PARIS — The surge in electrical automobile gross sales has led quite a few automakers to maneuver to a direct gross sales and distribution mannequin, generally known as company, in an effort to chop prices and higher management pricing.

Huge names which are shifting to some type of company, for EVs or all their fashions embrace Audi, BMW, Cupra, Mercedes-Benz, Stellantis Europe and VW model.

However not everyone seems to be on board with company. Renault Group CEO Luca de Meo mentioned the danger of holding a whole lot of tens of millions of euros in stock outweighs potential good points.

“As an organization in a sector that has an issue producing money, to have that working capital round your neck, with all the danger, market volatility, downturns, it is a very dangerous sport,” de Meo mentioned in an interview with Automotive Information Europe.

Within the conventional mannequin, sellers purchase their stock from producers, and are free to barter costs (to some extent) with prospects. Additionally they bear advertising prices. In return, sellers can earn a better revenue from every sale.

Underneath company, the automaker retains the stock and consumers buy the automobile instantly from them. The supplier earns a set, decrease margin – however doesn’t must bear advertising prices and carrying prices for stock.

De Meo mentioned that company is especially dangerous as volumes improve. An organization that sells about 100,000 vehicles a 12 months would sometimes maintain 30,000 vehicles, or a 3 months’ provide. At an bill value of 25,000 euros, that interprets to 750 million euros of capital, he mentioned.

However that determine can be within the billions for a corporation similar to Renault that sells 2 million vehicles a 12 months, he famous.

De Meo mentioned {that a} no-haggle coverage is also problematic. 

“You do company since you need to management the value and also you need to minimize distribution prices,” he mentioned. “So that you give a 5 % margin to the supplier, there’s no low cost – however you’ll want to have a really distinctive product to not provide reductions.”

Renault has negotiated separate supplier contracts for EVs such because the Megane E-Tech. De Meo mentioned the bottom margin can be larger than 5 % (a typical stage for company contracts).

“We’d like the sellers to generate profits as a result of should you minimize their margins,  you do not assist them to cut back pointless prices by asking them to construct showrooms which are like temples or cathedrals,” he mentioned. 

“You recognize what they are going to do? They’ll say, thanks very a lot, I’ll go to a model that offers me a better margin,” de Meo mentioned. “If you make this determination [to go to an agency model] you’ll want to understand how gross sales and advertising and distribution works within the automotive enterprise.”

Whereas Renault Group doesn’t have plans to shift to an company mannequin, de Meo mentioned the low-cost model Dacia acts in some ways like company. There are few choices and comparatively few trim ranges, and practically all Dacias are offered by means of retail moderately than lower-margin channels similar to leases. 

“Dacia is a standard contract that behaves like company by way of economics,” he mentioned, “even accountable for the value, as a result of you could have a quite simple lineup and there’s no low cost, and 85 % of gross sales are within the retail channel. 

“Dacia has distribution prices which are one-third to at least one half of different quantity manufacturers,” de Meo added. “So we proved we will do it with out having to name it company and having to bear the inventory.”

In de Meo’s opinion, one of the best ways to regulate value “is to be sure that your manufacturing capability is beneath demand.” He mentioned Renault has minimize 1.2 million vehicles from its annual capability (utilizing the Harbour Report measurement of two shifts, 5 days per week). 

In 2023, he mentioned, “with a really conservative assumption, I will be above one hundred pc Harbour capability. So, I believe we have minimize greater than 10 % of distribution prices for Renault model simply due to this.”

“We had very excessive distribution prices, and now we’re within the sport,” he mentioned.