Dealer Talking Points: Countering “The Myth of Direct Sales”

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States enacted franchise laws to protect dealership franchise owners (and consumers) from auto manufacturer overreach.

Short Summary:
In our analysis, we explain the economic justification of the U.S. dealer franchise system. Additionally, we also counter arguments against the franchise system and dispel the “direct sales myth,” by providing real facts with simple talking points.

Background:
The product and nature of dealer interaction over the life of the car (service, parts, recalls, protection of residual values, etc.) determines the investment that is necessitated to support sales and ownership requirements.  The costs associated with providing those services would be identical whether by direct sale or from independent dealers.

There is a simple economic fact that mandates the protection of a franchise.  If an automaker mandates location, design, service equipment, software investment, monthly reporting of financials, and other burdens on the dealer, the investment is so great that no one would make such an investment without the protection that franchise law provides. The authority of the auto manufacturer to mandate and require a dealer to make this substantial financial investment in a dealership required that states and the Federal Government enact protections for dealers from adverse actions from their automakers. Even with large auto dealership groups, manufacturers see each store individually in terms of its performance relative to the market, its competing same-brand stores in a region, and for goals and objectives set by the manufacturer.

Obtaining this analysis:
Our analysis can be obtained by contacting us directly. Please visit our contact page.

Related:
Ms. Keller and MK&A Partner, Kenneth Elias, are the authors of the “Consumer Benefits of the Franchised Dealer System.” This study, which was sponsored by NADA, substantiates that consumers receives significant
benefits from the franchised dealer system.

The study can be downloaded from NADA’s website:
http://maryannkeller.com/consumer-benefits-of-the-franchised-dealer-report/

The Dealer Value Proposition: Key Opportunities to Increase Relevance in Credit Union Indirect Auto Lending

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How can credit unions bring more value to indirect dealers and increase competitiveness?

In our white paper, we provide seven opportunities for credit unions to both enhance exiting value and create new value for indirect dealer partners. We base these opportunities on our understanding of the current auto retail market, predictions for the near-term future, and collaborative research efforts with CU Direct.

This white paper was presented at CU Direct’s DRIVE’17 Conference on May 25, 2017.

WHITE PAPER: Consumer Benefits of the Dealer Franchise System (Report for NADA)

Faced with pressure from a growing chorus of government agencies (e.g. Federal Trade Commission, Department of Justice), certain economic academics, some consumer advocates, and one highly visible automaker all suggesting that the dealer franchise system was a relic from the past and only added costs to the distribution and sales of new vehicles, National Automobile Dealers Association (NADA) determined that it needed a “White Paper” to demonstrate the consumer benefits of the franchise retail system.  In 2013, we were asked by NADA to produce such a document which was published in early 2014.

Our report did find that there were significant advantages to a dealer network – and mostly it was consumers that benefited as a result. Among these were the following key findings:

1) locally available new vehicle inventory;
2) price competition among dealers leads to best pricing;
3) warranty support and consumer advocacy;
4) full-services including trade-ins and on-the-spot financing.

The report also demonstrated that prior factory attempts at retailing were generally not successful, that there were no savings realized in direct-sales experiments; and that the business is somewhat unique relative the product which requires a vast physical distribution format which is
different from other online retailing categories.