With the Big 3 in the news recently, I’ve been hearing a lot about that there are too many dealerships out there. This got me to thinking: Why was the dealership system created? Why didn’t an automakers just say, “hey, dude with a car lot, sell my Plymouths next to those Fords”? I’m assuming it has something to do with too much competition (which is why they’re saying there are too many dealerships), but I was wondering if anyone had the Dope on the dealership system.
I don’t understand the OP. How do you propose cars to be sold? Maybe your question is about the dealerships being run by the manufacturers?
To put it another way:
Why is there a Ford dealer and not just a car dealer? Why the exclusive agreement? Why wouldn’t a dealer just try to sell whatever he could, regardless of manufacturer?
Good question. I don’t know the answer. But I do know that this is not exclusive to car dealerships. In many industries, one supplier is chosen as the exclusive supplier. For example, certain fast-food restaurants will serve Coke or Pepsi, but not both. So too, a car dealership can sell this or that but not both.
Maybe it’s simply that a car dealer needs so much space that it’s not practical to sell too many different brands. Or that the manufacturer won’t work with a dealer who is also selling for the competition. Lots of possibilities.
FWIW, there are lots of big dealers which sell “other” brands; they just don’t put them all on the same lot.
For example, here in Orlando we have the Holler Auto Group, which operates Honda, Hyundai/Kia, GM, VW/Audi and Mazda dealerships. Most of them are right next to each other on Colonial Drive (the main E-W road through the city) with some others dotted around.
The dealer system goes back over 100 years. It was created for a couple of different reasons. One of which was to expand the market where a particular make of car was sold. Another was to allow local service and repair of cars. A third was to generate extra money for the car companies (dealerships pay franchise fees and other costs). The fourth was that by having local businesses selling cars, you had pressure on local law makers to make things friendly for car companies.
When you buy a dealership franchise, you have to agree to a number of conditions. These can include things like building appearance, qualifications of employees, and many others. Many, though not all, car makers will only allow you to sell their vehicles cars on the your property. If you’re a Chevy dealer, you can sell other new GM vehicles on that one lot, but you can’t sell new Ford, Chrysler, or other non-GM brand on that lot. You can do it on the lot next door, but not on the same lot.
Simply allowing a Chevy dealer to sell Ford products, however, would not solve the problem. There are cities which will have two different Chevy (or Ford or Chrysler) dealerships sitting right next to one another. This came about because the US carmakers (and to a lesser extent the foreign car makers) have been willing to sell a franchise to anyone who has the money to buy one.
Wow, dealerships pay the manufacturers. I would have assumed that they get a deep discount on invoice as a way of saying thanks for only selling our cars.
I never thought about the local law makers aspect. That certainly makes a lot of sense though.
Tuckerfan I’m not asking for a cite, but do you have any recommended reading on this topic?
Is it not simply the fact that brand awareness is such a huge part of the way Manufacturers push sales of their cars.
Manufacturers wil want salespeople pushing as hard as they can to sell their particular brand, so perhaps it doesnt suit their ends to have the salesperson switch to another brand available on the forecourt at the firstsign of resistance by the customer.
Also of course, I suspect the dealership system is best prepared to deal with all the manufacturers obligations regarding warranty or any other aftersales problems.
They don’t even pay invoice, they pay a “rental” fee for having the car on their lot.
There was a lot of opposition to the automobile in the early days because they tended to scare horses.
Not really. You might try reading one of those “How to get the best deal on a new car” books written by former car salesmen. I picked up what I know from having a mother who worked for a Honda dealership for 30 years or so, as well as assorted automotive related writings. AFAIK, no one’s written a really detailed history of automotive dealerships, which is a shame, as there’s a wealth of interesting information out there. Some of the car dealerships have a backstory as complex as any soap opera (murder, drugs, sex scandals, and more), while others were incredibly progressive (the first African-American owned new car dealership was a Studebaker one set up in the 1930s or 40s).
No, the dealers buy the cars from the manufacturer. And we actually do pay invoice for them. What you think is a rental fee is probably floor plan interest. The dealership has a loan for the cars and pays interest on them. I work for a GM dealership. We have floor plan checks regularly. If the auditor comes in an one of the cars is missing or unaccounted for, we have to write a check to pay off the vehicle right then and there. There is no rental. There is no provision for sending the cars back to the manufacturer if they don’t sell. We own the cars. When a customer buys a vehicle, we can then pay off the car with those funds.
I don’t know all the specifics of the franchise agreements, but every franchised dealer has some agreement of some sort with the manufacturer.
Okay, I’ll do a damned lot count! 
As I understand it, this is what led to the Bill Heard dealers shutting down. They weren’t able to cover the flooring on the vehicles they purchased and declared bankruptcy.
That and their operation in Nashville had gotten a particularly nasty reputation. If their others had a similar rep, its not surprising they went under.
This practice wasn’t limited to car dealers. My father, for instance, only sold General Electric appliances; other dealers sold other brands.
In those cases, discounting played a role – the more things you bought, the less you paid for each. If you sold 50 refrigerators a year, you were better off selling them from one manufacturer.
But if you look at small retail stores in the 50s and before, they usually sold only one brand of a particular item.
An excellent explanation of the GM dealership systems.
GM apparently can’t just shut down a brand, because they’d have to buy out every dealer that sold it. Oldsmobile cost a billion(!) dollars to shut down!
If were I were a big 3 executive and wanted to kill a brand, I’d just build “the Homer” as the only line from that brand. Dealers would dump the brand voluntarily!
Nah, they’d file lawsuits out the wazoo saying that the car maker failed to keep up their end of the bargain, introduced the Homer specifically to kill the brand, etc., etc., etc.
Would it come with speed holes?
They make the car go faster.
Wow. Having mercifully escaped Central Florida for lo, these many years, you’ve managed to remind me that “You’ll save dollars at Holler’s!”
Why is it that local car dealerships always have the most bizarre and/or annoying ads and slogans? If you live in upstate NY, permit me to mention the word “Huge”.
Why? So that you’ll remember them, exactly as you did.
Don’t say it doesn’t work because it’s convinced you never to go there. It doesn’t need to work for you. It just needs to work with enough others.
And how many other area Hyundai dealerships can you name?