As a result, dealers often find themselves competing not against another brand, but against a same-make dealer across town.
Frequent well-publicized rebates have taught buyers to mistrust sticker prices and negotiate from cost up, rather than sticker down. High customer acquisition costs motivate dealers to convert store traffic to sales using aggressive tactics that extract differential margins based on customers' willingness to pay.
They have achieved their superiority in channel-driven customer service by avoiding mistakes (such as locating too many dealers too close together) and institutionalizing best practices in customer care.ĭespite its longevity, the traditional dealer channel leaves many people unhappy. Even the new dealer networks created by the Saturn division of the General Motors Corporation and the Lexus division of the Toyota Motor Corporation with such fanfare during the past decade or so have accepted the fundamental model. In Europe, strong national distribution laws and other rules help protect the established channel. In the United States, state franchise laws limit the manufacturers' ability to act unilaterally to revoke or consolidate franchises. Historically, dealer networks have become ingrained and protected over time by a web of habits, contracts, regulations and laws. This distribution model has been remarkably resistant to change. Those networks generally were built around entrepreneurs focused on a defined geographic area, selling one or at most two brands. The networks were designed to hold inventory, leverage private capital (without threatening the manufacturers' control) and service and support what was then a less reliable and more maintenance-intensive product. While we are not sure which vehicle manufacturers will survive, we are confident that winning will require a better understanding of the life-cycle value equations of both cars and buyers, and the development of innovative strategies to capture that value.įrom the days of Henry Ford's production line, the automobile industry has been based on a "supply-push" philosophy - a strong bias toward "filling the factories" to cover high fixed costs.ĭealer networks were created as logical extensions of the "supply-push" model. This changes the basis of competition from designing and making good products to providing services and managing consumer purchase and ownership experiences for which the products themselves are only partly responsible.Ĭonsumers are the only clear winners in this battle. The manufacturers want to expand their participation in the customer life-cycle value chain to improve profitability and grow in markets that have been largely stagnant. In response, vehicle manufacturers finally are getting serious about marketing, and about confronting the weaknesses embedded in their traditional franchised-dealer distribution channels.
These patterns are consistent with revolutions in other consumer durables markets that effectively transferred market power from manufacturers to retailers. Internet technology has lowered entry barriers for other entrepreneurs with new ideas about helping customers find, evaluate and buy new vehicles.
Their stories have been persuasive enough to attract hundreds of millions of dollars in public equity investment and persuade dozens of fiercely independent car dealers to sell out. Now the survivors face new threats from outside the industry that might thwart their renewed interest in building strong, lasting relationships with their customers.Įntrepreneurs have dissected the cost-value equation and come up with new retail concepts. Auto manufacturers have competed fiercely among themselves to drive out cost and meet consumer needs for cheaper and better cars and trucks. The transformation of the business of selling cars and trucks is happening before our eyes at an incredible pace - promising to change forever an industry that has long been noted for its high costs, poor service and extremely unpleasant selling process.
#Inetwork auto group inc. software#
Who will be the winners and losers in the revolution that is radically reshaping the marketing, distribution and selling of automobiles? Will the vehicle manufacturers and their franchised-dealer networks be able to overcome years of inertia and complacency to pioneer and execute new concepts that will strengthen and extend the value of their brands? Or will nimbler, more imaginative retailers or software companies get there first?
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