Page 41 - 2021 Atlanta Auto Show Guide

is complex, that factories are not all that good at retailing, and that when dealerships compete in proximity to each other, the
that having local dealers buying those cars off the factory line average price of a vehicle goes down by about $500.
and selling and servicing them in their local communities makes
a lot more sense as a business model. And price competition impacts not only sales, but service and
repairs as well. Customers at one factory-owned dealership
“But what about the profits?” one might ask. “Can’t selling direct chain have had to wait literally three weeks or longer for a service
eliminate dealership profits?” appointment. Can you imagine waiting three weeks to pay to get
your vehicle fixed? Nowhere in America today would a customer
Not really. The fact is that dealerships make very little money have to wait that long to get service on a Chevrolet, Toyota or Jeep.
selling new cars. Local dealerships are only profitable when If one local dealership can’t get you in for a service appointment
they take into account the entire ecosystem of the vehicle — this afternoon, the one down the street most certainly can.
sales, service, used vehicle sales, reconditioning contracts, fleet Consumers win when dealerships compete.
maintenance, and on and on and on.
In the end, the “middleman” myth is a really lazy and simplistic way
Local dealerships are capital intensive businesses — meaning of thinking about business. If local dealerships are middlemen,
it costs a lot in land, buildings and equipment to run them. then Walmart is a middleman. So is Amazon. And Walmart and
American dealerships have invested more than $200 billion in Amazon aren’t expected to service or repair the products they
land and buildings alone. Any factory wishing to sell directly sell, like dealerships do.
would incur those same costs of capital — and its shareholders
would certainly expect to get a return on those expenditures. Why Local dealerships do more than sell cars. They help their
sink money into a retailing operation when there’s no return on it? customers over the lifecycle of the car – from sales, to financing, to
registration, to service, to trade-ins. They compete for customers
For consumers, it’s even worse. When factories own retail outlets, at every stage of the ownership cycle, providing choices and
there is no competition to keep prices down. Factories set prices competitive pricing for customers.
and hold excess profits for themselves. When independent
retailers compete, that always creates price pressure. That’s why That’s why locally owned dealerships are good for consumers,
no supermarket can sell Campbells Soup for 10% or 20% more and the communities where they operate. It’s been that way
than another supermarket — they’ll eventually go out of business. for a hundred years — and the iron law of distribution explains
Same thing with car dealerships. When car dealers compete, perfectly why it’ll be good for customers for the next hundred
prices go down. One peer-reviewed academic study has shown years.
A
NNUAL
TLANT
TIONAL AUTO SHOW 39
A INTERNA
39
39 ANNUAL ATLANTA INTERNATIONAL AUTO SHOW 39
A
TH
TH