What does Mercedes' direct-to-customer sales model mean for you?

What does Mercedes' direct-to-customer sales model mean for you?

3rd Jun 2021 8:07 pm

How will the process of buying a Mercedes change? What happens to the prices, and what about discounts? We clear the air for you.

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Mercedes-Benz recently announced a complete revamp of its sales model in India. From the fourth quarter of 2021, the automaker will start selling cars directly to customers. This is in stark contrast to the existing system, where car manufacturers first sell their products to the dealers, which in-turn retail the cars to the end consumers.

So what can a prospective Mercedes owner expect? How does this affect the process of purchasing a ‘Three-pointed Star’? We break it down for you.

  • Test drives and vehicle deliveries will still happen at dealerships
  • You will be directly paying Mercedes-Benz India, and not the dealer, for your new car
  • Prices will be uniform, with no scope of negotiating and getting individual discounts

Mercedes-Benz dealerships won’t disappear

Mercedes dealerships will still exist. No matter whether you book your car offline or online, a showroom will still form the interface between you and Mercedes. “For the customers, in the first place, nothing really changes when they want to buy a car. They can still go to the dealership, and get the car,” explained Martin Schwenk, MD and CEO, Mercedes-Benz India, in an interview with Autocar India.

However, instead of the dealer, Mercedes itself will issue the final invoice of the car to you while making the purchase. “The sales contract will come out of our (Mercedes’) system, the payment will go against us,” commented Schwenk. But this doesn’t mean that the customer will take the delivery of the vehicle directly from the company. That bit, as well as the test drives, will still be handled by the dealerships. Besides, dealers will also have to be around to service the vehicles.

On the face of it, then, not much will change in the overall sales experience. Behind the scenes, though, there will be a few key differences.  

Waiting periods for vehicle deliveries could reduce

Instead of the dealers, it will now be Mercedes-Benz that will own and maintain the stock of all cars across India. Though dealers won't financially invest in the inventory, cars will still be present at showrooms. So, if the exact spec of the model you’re planning to purchase isn’t available with the dealer you approach, it can be brought in from another dealership nearby. Earlier, an order of such a model would have to be placed with Mercedes and shipped from the factory, extending the lead time. So, under the new system, you could expect waiting periods to reduce.

Elaborating further, Schwenk mentioned, “Customers not only get offered cars which are there in the inventory of that very dealership they go to, but they can also select a vehicle which is anywhere in India, either with Mercedes-Benz or with any other dealership.” Mercedes hopes this will provide “a better customer experience”, which is one of the factors that spurred it to revamp the system.

“On the other hand, we believe that dealers will be much more profitable because we will remunerate them, which will cover their cost of operation. And these costs of the dealers will no longer include any inventory costs. So what it means is that there are savings for our franchise partners (dealers) and we expect, over time, to get to a better profitability in the new car sales,” said Schwenk.

For better or worse, no more negotiations

No matter the city or the dealership, customers will be offered a common ex-showroom price, which will be set by Mercedes-Benz, and there will be no scope of haggling with the dealer.

“At the end, it is very important to have price transparency to get the best value. With this model, you will never pay more than what you should because the price will be the same and it will be centrally fixed.” With Mercedes in charge of the stock, dealers will not be stressed to indulge in random discounting to clear the pending inventory.

However, the prospect of not being able to negotiate, and get an individual discount, could put off some consumers, and in cities like Delhi and Mumbai, with multiple Mercedes dealerships, you'll no longer be able to pit one dealer against the other to get the best quote for a vehicle. So you’ll not be able to brag about what a great deal you’ve gotten.

As per our dealer sources, discounts are seen as a vital part of the car buying process and luxury vehicle customers often equate the purchase experience to a good deal. Mercedes, then, could be on the back foot here, at least till the new sales concept catches on.

“Yes, I cannot exclude that this could happen and, of course, with our transparency, our competition too has visibility of what is happening. That is a fact,” explained Schwenk. Customers, then, will simply have to learn to get used to the prospect of buying a luxury vehicle with zero negotiations.

The Mercedes India chief opined that this should be seen as a positive move because the outgoing system works out well for those who are able to extort a discount from the dealer, but it can leave others feeling a bit short-changed.

Despite the bold new strategy, Schwenk feels that the company’s refreshed portfolio will be reason enough to attract buyers. “We see a good chance that the product substance is so convincing that customers will still buy a car.” The German marque has already updated the E-Class this year, and launched the new A-Class and GLA. And the company stresses that it is in line for achieving its target of launching 15 models in 2021.  

Discounts won't go away completely

Schwenk reiterated that the new system won’t completely do away with the concept of customer benefits. So while discounts were earlier offered by both, Mercedes as well as the dealers, they will now be set just by the company. “The offer will eventually come out of our (Mercedes’) system,” he said. As such, instead of variable discounts, the same offers will be extended to everyone across the country.

Such a centralised approach to selling cars could benefit customers in the long run. “We have much better transparency of what's happening in the market and we can do much better inventory management and planning. So there are a lot of advantages. It's a very big move, but I am very confident that we can successfully manage that,” said Schwenk. A leaner retail network and lower overheads could ultimately encourage Mercedes in bringing down prices by 1-2 percent across the board, going forward.   

Also see:

Martin Schwenk on Mercedes’ direct-to-customer sales model

Mercedes-Benz evaluating local assembly of EQ models in India

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