Can manufacturers carry the stock?


The debate on agent contracts within the professions involved in the car distribution business is progressing. It still needs to be clarified because, in 2022, it is difficult to decide on the reliability of the "new model" if we take as a reference very atypical years when, between Covid and the semi-conductor crisis, no usual reference is valid any more. Nevertheless, by focusing on the key issue of vehicle stocks and their financing, the terms of the debate begin to become clearer.

The regulatory issue is not yet settled and the objection raised by Cecra around "non genuine" agency contracts is testament to this. Nevertheless, as the threat becomes clearer at Stellantis, VW (Cupra) and others, the fundamental questions are beginning to emerge, and they are primarily economic.

They consist in asking whether and under what conditions manufacturers could give up the dealership model and the advantages it has for them and/or whether their current reforming ardour is mainly explained by the unusual combination of factors to which the business is subjected.

As everyone has noted for as long as we have been talking about it, the main consequence of the agency contracts for which certain brands will opt is to put the manufacturer in a very new position where he carries the stock. In terms of the balance of power and/or "market power", he can see this as an advantage since he is the one who invoices, prices, finances and takes over and, if he decides to let the agent take over a part of the deals, he can remain in control of the conditions and remuneration.

He can, for example, oblige the agent to offer financing only through his captive and/or to take over only on the terms he has already offered the client on his website. From an economic point of view, this means that the vehicles which come out of its chains and which have not yet been paid for by the customer are not invoiced to the network: if the manufacturer is sure to sell them or if it has already sold them, this is not a fundamental problem; if the vehicle has difficulty finding a buyer at the catalogue price and one wishes to limit the discounts, then the stock tends to grow and the amounts tied up to it to increase.

Added to this traditional problem is the fact that if vehicles are no longer sold to customers but leased to them, as is the case today for a growing proportion of registered vehicles, then the vehicles remain the owner even when they have been put on the road and the manufacturer's business becomes (or would become) much more capital intensive than it was up to now.

Of course, if all the vehicles sold are based on firm orders placed online or in the network, the problem is less acute. If, for reasons of industrial or logistical organisation, one does not manage to acquire the necessary production flexibility so that the majority of the vehicles put into production already have a buyer and/or if one has calibrated the production tool in a rather optimistic way in relation to the orders which one manages to obtain, then one generates stocks and they have to be financed.

As soon as Ford, in the years following the launch of the T, had to deal with this problem, it gave up making its branches "retailers" and required its agents to pay for the cars to be delivered to them. The dealerships have become "buffers" that make it possible to manage these misalignments: the manufacturer passes on the hot potato of the relative lack of sales to its network; the dealer makes the appropriate commercial arbitrations to get rid of this stock by moving more or less away from the "catalogue price". The manufacturer, aware of these problems, modulates its conditions and aid to take on part of the burden of the adjustment. 

As Franck Marotte indicated in the interview he gave to F. Lagarde at the beginning of March, this traditional system delegates the negotiation with the client to the business and remains very defensible insofar as, as he says, "invoicing is an action that is very structuring" that "allows us to make a decision". Lagarde at the beginning of March, this traditional system delegates the negotiation with the customer to the business and remains very defensible insofar as, as he says, "invoicing is an action which is very structuring" which "allows the dealer to continue to personalise the conditions of the trade that he carries out". It also allows Toyota to offload and invoice the cars that come off its production lines a few months before they have been acquired by the customers under conditions that the dealers will be responsible for adjusting.

This defence of the traditional model by the boss of Toyota France is quite tasty when one remembers that, in the wake of all that has been said and written about the 'lean production' typical of the TPS (Toyota Production System), a literature on 'lean distribution' or 'BTO' for 'built to order' developed some twenty years ago, which claimed that Toyota had achieved 'zero stock' thanks to such a system and that it was necessary to hurry up and do the same. Our Japanese colleagues put the church back in the middle of the village and showed that, even in Toyota's best plants, achieving 30 or 35% BTO was a maximum: not every Toyota sold already has an owner who has or will pay. Toyota has stocks to finance and its network also serves this purpose. It is true that selling from stock generally means granting customers advantageous commercial conditions to compensate for the fact that the vehicle they would have liked is not exactly the one offered to them, but this is the way the industry works and it is likely that the manufacturer who would give up stocks would also give up significant market shares.

The case of Stellantis already raises this question. At Citroën or Opel, the drop in volumes and market shares associated with the privilege given to margins is a serious concern. Even the representatives of Peugeot - which in 2021 has taken the number one position in France and benefits from an attractive range - already see the other side of the "pricing power" coin. F. Mary, the president of the GCAP underlines it: "On the private customer channel, the brand is only positioned in 3rd place, which is a real concern. Why is that? Because Peugeot has increased its prices and reduced its commercial conditions. He wants to believe that this attitude of the Stellantis management is largely cyclical, as he adds: "Because of the lack of cars, the manufacturers favour the margin and the cars that bring in the most money. This is certainly a good test for the brands of the Stellantis group, which will carry VN stocks in the future and produce on demand. The manufacturer is constantly looking for margins and today its profitability is partly made on the back of the networks" and concludes, to reassure himself: "This is a one-off arbitration and all the manufacturers will be much more aggressive on the private market once we are out of this semiconductor crisis.

Clearly, it is not at all certain that Factory 4.0 and the shifting of a large part of the flexibility requirement to suppliers will allow us to do much better in 2022 than we did 20 years ago in terms of production on demand. Therefore, claiming that we can now carry the stock because it will be much more limited is quite audacious. Moreover, as Charlotte Dennery, a specialist in the field, pointed out in an interview with F. Lagarde, the French Minister of the Economy, Finance and Industry, "we can now carry the stock because it will be much more limited. Lagarde, Charlotte Dennery, CEO of BNP Paribas PF: "Given the investments they have to make in electromobility, some people are wondering whether it still makes sense to block capital in their balance sheet for the financing activity. 

In other words, this may not be the most opportune time to generate large capital requirements by no longer selling their cars to the grid. As C. Dennery and as Stellantis seems to want to do, for the financing part of the vehicles bought by (or leased to) customers, it is probably possible to enter into partnerships. As for the stock that will have to be carried between the factory gate and the road, manufacturers will find it difficult to escape the traditional trade-off: "stock sells", as we sometimes say; this means that as soon as volumes become an imperative, the choice of vehicles to be sold becomes more remote, stocks increase and pricing power decreases.

If we take the case of Renault, between the worst moment (March 2020) and December 2021, the total stock fell from 660,000 vehicles (109 days of sales) to 336,000 (53 days). In March 2020, the split between dealers and manufacturers was 390,000/270,000. In December 2021, it was 245,000 vs. 91,000. Assuming that in a more "normal" period when metal needs to be "pushed" a bit more actively, a stock of 500,000 vehicles of 75 days will have to be accepted. So, if all of this (and no longer 35%) were to be paid for by the manufacturer at 16,000 euros per vehicle stored, 5.2 billion euros would have to be found to move from the dealership to the agency... The reflection deserves to be deepened and it is understandable on this basis that the mass has not been said and that the manufacturers are not all advocating the same liturgy.

The weekly column by Bernard Jullien is also on

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