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Mercedes-Benz chief Gary Savage: 'Prepare for direct sales'


Mercedes-Benz franchisees have been challenged to think hard about their business opportunities when manufacturer direct sales take off.

UK chief executive Gary Savage believes it is “an inevitability” that carmakers’ national sales companies will take on direct sales of new cars to consumers in the future, but he is convinced it is not a threat to dealers.

“In reality, to genuinely be able to realise online selling, you have to do it direct. Because of all the components of competition law, you have to be in a position where you can set the selling price, in order to offer the customer the best price consistently,” he said.

As such, direct sales couldn’t happen overnight, but he was unwilling to suggest a timeframe for the development.


Savage is airing his views to be a “deliberate catalyst” with the Mercedes network, so that more of its dealers will think about the other opportunities in store.

“Very few people in my experience are prepared to have an honest conversation with their retailers to say ‘look, the opportunity for new car margin to return to what it might have been is relatively narrow, so we have to accept the new car margin is now driven by the multiple rather than the sum itself’.

“I’m confident that our network can operate there, because we actually have enormous experience of selling direct, because we have the direct sales programme for the contract hire and leasing company.

“We sold 35,000 cars last year directly out of this office in Milton Keynes. There’s a team here that ordered those cars, invoiced those cars and our retailers enabled that to happen by providing the test drive, the delivery, the handover, the whole experiential part of the sales process, and they got a handling fee for that. It’s not so many years ago that they had their full retailer margin for that business, but that has gone to a handling fee. Now it’s a very viable part of the retailers’ business.”

Direct sales would also require a change to the “myopic obsession” with hitting a monthly target, he said, because sales would have to be much more driven by consumer pull than manufacturer push. Savage believes it would also bring an end to manufacturer-imposed new car targets, because these would not be in the spirit of an agency contract.

Savage also believes major brands such as Mercedes-Benz would need to streamline their product ranges. While he doesn’t want them to cull model lines, he thinks   it will be necessary to reduce the number of trims and configurations, to make decision-making easier for consumers.

“We often have our head in the sand about change. The way people buy cars hasn’t evolved, but in reality there’s been a lot around the edges. But I think change is coming.

“We’ve got to accept in the end that we look at this often from the perspective of the manufacturer, the wholesaler and the retailer. We’ve got to look at this from the customers’ perspective. Everything else can be purchased on their terms and at their convenience.”

Savage believes individual franchise partners should be allowed to adapt at different speeds, to embrace change as they become comfortable with it. Once a new approach is successful for one, others inevitably want to adopt and it spreads organically, he said.

Those new approaches include removing sales desks and introducing product experts – there are now 150 across the network – and the use of temporary stores to put the cars in front of shoppers.

The ‘pop-up’ stores attracted 600,000 visitors last year, and have led to new and used car sales, Savage said.

Building the used cars business

Used cars is an area he would like Mercedes dealers to build on. Currently too many pre-owned Mercedes are bought by the independent motor trade, he said. For vehicles two to three years old, only about 50% are kept within the franchised network.

“From my experience, used cars often play second fiddle to new cars. I don’t think that’s right, but we have to concede that’s inevitable. I think that has to change,” he said.

Savage would like to see a full overhaul of Mercedes-Benz’s culture around used cars: “I would like us to have the same processes and disciplines around used cars as we have around new.”

He is frustrated by franchised dealers thinking every single used car needs individual pricing. PCP and lease contracts that specify a return condition and mileage obligation to the customer mean the “bandwidth of difference” between one car and the next is narrower, he said.

Mercedes believes purchasing used car stock could also be more expedient and process-led in collaboration with its dealers.

“This is where we need to be thinking. There’s always going to be the opportunity for our retailers to be selling used cars because it is such an important part of the new car business, and one doesn’t exist without the other. That’s potentially where we’ve been slow to really appreciate that, the fact that you can only be selling the number of new cars you do on the contracts you do if you’re selling them at the other end.”

