Between Tesla’s very public battle against auto dealers and the National Labor Relations Board (NLRB) ruling regarding franchises, the automotive franchising model has been in the news lately. It’s important to remember, amidst the trending news, why auto dealerships are so important in the first place – and why we need to keep them around.
With a franchise, the customer is able to go to the local dealership, speak to a person that lives in your city or town, and resolve issues face-to-face. That’s a fundamentally different approach than what’s typical of large direct-to-consumer corporations, many of which rely heavily on outsourced call centers and offer zero wiggle-room. These are the companies that have notoriously bad customer service. The franchise model allows auto dealers to advocate on behalf of the consumer and customize the experience to their individual needs.
Local and regional dealerships create competition within the market which drives down costs. If auto manufacturers sold directly to consumers, there would be a fixed or standardized cost at the regional or national level that would be non-negotiable. The franchise model allows for individual auto dealers to compete for business. A single car sold is more valuable to a car dealer that sells 100 vehicles per month than to a national, or international, corporation that deals in thousands of cars per day. That means they are willing to work for the business through promotional offers and value-adds.
Auto dealers provide millions of local jobs nationwide and contribute heavily to local economies. They are usually locally owned and operated and compete in local markets. Even though they represent larger companies, they are essentially –you guessed it — local businesses. Eliminating them would put more of the profit into the auto manufacturers’ hands and out of local communities.
Big purchases are complicated. There is usually a lot of paperwork and a lot of questions that need to be answered. Auto dealers take on this burden and let the consumer drive off the lot without having a lawyer present. They help mitigate risk and provide insight into the market.
Bottom line, franchised auto dealers localize and personalize the auto shopping experience. Without this business model, the auto manufactures would have an even greater hold on the U.S. economy and a deeper reach into the consumers’ pocketbook.