But here, too, the question arises: What do we actually do with this data? How do we use this pool of know-how about the customer at the three sales levels and in the digital and analog channels? With what objectives?
At least in my contexts, this is hardly ever discussed. Instead, it’s all about process and function. Not about improving customer satisfaction, not about the consistency of the customer journey, for example in terms of customer expectations. That is of secondary importance.
Too strong a focus on processes and systems.Too much focus on processes and systems.
Why is it that we are now mainly concerned with processes and systems?
Tobias Bald: I think there are two reasons.
One of the main reasons is that, with the introduction of the agency business model on the part of the OEMs and NSCs, we have not given enough thought to which processes and functions we will be responsible for in the future. And we lack the expertise to carry out these processes and procedures, which were previously handled by the dealer.
Let me take a concrete example: In the past, order data management was the responsibility of retailers. The retailer’s dispatcher transferred an order to the manufacturer. The dispatchers know how to do this. Just like, for example, payment processing by the customer. These are processes that will have to be carried out by the NSC in the agency business model in the future. But there are no processes there, there are no systems and no functions. And that’s why the need to deal with processes and systems is so great in the first place, in order to be able to maintain business operations at all.
That is the main point.
The second is a different one. What I called a change of mission statement earlier. It is human nature to withdraw to the field of action that we are familiar with. The NSCs and OEMs have a high level of process expertise. They know what the processes look like, they know what requirements there are for systems and they know how to do projects.
However, a consistent customer journey would require thinking from the market, thinking from the customer and adapting processes to the customer’s needs. This is the only way we can differentiate ourselves from the competition.
But we still think like we did in my grandfather’s day:
What will happen when we have overproduction? How can we then subsidize the stock vehicles to sell them off? It’s like the old world 50 years ago. Unit numbers are more important than customer needs!
And in my opinion, that is the wrong way of thinking.
If we were to think in terms of the market, then we would take a look: What does the customer want? In what form do they want it? How can we make storage trolleys attractive to them, in different channels, so that they receive satisfactory service?
But this requires a change in thinking. And that is difficult. It is currently almost impossible for those involved in the projects today when it comes to transformation.
Sales pressure, costs and prices.
Until now, pricing has been carried out by the retailer. In future, the manufacturer will set retail prices. Not discounts, but really end customer prices.
Tobias Bald: There are currently various models used by manufacturers.
First of all, the agent is remunerated for his brokerage service and receives a brokerage commission that is far below his previous margin. This has also caused dealers and future agents to worry about their main source of income.
If there is sales pressure, the manufacturer naturally asks itself the question: How can we intervene to provide targeted support for specific models in specific customer groups at specific times and perhaps also in specific sales channels, namely online or at the agent?
One trend that I think is generally good and beneficial is no longer to give out discounts to everyone at any time, as was the case in the past, but to support sales processes as precisely as possible.
So no more shotgun, but leaf shot.
You look specifically: What is Mr. Szameitat’s situation? Is he ready to buy online or does he want to be looked after by an agent? Which model is he interested in? Then we give Steffen Szameitat a specific discount to convince him to buy this stock vehicle online from us.
And here we have various options via vouchers, coupons or similar. But customer-specific and not across the board.
Are we on the way to the real agency?
Tobias Bald: We are still struggling with the move to a real agency. This would mean that the NSC would have to take responsibility for inventory management, demonstration vehicles and the risks that the dealer has borne to date.
This is not yet possible for many manufacturers because the processes and functions are not yet available. And that’s why many of us are still in a non-genuine agency, where the agent acts as an intermediary but is not yet relieved of responsibility for stock vehicles, demonstration vehicles and inventory management, for example. He shares the tasks with the NSC.
Opportunity for retailers: Sell more per customer.
How can retailers compensate for lost sales?
Tobias Bald: Yes, that’s a good question that I can answer relatively easily. We also have a few empirical values by now. If you look at what some people have already tried and then stopped doing, such as selling e-bikes or scooters, investing in Chinese import brands or similar. Most of this has not been able to compensate for the loss of earnings. Which is also a sign of the underlying mission statement, namely replace one product with another.
