Mike Smitka
Here are a series of brief items in the New York Times "Room For Debate" online forum on their Opinion page: Link here. My contribution starts:
G.M.’s bankruptcy could still unravel unpleasantly. It’s a big customer for the supplier base, and they’re on the edge. Chrysler’s dealers got 26 days’ notice. G.M.’s franchises don’t expire until October 2010. But that’s remote from our everyday experience...
Mr Smitka, WHY "in most states" is it illegal to buy a vehicle direct from the manufacturer? This seems more like a law I would expect to have found in, say, Cuba or the USSR in Kruschev's era.
ReplyDeleteMr. Smitka, what are Generation Y's auto buying habits versus those of previous generations of young people? What does the data show about Gen Y (now age 9 to 29) about their current car buying? Thanks for your response.
ReplyDelete1. I don't follow in sufficient detail to know whether "Gen Y" might be different.
ReplyDelete2. Franchisers of all sorts have the incentive to line up too many franchisees -- they get more sales, franchisees earn (much) less. Franchisers also have been known to try to change the terms of agreements / yank franchises when their franchisees make "too much" money (not to name any names). While there is Federal legislation, most of the action is in state-level laws put in place to limit abuses. Since auto dealers have long been active in local / state politics, and since the "factory" is infamous for placing demands on dealerships, this state-level legislation has been heavily influenced by car dealerships.
3. Note that in every country of which I'm aware, every auto company has been an abject failure when they've tried to sell cars directly. (The only exception I can think of in the US is that school bus manufacturers tend to sell directly to school systems -- but class 8 "semis" move through dealerships.) A car dealership typically has (i) multiple franchises in the US and (ii) 5-6 multiple lines of business: new car sales, used car sales, finance & insurance [extended warranties etc], service, parts sales and frequently a body shop. New cars aren't sufficient to keep a dealership running, indeed the US is rather unusual in that dealerships often make money selling new cars; in the EU and Japan other business lines subsidize new car sales.
4. At present we hear the "factory" -- Chrysler and GM -- saying that want dealers to be "profitable" and to sell primarily new cars, all the while investing in more modern facilities at a time when internet sales are making showrooms less central to the purchase decision. These policies are not mutually feasible. Dealerships have overinvested in real estate and cannot "move enough metal" to make that pay. Yet they're being asked to do more of the same, a recipe for failure.
Clive,
ReplyDeleteIt is illegal in all states for a supplier to compete with its own distribution network. It has NOTHING to do with communism or heavy handed government, its a law based on fairness. After spending millions on facilities and making substantial long term financial obligations to sell your supplier's products, would it make sense for your supplier to open a competing operation in your market?
William: Regarding Gen Y buying habits: As a generalization, Gen Y is totally immersed in the Web. They typically use the Internet to maintain control of the sales process. They will go out of their way to avoid face to face contact with dealership sales people until it suits THEIR purpose, not the purpose of the dealership. AND they communicate their experiences and strategies with their friends in a split second.
I hope my answers ring true!