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.