WHAT CONFUSING TIMES WE LIVE IN. ON ONE HAND we have an association of import dealers () who have banded together to ensure a free and open market place. On the other hand, we have numerous state associations, often representing members of the first group, doing everything they legally can to restrict competition within their borders.
From manufacturers to brokers to Internet providers, they are trying to put the clamps on competition. As citizen Rodney King once exclaimed during another moment of chaos, "Can't we all just get along here?"
I believe those dealers who are leading the charge for protectionism are playing fast and loose with their future.
The law of unintended consequences will catch up with them. It already has in regard to legislation that prohibits the placement of same-brand franchises within a certain distance of each other.
These bills came about because dealers didn't trust manufacturers when it came to market representation. Rather than allow the market to sort out the right number of outlets, severe market-area mileage restrictions were legislated into being.
As a result, some dealers who have been around a while are stuck in sections of towns that are no longer appropriate for the brands they sell. The more prime, often outlying areas in which they would like to relocate, are often too close to recent dealer add points.
The same well-intended, but ill-conceived, anti-manufacturer laws also inhibit current dealers from doing the right thing for customers regarding vehicle servicing.
Legislated location restrictions prohibit dealers from erecting fast service and warranty centers in their general market area. It doesn't take much to encroach into a fellow dealer's protected radius. This poor policy-making has opened the doors for companies like Jiffy Lube to prosper at the cost of dealers. As warranty dollars continue to shrink, dealers are now prohibited from enjoying the potentially critical income generated from satellite service operations.
Unfounded fear Many of the new "protectionist" laws are driven by the fear that manufacturers will enter the retail arena and provide unfair competition against independently operated franchise dealers. From a historical perspective, this argument doesn't hold water. Manufacturers of all stripes have operated factory stores off and on for years. They all have one thing in common: dismal failure. They could have easily directed hot products to their own locations. They didn't. Even their pockets aren't deep enough to fight lawsuits for truly unfair competitive practices.
What's in it for the manufacturers The primary reason the manufacturers are so bent on trying new distribution models is that they see the consolidators as a clear and present threat. They are right.
Their realistic fear is that consolidators will gain so much leverage in the distribution system that they will tilt the balance of power from manufacturer to retailer. It has happened in every other mature industry. Who holds the power in the relationship between Wal-Mart and Procter and Gamble? Clearly, Wal-Mart. P&G is left to fight for shelf space and, in many cases, pay extra to get it. Wal-Mart also has the leverage to exact pricing and shipping concessions. The real casualties of this system have been independent retailers who can't compete with that buying power. The same consequences are likely to visit independent car dealers if manufacturers are not allowed to take some protective action of their own.
We are already seeing the unintended outcome of new state laws that prohibit manufacturers from owning dealerships. Saturn Corporation, easily the most dealer-friendly automotive division ever created, has decided to take complete control of their brand. They have not allowed consolidators to own their retail points. Once bought back, many state laws make it illegal for Saturn to operate their locations for a long period of time. Inadvertently, those laws have now forced the creation of a new entity, Saturn Retail Enterprises, which will launch an IPO in the second quarter of next year. Due to the mass necessary to launch such an initiative, they are aggressively seeking to purchase any willing dealer and will be erecting their own facilities in areas where they are not represented. If Saturn is successful, it is a course other manufacturers are sure to follow.
The next downturn will tell the tale The next economic downturn is when the door of opportunity will open wider for the consolidators; especially for those sitting on the sidelines waiting for franchise values to drop.
If manufacturers' hands are tied, they will not have the option of joining forces financially with their current distribution partners. Manufacturers will no longer be able to help set the market value of franchises. The result could easily be that dealers who are compelled to sell will do so for less money than had the manufacturers been involved. This will only serve to make the consolidators a greater retail automotive force.
Protectionism is not a good policy. Period. If it were me, I'd like to keep the option open of partnering with my suppliers to compete against well-funded publicly held consortiums. Remember that old saying about, "Be careful of what you wish for."
Mark Rikess is president of The Rikess Group, an automotive training and consulting firm.