Editor’s note: This is a reported column, in which Steve Finlay periodically explores the relationship between automakers and dealers for WardsAuto.
The automakers started it.
They’re the ones who created the franchised dealership model.
That’s of note of late, because some startup automakers these days are bypassing the traditional franchised-dealer network and selling cars factory-direct.
It’s become an industry sore point for some players.
Pioneer automakers such as Henry Ford devised the system of independent franchisees selling and servicing vehicles. They did so for three reasons.
They didn’t want to:
- Bear the costs of owning individual stores across the country.
- Oversee a nationwide sales staff.
- Pay the cost of carrying inventory across the U.S..
“Manufacturers have their hands full designing and building cars. It’s more than a full-time job,” Tim Jackson, former president of the Colorado Auto Dealers Association, told WardsAuto.
Automakers and dealers maintain a symbiotic relationship, meaning they are different from each other yet interdependent.
Dealer-automaker relationships can run hot and cold, but essentially the franchise system has worked well, said Jackson. “Everyone has an important role to play.”
Sure, dealers can get miffed at automakers on issues like stair-step incentive plans that can result in dealers selling cars at a loss to hit monthly incentive quotas. Trimming dealership ranks is another hot-button item.
Conversely, dealers can irk automakers when, say, sales and customer satisfaction levels aren’t high enough.
The latest automaker-dealer flareup involves the Volkswagen Group’s decision for its new offshoot, Scout Motors, to sell electric vehicles directly to consumers when the vehicles hit the market.
The National Automobile Dealers Association has dug in over that one.
And 10 Colorado dealers representing VW, Audi and Porsche (all in the VW Group) have sued the state for granting Scout a dealer license. Scout would join EV makers Rivian, Lucid and Tesla by selling directly to consumers. Among other things, it’s a way to control prices.
But the direct-to-consumer sales strategy comes with risks: Only one of them, Tesla, has been profitable so far. And Tesla is something of an anomaly among the factory-direct set.
“It was a long, long time before Tesla went into the black,” Jackson said. (Tesla still struggles with the servicing side of the business.) “Rivian and Lucid are losing money. I think it’s largely because they don’t have dealers.”
Are there times when everyone in the industry gets along just fine?
“Hah! That’s a fair question,” said Jackson. “The short answer is yes. My recommendation would be to create more of those moments when they are interacting.”
Ironically, some ex-auto executives have crossed over and now head major dealer groups. Example: Michael Manley, CEO of AutoNation, the country’s largest dealer group. He formerly served as managing director-North American operations for Stellantis.
In the 1990s, automakers were wary as dealership consolidation grew, spearheaded by AutoNation (then part of Republic Industries).
There was even a wild rumor that AutoNation intended to introduce its own vehicle line. Well, that didn’t happen.
“Automakers need to realize they’re not good at selling cars,” said Jackson. Conversely, dealers presumably wouldn’t excel at making them.
How do both sides work out their differences without pulling out the stilettos?
Tim Manning, senior vice president of retail operations for Mazda North American Operations, offers some tips.
“Having good dealer relations is very important to our management team,” he told WardsAuto. “It centers on being transparent, honest and direct.”
That doesn’t mean automakers always telling dealers what they want to hear. And vice versa.
“We’re open to engagement at dealer council meetings and through multiple videos for dealerships and employees,” Manning said. “Every month, we discuss what we did and didn’t do well. Nothing is off-limits.”
In recent times, Mazda trimmed its U.S. dealership ranks to avoid over-dealering. There are now 540 Mazda stores, down from a peak of 900 outlets in 2000.
Can closing dealerships get messy?
“It can, though I wouldn’t use that word,” Manning said. “There were a lot of honest, transparent conversations. We were clear on what we expected. Many dealers were clear on what they were and were not willing to do. It helped us decide the path forward.”
Is diplomacy important in such interactions?
“The answer is yes, but there are still hard discussions to be had,” said Rob Sickel.
He is chairman of Mazda’s National Dealer Advisory Council and heads Pine Belt Enterprises, a Lakewood, New Jersey, dealer group that represents Chevrolet, Chrysler, Dodge, Jeep, Ram and Subaru. The dealer group is also a partner in two Nissan stores and a Cadillac dealership.
Declining to get into specifics, Sickel said dealer-automaker conversations can get animated. “But we have them in the right way. Sometimes we don’t always end up where we want. Sometimes they don’t end up where they want. It’s collaborative, though.”
There’s also this dynamic: “Dealers generally don’t like being told what to do,” said Sickel. “Especially if it costs them money.”
