How Dealers Got Clout

Publicly-owned dealerships have changed the way the game is played between franchised dealers and their franchising factories.

The old-hush-hush relationship between dealers and manufacturers has given way. The new ingredient in the equation, calling for more open and candid ties, began with the listing of the six “public” mega dealerships on the New York Stock Exchange and the resulting shareholders' role in the “public” stores.

In the days before publicly owned dealerships, even the largest privately owned dealership kept the state of its factory linkage to itself. The “factory hammer,” as the late British Motors-Saab-Volvo-Fiat dealer Sam Goldfarb of Dearborn, MI, called it, was too powerful to risk a publicized breakup over unfair practices on the part of the franchisor.

“Volvo would run us through the wringer at a motel in New Jersey, demanding higher purchases or new buildings or the like,” Goldfarb recalled. “We had no recourse, unless the district manager wanted a kickback. It wasn't only Volvo. Every factory was guilty.”

Any reporter who became close to dealer principals heard the same grievances. But who could write a story about the one-sided badgering of dealers without risking the source's livelihood?

Then a Ford dealer in New Jersey, the late Ed Mullane, realized that factory-owned stores were “unfair competition” and formed the Ford Dealers Alliance (FDA) as a “union” against such practices — 25 years before the first public megadealers were organized in the mid-1990s.

No dealers of other brands were able to emulate what Mullane had done. A Chevrolet organizing initiative was quickly shot down by factory executives.

“Single-franchise dealers are powerless to resist their manufacturers,” Mullane declared at one of the first membership meetings of the Ford alliance. “Like the UAW, we have to organize to have a chance of being heard.”

The pressure for an equal playing field between dealers and the factories did result in legislative relief, now embodied in dealership franchise laws in all 50 states, plus the “dealers' day-in-court” clause added to the federal anti-trust laws by Congress in the mid-1950s.

But state franchise laws have not, Mullane argued, prevented individual dealers from being harassed or intimidated or flooded with unordered cars or taxed with showroom upgrade demands — or, as has happened lately, asked to sell out or close up well before their franchise renewal dates.

In other words, though the FDA remains a strong organization, the playing field still resembled a teeter-totter — until those six dealer groups went “public.”

It didn't hurt dealers' desire for a stronger stand against unilateral factory initiatives when Ford Motor Co. and General Motors Corp. in the late 1990s announced plans to buy up stores and form company-owned “collections” in cities like Rochester, NY, and Tulsa, OK.

Even the National Automobile Dealers Assn., which had largely steered clear of becoming a contentious foe of dubious factory policies against their dealers, became vocal in opposing the collection strategies of former Ford CEO Jacques Nasser and GM sales and marketing chief Ron Zarrella.

The ventures by the two largest domestic automakers into factory-owned urban sales outlets eventually were abandoned. GM pulled the plug faster than Ford, which owned stores for a few years before conceding defeat.

Of late, the cause of “dealer equities” in coping with the automakers has been taken up by the leader of the largest megadealership, AutoNation Inc.'s chairman and CEO Mike Jackson.

Jackson says, “I have an obligation to my shareholders and dealers to speak out.” He assails auto makers for building too many vehicles and expecting dealers to sell them.

He has called for auto maker-motivated programs to reduce dealer counts in metro markets. He has been joined by other dealership chain executives, including Group 1 Automotive's president and CEO Earl Hesterberg, a former Ford sales and marketing chief. AutoNation cancelled Ford vehicle deliveries last summer until inventories were reduced.

Perhaps inspired by the openly expressed objections to factory policies by the public megadealers, NADA Chairman William Bradshaw delivers a refreshing defense of dealer equities and independence.

“Individual dealers,” says Bradshaw, a GM dealer in South Carolina, “should decide when they are not making a fair return on their investment. This is not something that should be dictated by auto manufacturers.”

In other words, don't tell dealers whether to sell out or close up. Sam Goldfarb's “factory hammer” is locked up in the tool box — and the dealer cause has gained greater equity.