Franchised Dealers Deliver Best Results
By Peter Welch
Let states set the rules for auto retailing.
Story Highlights
- Ford and General Motors tried owning their own dealerships and failed.
- Consumers are better served by multiple retailers competing for their business.
- Buyers value a combination of online service, personal service and physical locations over stand-alone Web distribution.
Franchised auto dealers are on track to sell more than 15 million new cars and trucks this year, including a half-million electric, natural gas, hybrid and other alternative technology vehicles. These Main Street businesses — the backbone of their communities — are leading America’s economic recovery. Franchised auto dealers employ nearly a million people, provide good jobs that can’t be shipped overseas and engage in robust market competition.
For more than 100 years, automakers have contracted with franchised dealers to sell and service their vehicles for one simple reason: It’s the most efficient and cost effective way of doing so. Franchised auto dealers’ cumulative investment in land, equipment and facilities exceeds $200 billion — expenses that auto manufacturers would otherwise have to incur. Ford and General Motors tried owning their own dealerships and failed. These experiments proved that factory stores did not deliver better customer service or reduce consumer costs.
A question has been raised as to whether automakers should be licensed to sell directly to consumers. A better question is who should decide this licensing issue, and the answer is the states.
In our federal system, states have the right to license lots of important retail industries — everything from eye wear to alcoholic beverages. The states are best positioned to decide what level of accountability, regulation and competition is best for their citizens.
Although all states regulate the auto retail marketplace, their approaches differ widely. Many allow automakers to sell directly; others require a local licensee as an additional layer of accountability. This reflects the fact that, when it comes to auto retailing, one size doesn’t fit all.
It is easy to see the rationale behind state laws that foster a well-capitalized, independent dealer network. New vehicles are expensive, generally require financing and often involve a trade-in. Consumers are better served by multiple retailers competing for their business.
A Ford dealer’s biggest competitor, for example, is usually another Ford dealer. Most buyers, according to theHarvard Business Review, value a combination of online service, personal service and physical locations over stand-alone Web distribution. That sounds exactly like the dealer franchise system currently in place.
Peter Welch is president of the National Automobile Dealers Association
