A new Oliver Wyman study, commissioned by NADA, believes the cost advantages of hybrid or direct-to-consumer auto distribution models have been overstated.

Traditional auto dealership franchises may be the most cost-effective way to sell cars after all.

Hybrid and direct-to-consumer vehicle shopping pitched as more efficient alternatives are favored by Tesla and its startup imitators while hybrid or agency models are used by automakers in other countries such as Australia and parts of Europe.

A new Oliver Wyman study, commissioned by the National Automobile Dealers Association,believes the direct-to-consumer cost advantages have been overstated.

“We’ve conclusively shown that the traditional franchise distribution model actually wins when it comes to value,” said Oliver Wyman partner Andy Chien.

The franchised dealership model wins because it offers local sales and service support as well as pricing strategies that can be tailored, Chien said. Instead of eliminating extra steps when shifting from a dealership franchised to a hybrid or direct-to-consumer model, there was only a shift in who handled each activity, the report said.

Rather than reinvent the wheel, dealerships also can improve efficiency within their franchised networks by tweaking their processes rather than drastically overhauling them, the report said. One particular area for improvement: the wide range of distribution costs that exists between brands. Chien said dealers also can boost efficiency by collaborating with providers of different distribution options.

The findings, all regarding the U.S. market, are a hopeful note for franchised dealerships confronting falling profits along with high interest rates, rising inventory and economic challenges, a Cox Automotive survey found this year.

What’s more, the Wyman report — “The Automotive Cost of Distribution: an analysis of new vehicle distribution channels in the United States” — offers a way forward for dealerships confronting vehicle sales competition from direct-to-consumer pioneers such as Tesla and others.

Ford Motor Co., for example, has ambitious plans to sell EVs in the coming years. CEO Jim Farley said in 2022 he wanted dealerships to reduce the cost of delivering an electric vehicle to a customer by as much as $2,000 to compete with Tesla and its rivals that use a direct-to-consumer model to sell cars. Ford has since reduced its EV spending and is focusing more on hybrid vehicles.

Among the report’s other findings:

• The net cost difference between franchised and direct-to-consumer modes of distribution is about $200.
• Direct-to-consumer selling saves money on personnel by eliminating or centralizing dealer-level inventory planning and local marketing. But those savings are partially offset by higher wages manufacturer-owned dealerships pay for labor.
• Hybrid distribution reduces personnel costs to a lesser extent because independent store locations prevent complete centralization.
• All channels spend similarly for national and regional advertising.
• Hybrid distribution reduces local advertising spend by dealerships.
• Direct-to-consumer distribution eliminates competition within the same brand, but it doesn’t have the flexibility that customized transactions do.