The (de)centralization of markets has always been an important topic in politics and business. In recent years, we have noticed different approaches in both directions among our clients.

We are interested: Why is this the case? Why are different approaches being taken in the automotive industry? What does this mean for dealers? And how are new competitors in the market doing it? Read more about this in our latest impulse. We look forward to your feedback.

Do changing market needs in relation to online business in the automotive industry require manufacturers to centralize?

„How much power should I give to our manufacturer’s markets and which processes should be controlled centrally from headquarters?“ –  a question that many board members in our industry ask themselves.

In order to approach the issues raised in this impulse, we want to examine the aspect from a procedural-systemic, financial and legal perspective.

When it comes to processes and systems, classic arguments from business administration quickly spring to mind: The more processes and systems are provided and controlled centrally, the more synergies can be worked out between markets or decision-making processes can be driven forward much faster. On the other hand, the individual needs of the market may not be sufficiently taken into account, as responsibilities are not located where the challenges arise.

If the topic is examined from a financial perspective, it becomes clear that decentralized approaches make it possible to localize success in the manufacturers’ markets and thus ensure greater transparency regarding the performance of individual business areas. This increases identification with the job and motivation of the people involved. On the other hand, there is the problem of transfer prices within a company, which leads to a loss of efficiency on a macro level.

From a legal perspective, decentralization in the international automotive industry in particular entails the risk of being confronted with different interpretations of the law. Furthermore, the different legal forms of the companies pose additional challenges. Unfortunately, even centrally positioned car manufacturers have to contend with difficulties from a legal perspective, for example when it comes to the rights of use of systems for the individual markets or the issue of data protection.

So much for the theory – but what does that mean in concrete terms? Anyone who reads our Impulse regularly knows that, in our view, the most important development in the industry is the trend towards online business – mainly for sales, but also for after sales. Many manufacturers are betting that their vehicles will increasingly be sold via the Internet in future and no longer exclusively through dealers. If we follow this assumption, we can draw a number of conclusions for this analysis:

In terms of processes and systems, it may be understandable that different markets use different sales workstations and different dealer management systems, for example – in other words, decentralized approaches are pursued. However, if online business is set to increase in the coming years, we believe it is advisable to no longer develop processes and systems locally, but to provide them centrally and adapt them locally. Here you can also look at lessons learned from other industries: Understandably, every travel agency needs its own software to sell travel – but when Lufthansa sells flights via its homepage, this is done worldwide via a standardized system.

From a financial perspective, a certain degree of autonomy in the markets is advisable in the traditional retail business, as the controlling department, for example, is responsible for many activities relating to the settlement of premiums and bonuses. In our view, this construct is greatly simplified in the agency business. The models are offered at certain prices with much less room for negotiation for the customer and therefore also for the market itself. This trend is confirmed when looking at relatively young competitors such as Tesla or Aiways: quite rigid pricing models are already being used here so that, in our expert opinion, centralized approaches will prevail.

The arguments cited above with regard to the legal perspective change only minimally as a result of the agency business, meaning that there are no significant implications for this analysis. In the first step, the business only shifts from the geographical regions of a market to the market itself, which does not initially entail any legal changes.

In summary, it can be said that the current development of the business towards online sales and away from the retail business is certainly presenting manufacturers with new structural challenges. At the very least, it is questionable whether the effort required for decentralized sales organizations will still be worthwhile in the future. New competitors are already taking a centralized approach and it remains to be seen whether the “classic” automotive world will follow suit.