For many customers, the entry point to Mercedes-Benz is going to be a used car and Mercedes-Benz UK recently ran TV advertising promoting its approved used scheme.

Seeing Sytner’s purchase of CarShop and Pendragon advertising Evans Halshaw used cars on television gives Savage confidence in his thinking.

He believes there is a chance to evolve Mercedes-Benz’s representation, and has been discussing with franchisees the potential of them having additional sites purely for used cars and aftersales within their market areas.

These already exist within the manufacturer-owned Mercedes-Benz Retail Group, although their focus is on buying used cars from the manufacturer, so Savage doesn’t view them as an ideal blueprint for franchisees.

While he would like to see more progress, Savage believes UK dealers are the most sophisticated used car sellers in Europe. However, he said they could learn from the US, where dealers have a more established end-of-lease returns process in which the finance house, wholesaler and retail network work more collaboratively to improve the experience for the customer and speed up the process. He believes there are too many touchpoints in the UK between a car reaching end of lease and the car being sold to a new owner.

The national sales company should have a role to play in supporting used cars too, said Savage.

“For us, it’s about having the same incentive philosophy that we have for used as we do already for new. For example, we don’t negotiate on the price of a new car. However, we put various incentives and consumer offers in place to ensure it’s attractive in the market. But with used we don’t put many incentives or offers in the market, but we negotiate on the price. That’s the bit that has to change.”

Dealers have got over data-sharing ‘hurdles’

The network has agreed to share customer data for aftersales, while in line with data protection legislation. If a vehicle is sold on the south coast to a customer in the Midlands, Mercedes will share with the Midlands dealer that the customer is there and is a service opportunity.

“It really demonstrates the maturity and collaboration of our network that they made that request. They’ve got over many of the hurdles that others are still struggling with.

“The currency in the future is going to be knowing which Mercedes-Benz customer transactions are happening within your market area. If I had my own market area, my ambition would be to have insight into all the transactions going on, through new, nearly new, used and aftersales. That’s what I think the direct sales model moves you towards.”

Aftersales representation may also need to expand. Savage is conscious that, with 126 sites nationwide, the network risks missing out on some customers who will find it inconvenient to crawl across major cities when their car is due a service.

“No matter what happens in the future with direct sales, there’ll always be a need for servicing,” he said.

Pre-delivery inspections for all 35,000 direct sales are carried out centrally by Mercedes-Benz UK. It is also trialling an express service. An evolution of the former My Service programme, it puts two

technicians on each car and completes the service in 45 minutes while the customer waits in a lounge.

While much of Savage’s thinking is given to the longer-term, there is no plan to level off the growth trajectory at Mercedes-Benz in 2017. The German premium brand has had record new car volumes year after record year, finishing with 169,828 new car registrations at the end of 2016, a 17% rise on 2015.

Five months into 2017, it has taken fourth place in the market, behind Volkswagen, Vauxhall and Ford.

Savage wants Mercedes’ car registrations to continue to grow this year – although he is coy about the brand’s target. The reason he gives for this is that he had not expected Q1 to be so strong, nor for April to be so weak, although he felt “comfortable” about the brand’s performance in May (up 6.8% at 14,660 units). The brand has “a reasonable forecast for the year”, he said, having planned for a total industry volume (TIV) that would be flat at best. The SMMT’s latest forecast for 2017 would see the new car market contract by 2.6% year-on-year.

“This is like a new world order for me. Back in 2010, when I joined, we were outside the top 10 and Volkswagen was about 50,000 ahead of us. Now Mercedes-Benz is fourth in the UK market. I’m still getting used to that,” he said.

Savage conceded the volume growth has been heavily driven by Mercedes’ expanded range and PCP finance, which he sees as a genuine change in consumer behaviour. It has been spurred on by marketing activity and strong brand appeal.

