PETALING JAYA: Sime Darby Bhd
’s motor business is seen as “most at risk” with the European automotive brands likely to adopt the agency model for dealerships soon.
Under the agency model, dealers no longer can set their own prices and they would not enjoy dealership margins as well.
In a note, RHB Research said European marques such as BMW and Porsche – two of the brands Sime Darby operates dealerships for – are the most likely to adopt the agency model in the coming years.
Dealership operators’ earnings may “marginally decline” under the agency model, RHB Research cautioned, adding that the motor business contributed 45% of Sime Darby’s earnings before interest and tax in the financial year of 2023.
Under the agency model, original equipment manufacturers (OEMs) deal directly with customers, who can either buy their cars from the OEMs’ websites or place an order through a dealer.
Cars must now be sold at prices set by the OEMs.
Dealers do not earn a dealership margin anymore, as they no longer purchase the inventory from the OEM nor assume the inventory risk.
The research house cautioned that fixed commissions under the agency model are usually lower than the dealership margin.
Regarding the earnings impact on dealers like Sime Darby, RHB Research said it depends primarily on the percentage of earnings previously derived from selling new cars. The greater the percentage, the larger the impact.
It is noteworthy that after-sales service and the sale of spare parts are typically significantly more profitable than the sale of new cars
The transition to the agency model is already happening in Malaysia. In July, Mercedes Benz reached an agreement with its retail partners in Malaysia such as Hap Seng Star and Cycle & Carriage to implement the model.
Volvo is already selling its electric vehicles directly online in Malaysia.
Commenting on the overall outlook for the Malaysian automotive sector, RHB Research remained neutral. The outlook is premised on softer car sales expectations in 2024.
“Key downside risks are softer-than-expected orders and deliveries, and resurgent supply chain issues.
“Over the medium to long term, the agency model also poses downside risk to earnings,” it said.
RHB Research’s top pick for the sector was Bermaz Auto Bhd, with a target price of RM3.25 per share. It also has a “buy” call on Sime Darby.
