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People Love Their Dealer, Hate Yours

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When the National Automobile Dealers Assn. said the franchised dealer system protects consumers, irked Internet users began pounding their keyboards.

People carry on a love-hate relationship with car dealers.

They typically love their dealer, as evidenced by rating websites where grateful customers say things like:

  • “He cares about his clients and is extremely helpful with any questions or issues.”
  • “I have always been extremely pleased with the service and professionalism.”
  • “It was honestly the BEST customer service I’ve received in my whole life.”

But many consumers dump on dealers in general. Disliking from afar is a human flaw. Disdaining faceless groups is a building block of bias.

So when the National Automobile Dealers Assn. said the traditional franchised-dealer system actually protects consumers, angry Internet users began pounding their keyboards.

“Yes, everyone I know leaves a dealership thinking, gee, that dealership is really interested in protecting me and my interests rather than their own interests,” one sarcastic wag wrote in the reader comment section of an online story mentioning NADA’s claim.

“Very disappointed to see that NADA thinks we’re a bunch of morons who will buy this line,” someone else commented. “I could respect them more if they would just come out and say they were trying to squash a competing business model.”

Another person proclaimed: “The arrogance of trying to tell us they are just watching out for our best interests is stunning.”

All this bluster is tied to electric-vehicle maker Tesla deciding to short-circuit the conventional dealer system by selling its vehicles directly to customers.

Tesla has opened small showrooms here and there where shoppers can check out the single-product Model S, then order one online from the manufacturer.

Some consumers think that’s the way to go. They see dealers as needless middlemen who hike up vehicle prices, even though one could argue prices would rise if dealers weren’t competing against each other, and a customer instead had to buy a particular vehicle from only one source: an auto maker.      

Many foes of the franchise system seem woefully uninformed about how it works. Yet, they praise Tesla founder Elon Musk for trying to “revolutionize” how cars are sold. But auto companies, not dealers, came up with the franchise system.

Auto makers did that because they deemed it better for someone else to sell and service products, especially if that someone covers the facility costs. Accordingly, dealers collectively have invested billions in their stores.

Auto makers realize their core competency is in making vehicles, not selling them. Every now and then, an auto maker will give auto retailing a shot. In the late 1990s, Ford unsuccessfully tried in certain markets, such as Tulsa, OK, and Salt Lake City, UT. It took years for the smoke to clear from that bomb.

A newspaper columnist decries the fact that if you want a Ford, you can’t march down to your local general car store to get one. No, you must buy it from a Ford dealer.

That’s because auto makers want it that way. They don’t want big-box auto stores selling different brands, side by side, under one roof. You’d find plenty of dealers willing to do that, but good luck finding a manufacturer.

Dealer associations and Tesla are battling legally and legislatively over the EV maker’s desire to sell cars directly to consumers. Meanwhile, Tesla stock looks like a bubble ready to burst.

“Elon Musk has done an amazing job of driving up Tesla’s stock price,” Bill Wolters, president of the Texas Automobile Dealers Assn., tells me. “He’s a master of P.R. What puzzles me is that he has never tried the franchise system, yet he insists it won’t work for him.”

Throughout automotive history, start-up companies selling limited-appeal products in unconventional ways have suffered high fatality rates.

I’m not saying the dealership franchise system is perfect or that it will last forever. But I bet it outlives Tesla Motors.

Discuss this Blog Entry 6

on Jul 1, 2013

Everyone should step back and take a deep breath. Elon Musk is NOT trying to change the way new vehicles are sold. He is merely trying to maintain control of his distribution network, which he might be able to do as long as he remains a boutique niche manufacturer. Let's face it, he wouldn't have gotten as far as he has without extensive early government subsidy, but that's fine. He has done some good stuff. And I think NADA is wrong to oppose his attempt to create his own factory owned dealer network. All he is doing is creating a network to be sold to private investment down the road as there is no way to become a volume manufacturer without an extensive dealer body. There isn't enough money in the world for Musk to finance his own.

I think NADA is afraid of goblins behind trees here. Tesla doesn't pose any threat to the current business model for distributing new vehicles. IMHO.

on Jul 1, 2013

For Consumers - The franchise system of vehicle distribution is designed to protect dealers from their own suppliers.

To quote Economics Professor Mike Smitka on the subject:

"I see no reason why a manufacturer or wholesaler should be forced to use a franchise system for consumer sales. Mixed systems are the problem."

on Jul 1, 2013

The position of national and state dealer associations is that they have to fight every challenge to the franchise system, lest something slips in and triggers a stampede.

on Oct 7, 2013

I think they are making a PR mistake if they put up a fuss. As an ex dealer, I understand completely what career employees at OEMs can pull out of their... well, hat. But I can only imagine what would happen to an OEM that attempted to undermine its own dealer base. No factory exec would want his stamp on that one, IMHO. It would be a career ending move.

I believe Musk knows he doesn't have anywhere the capital needed to become mass market by owning his own outlets. He WOULD like to have something built to sell off for large multiples when he decides the time is right to bring in entrepreneurs.

on Jan 9, 2014

The dealer franchise system is no different than other retail outlets selling large consumer goods. Mass market manufacturers know it’s too expensive to build, maintain and promote thousands of retail outlets. You don’t see Samsung selling their refrigerators in mall stores. They utilize BestBuy, HH Gregg and other appliance outlets. The other thing to remember is automobiles and trucks are not $150 MP3 players or $400 tablet pc’s where little goes wrong with them. These are complicated and technology laden pieces of machinery that need highly skilled technicians to maintain and repair them. That means a large investment in people, parts and buildings to sell and service these.

Local dealers are also big supporters of local charities, sports teams, and events like parades. They also offer scholarships to deserving local students. While big corporations donate to selected causes, they do not give to any of the areas I just mentioned. Walmart excludes them from their Giving Program http://foundation.walmart.com/apply-for-grants/local-giving-guidelines Many communities lose a valuable resource when auto dealers close.

The problem consumers have is not with the franchise system but with the people or experience they have at local dealers. Having competing dealers gives consumers options and with information available via the Internet consumers are going online, not to decide where they will buy their next vehicle, but to determine where they will NOT buy their next vehicle. Looking at independent reviews and finding good sales professionals helps consumers and good dealers come together.

Long live the franchise system, but let’s keep working on improving the service levels for customers.

on Jun 24, 2014

I think NADA is wrong to oppose his attempt to create his own factory owned dealer network.
hotel lyon

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Blogs about automotive retailing, commenting on news impacting the business of selling vehicles.

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Steve Finlay

Steve Finlay is the editor of WardsAuto Dealer Business magazine and a senior editor for WardsAuto.com. His journalism career started 42 years ago as a crime reporter. A Michigan native, he likes...

Jim Ziegler

Jim Ziegler, president of Ziegler Supersystems, is a trainer, commentator and public speaker on dealership issues.
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