Savage said Mercedes has become very powerful – it now dominates the executive saloon segments, with its C-Class, E-Class and S-Class, plus it sells 40,000 A-Class hatchbacks a year in the C-segment and about 7,000 AMG high-performance cars to wealthy petrolheads.

He added: “We’re competing alongside the mainstream, but we also have delicatessens and boutiques. That’s a real strength to our brand.”

UK SUVs ‘a fraction behind the curve’

The brand still has “a lot of latent opportunity in SUVs”, he said, because it has been “a fraction behind the curve” in bringing a full range to the UK. Previously the mid-size GLK was not available in the UK, because it was not built in right-hand drive, but its replacement, the GLC, is being imported.

The strength of Mercedes’ network has been another pillar in its success in the UK, said Savage.

Each dealership made an average of about £1.1m in profit last year, a 2.1% return on sales. Overhead absorption is running close to 80%.

Franchisee satisfaction is consistently high

The brand has just 20 partners operating 126 sites in the network, and the Milton Keynes head office has close relationships with the market area directors at those partners. It’s one of the factors that have maintained Mercedes’ position at the top of the National Franchised Dealers Association’s twice-yearly Dealer Attitude Survey.


Despite leading since 2014, the brand doesn’t take the NFDA scores for granted, said Savage, nor does it push franchisees into giving good feedback. It still “looks forensically” at the areas within the survey where it is weakest.

“Provided we’re around the nine out of 10 mark I’m happy. Whether we’re number one or not is out of our hands,” he said.

“It’s a very good barometer. And we do have consistency – Daimler has its own centrally run dealer satisfaction survey  and that correlates in terms of how satisfied our network is.

“We do a good job. But let’s be fair, this is a good time for Mercedes-Benz. All the basic ingredients for success have come together at the right time.

“You’ve got to remember the components that make this the success it is today and ensure we don’t become complacent and believe in our own magical touch.”

As Savage brought up the subject of complacency, I end the interview with a light-hearted chiding of the chief executive. When we last met in autumn 2015, he made a point of talking about how settled the network was.

Three months later, Vertu Motors bought Greenoaks’ sites in Ascot, Reading and Slough. Then Hong-Kong based Lei Shing Hong bought the Birmingham and Manchester market area from Mercedes-Benz Retail Group to establish LSH Auto UK and Marshall Motor Holdings took over Ridgeway, including its four Mercedes sites in Hampshire. Finally, in August 2016, Lookers acquired Drayton Group’s seven Mercedes dealerships in the Midlands.

Savage chuckled as he responded: “It was just remarkable. Yet, if our network was a still pond, it would appear to me no one has dropped a pebble in it. That change of ownership has had no disruptive impact whatsoever. We’re delighted.”

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  • Reader - 28/06/2017 10:35

    This displays a high level of complacency and comes across obnoxious; manufacturers should be highly aware they are called manufacturers for a reason - retail is different.

  • Charles Hines - 30/06/2017 14:23

    Regardless of the site/franchise sales; a good product goes the distance. The problem for many is spares and cost. That's why cheaper options in austerity are chosen. However that extra customer /re-finance option at the end of a finance cycle sounds a way forward to retain,also in serviceing plan choice, further interest in the star products.

  • mercman - 10/07/2017 11:27

    Manufacturer direct sales rarely help the rest of the network. The comment "For example, we don’t negotiate on the price of a new car" is not true!

  • Nicky Thorp - 28/12/2017 19:14

    I it’ amazing how the manufacturer believes they can set the trend but after failing a number of times it will be interesting to see how MB try to evolve the retail industry once again. Stick to manufacturing. I once listened to Jurgen Schremp’s carbage many years ago.Try experience retail beforeyou shout your mouth off

  • Lauren245 - 28/01/2020 11:32

    I bought a 2016 Mercedes C Class AMG in May 2019! it broke down Friday 24th January 2020!! it is a complete engine failure which is ridiculous for a 3 and a half year old car. Mercedes in Scotland are refusing to take any responsibility and are telling me it will cost £11,000 for new engine!!!