Digital direct sales – motor vehicle sales in upheaval

Electrification and digitalisation, most recently fuelled by the Corona pandemic, are prompting more and more car manufacturers to look at alternative sales models for their vehicles. Currently most discussed and gaining ground is digital distribution integrated into an agency model.

In the agency model, manufacturers and importers secure the greatest possible influence on pricing and distribution by selling their vehicles directly to customers in their own name and for their own account, in contrast to the classic authorised dealer model, rather than through an independent dealer network. If the sale is made digitally via the manufacturer’s own website, this is called digital direct sales. But here, too, the dealers play a central role as “agencies” by offering, for example, advice and a test drive in the run-up to the purchase decision in return for renumeration by the manufacturer, or by taking over delivery to the customer or carrying out warranty work for the manufacturer.

Various manufacturers are already using such digital direct sales approaches – be it for individual models or segments (e.g. e-cars), by way of time-limited special offers (e.g. for demonstration or stock vehicles) or for the offer of mobility services beyond classic new car sales (e.g. subscription models).

Regardless of the scale: the introduction of digital direct sales, especially parallel to an existing dealer network, is always an ambitious project that requires not only entrepreneurial flair in the integration of the trade but also compliance with complex contractual and legal framework conditions.

 

Do the dealer agreements allow parallel direct sales?

Manufacturers and importers who already sell their new vehicles through a network of independent dealers must check whether the existing dealer agreements allow parallel direct sales by the manufacturer at all. Older dealer agreements in particular usually restrict the manufacturer’s right of direct distribution to specific groups of end customers (e.g. authorities, journalists, employees, celebrities). In order to be able to sell vehicles directly to any end customer, either additional agreements with the dealers are necessary or the dealer contracts must be adapted, for example, by means of a termination pending change to the contract. In the case of parallel direct sales without corresponding contractual adjustments, there is a risk of claims for injunctions and damages by the dealers as well as termination without notice with consequences under compensation law.

If no contractual agreement on direct sales can be reached with the dealers and the manufacturer wants to avoid a network termination, one alternative is to think of platform solutions: Here, the manufacturer simply provides an online platform for sales by the dealers, through which the customers can select the product and configure it according to its complexity. As the dealers retain their margin and maintain direct contact with the end customers, such solutions are often easier to implement.

 

What has to be considered in the contractual arrangement in relation to the dealers?

The more the manufacturer integrates dealers into its own sales organisation and restricts their entrepreneurial freedom of decision (e.g. through non-competition clauses or obligations with regard to reporting, training, advertising, minimum purchase, after-sales service and stock-keeping), the more consideration it must give to the legitimate market interests of the dealers. In individual cases, this may mean that the manufacturer has to compensate the dealers financially for the mere impairment of their sales opportunities due to parallel direct sales and that a corresponding payment obligation has to be anchored in the dealer contracts.

Exclusive territorial or customer allocations in distribution contracts in favour of a dealer must be respected. The manufacturer may not actively deliver into exclusively allocated territories or to exclusively allocated customers. As a rule, however, the manufacturer may serve enquiries from these territories or from these customers, in principle also within the framework of online sales, as this is basically a so-called passive sale.

Furthermore, especially in selective distribution systems, the manufacturer itself must adhere to the qualitative standards set for the dealers. If, for example, the manufacturer sets standards for the dealers’ own online distribution (e.g. with regard to the presentation of the products in the online shop, the use of third-party sales platforms or the requirements for customer service), the manufacturer must also observe these standards in its own distribution.

 

How are dealers remunerated for their services in the context of digital direct selling?

 In digital direct sales within the framework of an agency model, the trade takes on central functions outside of the direct conclusion of the contract. The involvement of dealers is an important instrument for enabling them to participate in the advantages of direct sales and to increase their acceptance. Particularly with regard to the delivery of new vehicles, but also with regard to issues such as advice, test drives or after-sales service (e.g. in relation to maintenance, warranty and guarantee), the involvement of dealers in return for appropriate remuneration is an option – whether in the form of a flat-rate participation in the manufacturer’s margin or a differentiated remuneration that depends on the respective services of the dealer in connection with direct sales.

 

What are the special features of antitrust law that need to be taken into account?

Direct sales transform the manufacturer or importer from a potential to an actual competitor of its dealers on the retail market. Therefore, at the latest upon commencement of direct sales activities, it must be ensured under antitrust law that the manufacturer/importer sets the sales prices independently and, in particular, does not agree or coordinate sales prices with dealers. The manufacturer/importer must be careful from a antitrust law point of view if, for example, it receives market-sensitive information such as prices, sales volumes, customer names, etc. due to reporting obligations of the dealers. This also applies if such a transfer of information was previously permissible, for example for reasons of production and sales planning. An exchange of information that is inadmissible under antitrust law could be countered, for example, with “Chinese walls” in the manufacturer’s organisation.

 

Which consumer protection requirements are to be implemented?

 Manufacturers and importers who sell their vehicles directly are subject to the extensive information obligations under distance selling law, as they already have to be observed by e-commerce traders today. Since these information obligations must be provided at different times during the sales process, they should be taken into account as early as possible in the design of the sales platform.

In the case of digital direct sales, consumers also have a 14-day right of withdrawal from the date of delivery, irrespective of whether the customer purchases a pre-configured stock vehicle or a vehicle configured by the customer from a large number of equipment variants and yet to be manufactured. An exclusion of the right of withdrawal will likely only be considered if individual customer-specific special requests are taken into account.

One way to avoid the right of withdrawal in general, can be an obligatory personal consultation of the buyer on site at the dealership in the run-up to the digital vehicle order. However, for the exclusion of the right of withdrawal, both the intensity and quality of the personal contact during the offline contract negotiations and the temporal connection to the subsequent online order are decisive.

In connection with withdrawal, manufacturers also have to solve challenging follow-up issues in digital direct sales, such as how to organise the return of the vehicle (the customer must not be referred to the return at the delivering dealer), or to what extent the customer has to pay for any depreciation due to interim use of the vehicle after withdrawal.

In addition to the typical obligations under distance selling law, manufacturers and importers must also keep an eye on the information obligations specific to the automotive trade, such as those set out by the Energy Consumption Labelling Ordinance for Passenger Cars (PkwEnVKV) for information on fuel consumption, CO2 emissions and electricity consumption or the Tyre Labelling Regulation for fuel efficiency, wet grip and external rolling noise.

Finally, it is important not to lose sight of the Geoblocking Regulation, which prohibits discrimination against customers on the basis of their nationality, place of residence or place of establishment. According to this, customers may not be automatically redirected to other country sites. Customers must be able to purchase vehicles under the same conditions as customers from the EU country of the respective online user interface. Only restriction of delivery to certain EU Member States is possible, whereby the customer must have the option to specify a delivery address in the delivery area.