But in my view, that is not the key to success. The key to success is to lean into an uncertain future and into what the customer’s needs are and where they will develop.
In any case, there has been a huge need for action in retail for decades in terms of improving service quality and systematic market cultivation. I maintain that almost all brands in all segments, in sales and aftersales, still have considerable potential when it comes to actively working with and looking after customers and providing a service to them.
And that is exactly what I mean by a paradigm shift, a new mission statement.
Away from “producing and selling cars” (which is still our guiding principle today), towards “providing a service, serving the customer”. To do this, I first have to understand what the customer’s needs are. Simple really. We all learned that at university. Marketing is about thinking from the customer’s perspective. And then to implement the services in the various channels online or at the agent and to systematically and actively support the customer.
No longer as in the past, where the sales process began with us with “customer comes to the showroom”. No, today we can know where the customer currently stands in their interest process. And we can make them an appropriate offer. And not just in terms of price, but also in terms of content.
And in my opinion, that is the future. This is where the agent has a lot of catching up to do in sales and aftersales: in active customer care. If the agent understands where the customer’s concerns lie, then they can also expand their product portfolio. And perhaps sell the customer a subscription instead of a car. A service or a service. With a maintenance contract or, or. There are many options that suddenly open up if you simply broaden your perspective.
People sell to people.
So Tobias Bald’s vision is to take the service and experience of the car trade to a new dimension. And a higher share of wallet for everything to do with mobility. But to achieve this, dealers need to acquire some new skills.
Tobias Bald: Absolutely. And not just the agent on the one hand, but the NPCs as well. A different way of thinking has to take root. It always starts with your own attitude: If I change my attitude, then I change my thinking. If I change my thinking, I change my actions.
And that is what I mean by a paradigm shift, a new mission statement.
What we are doing today with the introduction of the agency business model is reorganizing processes and placing functional requirements on the systems. But that’s just the surface. It doesn’t change the behavior of the people who interact with the customer. As long as that is the case, this transformation will not take place. It would be courageous to say: we are now taking the step into the unknown and thinking about processes from the customer’s perspective. And derive the requirements that we have for the agent, the NSC and all other participants in the process from this.
What are the main misconceptions on the part of the importers’ NSCs in this picture?
Tobias Bald: What surprises all the NPCs I deal with at the moment is how many and how complex tasks they have to take on. Which until now have been carried out by retailers. And how much cost that entails. How many resources it requires, how many people have to do what the trade has done up to now.
Another surprising realization of manufacturers is that customer data does not create customer proximity. We see this with providers who skip the sales agent stage, such as Tesla. That there are also dissatisfied customers, for example in the event of a complaint. When you suddenly have no one in front of you to talk to about your dissatisfaction.
This means that you can save on this sales stage and perhaps also cut costs. But the question is whether you want to do this in terms of service to the customer. Or, to put it the other way round, whether the customer might not be prepared to pay money for certain services that are provided for them if it takes away one of their worries.
This means that there is no one-size-fits-all solution for sales. It’s about how I want to position my brand. A brand in the low-cost segment can certainly position itself better in direct sales than a premium brand. At the same time, a premium brand has to think about how it can keep its customers in its ecosystem and proactively support them so that they never feel the need to leave this ecosystem. And we are still a long way from achieving this with the German brands.
The bosses of the manufacturers are mostly engineers. With your very strong retail experience, if you were to write them a letter: What would be your key messages to the German CEOs?
Tobias Bald: I would choose a “purpose-driven” approach.
Think about what makes you special. What makes your brand special, who your customers are and what is important to your customers. And build the house of your business success on the customer needs and the “purpose” of your brand. As a consequence, this means that you also select your resources, especially human resources, in such a way that they do justice to this “purpose”, this raison d’être that your brand has.
Because that is what binds people.
People are engaged and reached through emotions, not technology. This also applies to those with an affinity for technology. Emotion is what actually binds people and represents an attractive target image. The Porsche brand, for example, is a highly emotionally charged brand where customers are even prepared to accept certain shortcomings or technical problems. Simply because this brand satisfies a specific customer need.
This clearly shows how important emotion is for sales.
Steffen Szameitat: Thank you, Tobias. Great conversation.
