A Threat to Car Dealers

By Lloyd Graff

General Motors is cautiously experimenting with selling cars online using a hybrid strategy of making the sale online, while running the transaction through a participating dealer. GM is gently tiptoeing into the Web strategy because its dealers are still a vital sales force. Dealers also have huge political clout and pay for a lot of brand advertising. But the specter of Google, Amazon and Tesla has to be spooking them.

Google is developing a self-driving car which could be available by 2020. Amazon is a sales colossus that could go into the car business with a Chinese or Korean import. Tesla sells out of company stores in shopping centers or straight from the factory. These are scary models from companies with enormous resources and great reputations. Car dealers have zealously guarded their turf and fought back every challenge, but the ramparts are being breached.

I recently read a blog that drew an interesting analogy with the car dealership issue.

When a hotel or banquet hall prepares a room for an event, they invariably arrange round tables for 10 people. Why? Because it is the most efficient arrangement for the waitstaff to serve the food and for the florists to place the flowers.

But it is an awful configuration for the people attending the event. In a noisy venue, nobody can talk to a person across a 10-person table. Anybody who has ever sat at such a table knows that it is probably futile to even ask for the nuts or cream on the other side of the table. But this arrangement never changes because the servers own the room and they care only about their convenience, not the one-time-only visitors.

The car dealers worry about their businesses, their brick and mortar, their service departments and financing businesses. I wonder if they really care about maintaining their customer service experience that so many people despise.

The car dealership model is still intact, but the GM move certainly indicates a potential threat.

Question: Have you enjoyed your car dealer experiences?

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13 thoughts on “A Threat to Car Dealers

  1. Josh

    The dealer model needs to go. It’s fine to keep dealers around but the system of laws that protect them and this bollocks of locking out sellers like Tesla needs to end. Why should dealers get special privileges in the marketplace? Either they need to provide the value to customers that makes going to a dealer worth while or they can fail. The legal protections are absurd and they’re stifling innovation from brilliant companies like Tesla.

  2. Emily Halgrimson Post author

    I think car sale sites like yahoo auto and auto.com are already spooking dealers. It’s so easy now to enter what you’re looking for into a search engine and find the lowest bottom price within 60 miles of you in seconds. When I was looking for a used car a couple of years ago I tried to talk a dealer into a lower price than had been advertised online. The dealer told me that the competition online is so fierce they had to advertise their absolute lowest price just to get people to consider buying from them. Other dealers said the same thing.

  3. Steven Balder

    Most states have strong dealer lobby groups and very strong franchise laws. Car makers are restricted considerably in altering their sales channels, but they also genuinely want to support their dealer networks. Franchising laws currently limit the sales reach of other retailers entering the new car space and prevent new retail methods for selling cars. There are pluses and minuses for all parties- consumer, manufacturer, communities, and dealers. Some of the minuses?-Daewoo failed for legal and other reasons with a direct sales model in the U.S.. Dealers don’t have a clear set of guidelines on certain types of Internet-based sales. Consumers are hurt by not having the best retail experience consistent with other products they purchase. Some of the pluses?- Dealer networks best represent the manufacturer in their local communities and manage to move sometimes undesirable product during hard times. A properly-run dealership supported by the OEM provides a good return on the dealer’s investment. Consumers have local, professional sales and service operation that is personally invested in their community.

  4. Noah

    The question is: Have you enjoyed your car dealer experiences?

    Is the dealer model messed up? Yes.

    Are dealers annoying? Generally.

    However, I bought a Hyundai back in 2011, and I will say, that usually the service is pretty good at my dealer. They know me by name on the phone. They genuinely care about getting my car right if there is a problem. They recall it when in necessary and can get me all set, relatively quickly.

    It’s important to have a brick and mortar store right nearby, to make maintaining the car relatively easy. Support from the manufacturer is worth money.

    As far as table settings, maybe the reason they have tables set up like that is that it gives you options when you sit down. What if the table only fit 6 people rather than 10, and you don’t like or know any of the 6. At least with 10 or 12 people you can jump around and choose who you sit by. And it’s still better than the long table, for talking to people. I think.

  5. David Ruggles

    There are so many mistakes in this piece I don’t know where to start. But I’ll start anyway by posting a link:


    To continue:

    The GM initiative is nothing new. There are NO ramparts being breached. No OEM is about to undermine its own dealer network. OEMs know they don’t know how to retail vehicles. God knows they’ve tried and failed miserably. Anything they do will be in partnership with their partner dealers. No one is spooked by Tesla, at least no one who understands the mass market auto business. Tesla is a niche manufacturer. If they are able to move into mass market they will learn quickly some lessons the big boys have already learned. Elon Musk is building his own dealer network so he can sell it out for large multiples when he thinks he’s ready to move to mass market where he will need economy of scale. He won’t be able to fund a real dealer network AND product development at the same time. And his build to order model only works if he stays “niche.” You see, vehicles and gadgets are two different things. One can order a MAC online with some open credit on a VISA card. Its not like having to deal with trade ins where the buyer owes more on the trade than its worth and doesn’t have a perfect credit score. And you can’t mail back in your vehicle for warranty work… etc. etc. etc.

