Dealers responsible for carmaker woes?


A different and probably accurate perspective
I hadn't really looked at the relationship between auto manufacturers and their dealers before. I should have, it explains a lot.

You’d think that what’s bad for G.M. would also be bad for the people who sell its cars. But G.M. makes money (when it does) on new cars and on the financing of loans. Dealers, by contrast, make most of their money on servicing old cars and selling used ones. So dealers can thrive even when the automaker languishes. And at the state level they often have more political influence than automakers do. In the late nineties, for instance, local dealers were challenged by companies that wanted to sell cars over the Internet. In response, some states, including Texas, actually passed laws making it illegal to have a business selling cars online (unless you already owned a local dealership), and regulators told Internet companies to cease and desist. When Ford itself started experimenting with online sales, dealers’ vigorous objections (along with legal challenges) caused the manufacturers to quickly retreat.

If automakers sometimes find dealers difficult to do business with, it’s entirely their own fault. Why, after all, have Ford and G.M. always sold their cars through independent dealers? They could have owned the dealerships themselves, with the salesmen being employees, much as Starbucks does today with its stores. Instead, they preferred to give dealers franchises, and work with them as partners. And, historically, the automakers were not good partners. In 1920, for instance, the U.S. economy went into a deep recession. But Henry Ford kept his factories running at full tilt, and forced thousands of Ford dealers around the country to buy new cars that they had little chance of selling. The dealers knew that if they said no they’d never see a Model T again, so they ate the inventory. A decade later, when the Great Depression hit, Ford and G.M. used the same strategy to help keep the production lines going. They turned their dealers into a cushion against hard times.

In the long term, this was a disastrous tactic, because it inspired mistrustful dealers to look to the government for help. (The first franchise law was passed in 1937.) Dealers recognized that much about their businesses was always going to be out of their control—automakers not only decide what cars get made but also dictate sales strategies and incentive plans. So they decided to protect what they could, using laws to insulate themselves from competition and from the risk of being dropped by the manufacturer. And that’s what has made life so hard for the automakers today.

The auto dealers may have shot themselves in the foot as well. Assuming the manufacturers survive, there isn't a whole lot that law can do to change consumer demand. And if ordering off the internet can shave a few hundred or a thousand off the price, the law won't stand.

— NeoWayland

Posted: Thu - August 31, 2006 at 05:52 AM  Tag


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