Steve Finlay - WARDS June 2013
People carry on a love-hate relationship with car dealers.
They typically love their dealer, as evidenced by rating websites where grateful customers say things like:
- “He cares about his clients and is extremely helpful with any questions or issues.”
- “I have always been extremely pleased with the service and professionalism.”
- “It was honestly the BEST customer service I’ve received in my whole life.”
But many consumers dump on dealers in general. Disliking from afar is a human flaw. Disdaining faceless groups is a building block of bias.
So when the National Automobile Dealers Assn. said the traditional franchised-dealer system actually protects consumers, angry Internet users began pounding their keyboards.
“Yes, everyone I know leaves a dealership thinking, gee, that dealership is really interested in protecting me and my interests rather than their own interests,” one sarcastic wag wrote in the reader comment section of an online story mentioning NADA’s claim.
“Very disappointed to see that NADA thinks we’re a bunch of morons who will buy this line,” someone else commented. “I could respect them more if they would just come out and say they were trying to squash a competing business model.”
Another person proclaimed: “The arrogance of trying to tell us they are just watching out for our best interests is stunning.”
All this bluster is tied to electric-vehicle maker Tesla deciding to short-circuit the conventional dealer system by selling its vehicles directly to customers.
Tesla has opened small showrooms here and there where shoppers can check out the single-product Model S, then order one online from the manufacturer.
Some consumers think that’s the way to go. They see dealers as needless middlemen who hike up vehicle prices, even though one could argue prices would rise if dealers weren’t competing against each other, and a customer instead had to buy a particular vehicle from only one source: an auto maker.
Many foes of the franchise system seem woefully uninformed about how it works. Yet, they praise Tesla founder Elon Musk for trying to “revolutionize” how cars are sold. But auto companies, not dealers, came up with the franchise system.
Auto makers did that because they deemed it better for someone else to sell and service products, especially if that someone covers the facility costs. Accordingly, dealers collectively have invested billions in their stores.
Auto makers realize their core competency is in making vehicles, not selling them. Every now and then, an auto maker will give auto retailing a shot. In the late 1990s, Ford unsuccessfully tried in certain markets, such as Tulsa, OK, and Salt Lake City, UT. It took years for the smoke to clear from that bomb.
A newspaper columnist decries the fact that if you want a Ford, you can’t march down to your local general car store to get one. No, you must buy it from a Ford dealer.
That’s because auto makers want it that way. They don’t want big-box auto stores selling different brands, side by side, under one roof. You’d find plenty of dealers willing to do that, but good luck finding a manufacturer.
Dealer associations and Tesla are battling legally and legislatively over the EV maker’s desire to sell cars directly to consumers. Meanwhile, Tesla stock looks like a bubble ready to burst.
“Elon Musk has done an amazing job of driving up Tesla’s stock price,” Bill Wolters, president of the Texas Automobile Dealers Assn., tells me. “He’s a master of P.R. What puzzles me is that he has never tried the franchise system, yet he insists it won’t work for him.”
Throughout automotive history, start-up companies selling limited-appeal products in unconventional ways have suffered high fatality rates.
I’m not saying the dealership franchise system is perfect or that it will last forever. But I bet it outlives Tesla Motors.
