FOR IMMEDIATE RELEASE
Greater Cleveland Automobile Dealers’ Association
The Consumer Loses in
A World Without Auto Dealers
Cleveland, OH (August 7, 2014) – Imagine what the world would be like without auto dealers. First of all, there would be a lot of people out of work: over one million people at more than 17,500 dealerships nationwide. There would be far less tax revenue, especially when it comes to state and local payroll taxes.
But aside from the local tax, employment and other economic benefits, there are many other reasons why converting to a factory-direct sales model simply wouldn’t work when it comes to selling a large, technologically complex product like an automobile.
Using a factory-direct sales model, sales across the entire automotive industry would suffer greatly. Indeed, just ask Ford and General Motors, two companies that tried the factory-direct sales model in the past, and failed.
“The franchised new vehicle dealer distribution model is the strongest for both the manufacturers and consumers,” says Louis A. Vitantonio, president of the Greater Cleveland Automobile Dealers’ Association (GCADA). “Having a factory sell direct to consumers may sound good in theory, but in practice it becomes an absolute disaster in the long run.”
If you think auto dealers have a monopoly on selling vehicles to the public, think again.
“Franchised new vehicle dealers compete fiercely against each other both within their brand and against dealers of other brands,” says Vitantonio.
If the dealerships had a monopoly, the consumer wouldn’t be able to shop one store against the other to get the very best deal, as they often do today. In a factory-direct sales model, the manufacturer would simply set the price—and it would be the same at all stores.
And don’t think that the price would be less. True, dealers do have to make a profit. If they didn’t they wouldn’t be in business. But in a factory-direct model, the manufacturer would have to add in the costs of carrying inventory and running an outlet store, which would ultimately be tagged on to a vehicle’s bottom line. The ultimate price also would likely be a lot greater than in the current dealer distribution model.
If you think a consumer could simply order through the Internet and have a vehicle delivered directly to their home without the benefit of a brick and mortar store, that’s a disaster waiting to happen. What happens when a product is subject to a recall or some other service issues? Does the consumer ship the vehicle back to the factory? Who pays for the shipping? How long do you wait? And forget about getting a loaner.
In today’s dealership distribution model, every automaker establishes specific standards for how its vehicles are marketed, sold and serviced. The franchise agreements between automotive manufacturers and their dealers clearly define all branding elements, right down to the uniforms used by service technicians.
However, many privately owned franchised new vehicle dealers will add to those perks in order to be more competitive with a like-branded dealer just down the road.
“When it comes to product knowledge, dealership personnel are often more knowledgeable than many of the people at the factory, with the exception of the designers and engineers who actually built the vehicle,” adds Vitantonio. “Sales personnel receive ongoing training to be kept abreast of the latest technological developments. Without the healthy competition between individually-owned stores, there would be very little incentive to have and maintain greater product knowledge.”
Dealers today are at the forefront of selling vehicles with advanced technologies. In 2013 franchised new vehicle dealers sold the lion’s share of the nation’s pure electric vehicles, and virtually all of the country’s plug-in and hybrid electric vehicles.
But would consumers prefer to buy directly from the factory? According to J.D. Power and Associates, customer satisfaction with auto dealers is currently at an all time high. And in online consumer surveys, dealers consistently garner high marks. They have to, since often times vehicle allocations and bonuses are based on something called C.S.I. or the Consumer Satisfaction Index a dealer achieves. Consumer feedback plays a very significant role in determining a store’s C.S.I.
The bottom line is that consumers win under the current ultra-competitive system because they have choices. In contrast, a factory-direct system places customer service in the hands of a multi-national corporation that resides far away from the consumer. Try to imagine getting personal and speedy service, much less negotiating on price.
To put it simply, local dealers are local companies staffed by local people. They are locally accountable and must compete with one another for your business. In that scenario, the consumer always wins.
About the GCADA
The Greater Cleveland Automobile Dealers' Association (GCADA) has served the retail-automobile industry and community with integrity and distinction since 1903. Today, located in Brecksville, Ohio, GCADA represents 250 franchised motor vehicle dealers, which includes new-car, truck, motorcycle and RV dealers in a 21-county region of northern Ohio along the Lake Erie shore and beyond. More information on the GCADA can be found at www.gcada.org.
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