  6. David Ruggles

    OEMs are limited MORE by their own contracts and agreements with their dealers than by any franchise laws in the various states. If no franchise laws existed contract law still takes precedence. No OEM is going to undermine and back stab its own dealer body.

  7. Eric

    Imagine if these dealer and franchise protection laws were as strong back in the day when horses first got replaced by cars. The Horseshoe makers would have lobbied the government to make it mandatory for carmakers to use horseshoes in the design of their cars. Sometimes industries disappear when new technology comes along and it’s nobodies fault. The people involved in that industry need to find something else to do to stay competitive. Look what happened to video rental stores and VCR repair businesses. I think the age of disposable appliances has started to do the same thing to appliance repair businesses. Now if your washing machine breaks you just go to a big box store and buy a new one instead of paying for a $90 service call plus parts to fix it. Auto dealers will eventually have to change their model to become competitive at servicing customers in order to stay viable. Like providing competitive pricing on dealer service and parts which right now they really don’t have to do.

  8. Kim

    Do I like dealerships? No way. Buying a car was a miserable experience. Pushy sales people everywhere we went. They didn’t want to let us off the lot without driving home in something new. Only went back to the dealership for a recall. They were fine for that, but then again, I didn’t have to pay anything for that. Since then that dealership closed, so I once tried another one. I came in for their lure of a cheap oil change. Claimed we had an oil leak they wanted to fix for $$. But the lack of oil stains in my garage tell a different story. I haven’t been back there either. I have a colleague who used to work at dealership, and the stories he tells doesn’t do much to help the feeling that anything related to buying/fixing a car is filled with shady behavior. However, I’m not sure if changing the dealership model would change any of that.

  9. Lloyd Graff

    I think auto companies are or should be worried about Tesla, Google and Amazon. Tesla I could be a serious player in a few years. You underestimate Elon Musk at your peril. Because he does not have a far flung dealer organization he can experiment with his distribution model as he moves toward his $35,000 car in 2016 patterned on the 3 size BMW.
    Google has more than enough money to play in the driverless car arena with a partner or buying their own builder like they have with Motorola in phones. Why does Ford have 300 engineers in Palo Alto today? The action is in the Valley, not Detroit ?(well, maybe Ann Arbor).
    Amazon is on an epic expansion of brick and mortar distribution and Jeff Bezos is the greatest marketer of the century. Could you imagine Amazon and Costco selling cars. Two amazing Seattle companies. I would not be smug about the current dealer model. I think it is ripe for exploding or at least eroding.

  10. Donna

    I was beginning to think I misread the question, but thank you Noah for bringing it back to point. In 2006 I purchased a Pontiac G6 HT Convertible through my Costco dealership. They sent me some 30 miles away to purchase it, past several other GM dealerships. It was by far the best experience in car buying that I have ever had. I felt like we were all one big family. It was a family run business and customer service was # 1 with them. I also felt I got the best price (I had checked the pricing at my local dealer who claimed to honor the same Costco price, but in fact were higher). I also tried local servicing at a closer dealership, but quickly learned I was better off to drive the 60 miles RT and have it serviced where I could trust them. They never let me down, knew me by name, I always got the same service rep. when I called, and when it was out of warranty and another dealership wanted over $700. for a small repair but they did it for $225. Sadly, they went out of business about 18 months ago but sent me a letter to let me know and also a recommendation of who to use once they closed their doors. I have the highest respect for them and they were one of the last to close their doors in a mile long row of other dealerships.

    My husband bought a new Prius in 2010 from a local Toyota dealership in Carlsbad, CA., again recommended through our Costco store (Fleet sales). It has been a great experience and he has had all servicing done through them. They have a large service facility with easy access off the freeway, and offer coffee, tea, home made chocolate chip cookies while you wait, or one way service to take you home if the repair will take longer. There is even a separate special glassed-in room for children to play with toys, books, TV, etc. The repairs have always been completed on time, and it has been another great experience.

  11. Peter@PolygonSolutions

    I bought a new Fiat last year; great salesperson, great car (the most US made small car), great test drive. And then… just like every other new car I’ve purchased… 2 hours of initial paperwork, 2 more hours of final paperwork. Seriously? These guys and gals have no respect for my time and ruined what could have been the one time I enjoyed my dealership experience.

  12. art santana

    Great article, as always. I do not think there is a single person on earth that enjoys buying a new car from a dealer. You can not even get to check out a car without being attack immediately by the vouchers, or salesmen. It is the same model everywhere, salesman will bring his boss who in turn will bring his boss and so on. Never a straight price, always a bunch of deceptions, and heavens forbid you had a small issue 20 years ago, even though you have a credit score in the top 10 percent, they will alawys maje you feel tgat tgey are doing you a favor. I will never buy from a dealer again, there are auctions, private sales and only sites that may not get you a brand new car but the trade off us worth it


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