Published August 4, 2012, Los Angeles Daily Journal – Ford did it. Chrysler and GM did too. Now Land Rover is joining the party to eliminate its franchised automobile dealers across the United States – all for the purpose of establishing grand showplaces in strategic locations throughout the nation.
The truth be told, geography is largely to blame. Well, that and greed.
Long before the advent of instant messaging and super highways, our country was quilted by independent townships, separated by a fort night’s travel. Today, a trip from Los Angeles to Riverside is inconvenienced by construction and traffic, but not long ago the trip was a tough day’s travel. Poor highways – or worse, dirt roads – were the norm, dividing our country into a multitude of towns, each with their local hardware store, market, and yes, dealership.
Yet, much has changed over the years, and the need for a franchised dealer in every bedroom community no longer remains. Residents of Riverside are perfectly capable of driving to the neighboring city of San Bernardino buy a car, and their conduct demonstrates that they are willing to do so.
As a result, the number of new dealers has dropped precipitously over the years. In 1950, for instance, the U.S. laid home to some 47,000 franchised dealerships. Today, despite our population having more than doubled, the number is 17,500. And now, what has not been eliminated through natural selection, is being subjected to manufacturer desires.
Many dealers throughout the nation are economically viable, but not part of the automakers’ plan to continue representing the brand. And therein lies the struggle. Dealers often times have years, if not decades, of established goodwill in their business, yet the look, size and location of the dealership no longer fits within the manufacturer’s plan.
The problem is only exacerbated when new entrants come to the marketplace without the legacy of a historical dealer base. For instance, in 2008, the year before GM filed for bankruptcy, Cadillac (which was established in 1902) sold 161,159 vehicles through 1,422 franchised dealers. That same year, newcomer Lexus sold 260,087 vehicles through 226 dealers. Put another way, in 2008 the average Cadillac dealer sold 113 vehicles; the average Lexus dealer, 1,150.
It is no surprise then that when the domestics sought to shudder many of their dealers in the 2009 bankruptcies, they told President Obama’s Auto Task Force that they wanted to emulate the “Toyota dealership model” – sell more vehicles through fewer consolidated dealerships. And what Chrysler and GM accomplished through the bankruptcy courts, Ford, Range Rover and others are attempting to accomplish on their own.
After eliminating the Mercury brand, and pledging to stand behind the remaining Lincoln dealers, Ford announced that it was seeking to reduce it Lincoln‘s dealer network by more than 25 percent. Now, Range Rover has joined the fray, seeking to consolidate its Jaguar and Land Rover dealerships into single locations, reducing its dealer network by 20 percent.
The thought behind fewer, consolidated dealerships is that more resources can be put into grand showplaces, which will serve to highlight the brands. If there is any doubt over this consider that Chrysler recently opened up a 200,000 square foot, four-story megastore in downtown Los Angeles for all of its brands. Mercedes-Benz has done likewise, opening a $220 million, five-story, 330,000-square-foot dealership in the heart of Manhattan.
To some, this may be seen as progress; to others it is capricious. Range Rover, for instance, is pushing its new program because it wants to be able to sell luxury cars and sports utility vehicles under the same roof. As Andy Goss, CEO of Jaguar Land Rover North America, recently stated, “We know the recipe for success, particularly in the luxury market, is to look at what BMW and Mercedes-Benz have done. Forty-five percent of people who own a Jaguar also own an SUV. It is the same customer base. It would be foolish not to try and get those customers.”
Yet, while trying this new approach may result in more sales for Range Rover, the cost for the experiment will be borne almost entirely by the dealers. To the dealer community that built the automotive marketplace, manufacturers should not be able to force closures and consolidations because of a new marketing agenda. Legislatures tend to agree.
Most states, like California, have enacted statutes which protect franchised dealers from predatory trade practices, and make it illegal for a manufacturer to terminate a dealer without establishing “good cause.” Good cause is typically seen as fraud, failing to remain open, or transferring the dealership without the manufacturer’s consent.
Yet, while this protects dealers from outright termination, it does nothing to prevent coercive tactics designed at accomplishing the same result. For instance, Chrysler is making the new, and lucrative, Dodge Viper only available to dealerships that comply with certain facility guidelines. GM offers financial incentives to dealers who comply with its “Essential Brand Elements” facility program. And Range Rover is having a “sit down meeting” with its dealers to explain the benefits of consolidation.
While the customer may have a better buying experience at a consolidated megastore, this needs to be balanced against the dealers’ economic interest. Dealerships are big business, employing countless members of the community and generating millions in local tax revenue. This, of course, is to say nothing of the years of hard work and dedication from the dealer principals themselves, as well as their at-risk capital. Failing to recognize these attributes in the implementation of a new marketing plan retards capitalism and chills investment. While the automakers may not want to hear it, sometimes you have to dance with the one that brung ya.