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Automobile Manufacturers-Who are "they" really looking out for?

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(Posted on Jul 10, 2013 at 07:21PM by William Cosgrove)

In my last post “Bad Management It’s Also Just Plain bad for Business“ At Dealerelite.net, David Ruggles brought up a good point when responding to a comment made by Steve Richards.


Steve stated that "The retail culture incubates mediocrity and as gross profits continue their downward spiral good luck attracting quality sales personnel. Can you name another product that sells for $30K and pays a $100 commission?”

David replied that “Gross profits continue their downward spiral because the previous asymmetry in information has become more balanced, creating a more efficient market. While that might sound good to consumers, an efficient market leads to disintermediation.  For those not familiar with this term of economics, it means cutting out the middle man while the product becomes a commodity.  Can you name us another product that sells for $30K, where consumers expect to know our base costs, and 10% is considered to be an obscene profit by industry outsiders and many "insiders?”

My mission to get Dealers to improve their business model goes back to 2010 when I started discussing what I saw as a growing movement, which was a perfect time to execute due the pain caused by the recession,  in the Industry to commoditize the Automobile Industry and that is that I saw the Giants in this Industry buying up the vertical and convincing Dealers that they need to sell for one price and buy for another and our way of marketing is the right way. That is that in order to compete and move product you need to turn more product at a lower price to survive in today’s Marketplace. This plays right into the hands of the Mega Dealers who’s Business model is based on churning out more and more numbers at low marigins.

To do this they need more and more territory to churn those higher numbers to make their business model work. Where is that territory coming from? I think you know the answer to that.

Automobile Manufactures mandate Dealers to selling numbers which is the most basic contradiction in the Franchise model for the Dealer. The Manufacturer doesn’t really care where those numbers come from as long as they are met. After all the Manufacturers profit is built in and booked as soon as it leaves the factory to its destination.

You saw what happened to True Cars when they tried to reach into the pockets of the Manufacturer but who is looking out for the Independent Dealer? No One.

Between the Manufacturers and the Giants of the Industry owning or controlling the vertical from Inventory to marketing whose mission is churning higher and higher numbers you wonder if commoditization it is inevitable.

And believe me. If this takes place the Independent Dealer is not the only one that will be affected. All of us from Marketing firms to Consultants to any Vendor in the Industry will be fighting for less and less dollars as our customer base will shrink

Where do you think the Industry is headed? Right now Franchise Laws as David stated "By law, franchise laws in every state, a new vehicle can only be purchased from a franchised dealer.” Is this being circumvented by the creation of Mega Dealers? Will Franchises as they exist today become non-exisitent in the future?

Is the only way for the Independent to fight back to start running their businesses more effectively and efficiently. This is a topic that needs to be discussed because all of this it is already happening whether you want to open your eyes to it or not.

By Bill Cosgrove

http://dealernetservicesonline.biz

 

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