Tesla has stirred the pot by lobbying state legislatures to change laws in the states where automakers are banned from selling new vehicles direct to consumers. It has caused debate between buyers about the franchised dealer system that has been around for decades. Some call the system outdated and say it should be changed. As a former automobile franchise owner myself, I disagree.
I have seen first-hand what happens when an automaker tries to run a dealership. This experiment happened in numerous markets across the country, but I had first hand knowledge of the Oklahoma City Ford Retail Network.
Ford purchased 5 dealerships in the area, the five largest, and set out to run them back in 1998. It was a disaster to say the least. Consumers complained about prices going up and service going down. I ended up purchasing one of the dealerships myself, and underestimated how long it would take to turn it around. Once a great dealership, it had hit bottom in every area. The results were the same in Ft. Worth, Tulsa, Salt Lake City, San Diego, and Rochester, N.Y. In 2002, Ford bailed out and sold the dealerships back to dealers.
What people do not realize is that it is the competition between private dealerships that keeps prices down, and customer service up. We need not look any further than Tesla itself to prove the case. Every car that is purchased is sold at MSRP, or window sticker price. They can set the price anywhere they wish and stand on it. They don’t have to offer good service, you have no choice but to go to them. Monopolies are not good for consumers and never have been.
What happens if you disagree with an automaker, say over a warranty repair? Again, you have nowhere to go, unlike having an independent dealer who will fight for you or as is often the case, takes care of the issue for you because he or she doesn’t want to lose your business.
Car dealers usually live and work in the communities they serve. They give back to their neighbors, hire local people, pay a ton of taxes that stay in the area and the state they are in, and most donate a lot of time and money to service organizations.
In this age of the Internet, you can go online and find out what a dealer pays for a car, no other business has this availability. If automakers sold cars direct to the public, that would not be the case since they also set the MSRP of the car and can demand that price.
Some will disagree with me on this, I understand that. I consider myself a consumer advocate, and seeing what happens first-hand when automakers own dealerships, I can tell you with certainty, it is not a good scenario for car buyers.
I get tickled when people tell me they had a great experience at CarMax, the large, chain used car operation. They do not negotiate prices, period. That is their business model and they have been successful. Think about it however, you paid the price they wanted, how could it not be a good experience? Walk into any dealership and pay sticker price, you’ll have a good experience there too, and can get in and out in under an hour.
The franchised dealer system has worked for many years. As I point out often, there are good dealers and bad dealers like every other profession out there. The bottom line is there is no substitute for the entrepreneurial spirit of a good, caring, dealer who has all his capital on the line every day.
-Jerry Reynolds, The Car Pro