Why is it bad for a car maker to have "too many" dealerships? (rental, vehicles)

[OC Investor2]

During all the Big 3 drama the past few months there has been a constant drumbeat that the Big 3 have too many dealers and this was bad for the manufacturers. It's become the conventional wisdom.

But why is having so many dealers bad for them? I can understand having too many brands and how that could hurt the carmakers, but what difference does it make to GM if there are 2000 Chevy dealers or 3000? Isn't it better to have more people who need to feed their families by selling your company's cars? I understand it can be hard on the dealers to have other franchises nearby, but how does in hurt the manufacturer?

Can someone please explain? Thanks

[iTsLiKeAnEgG]

Because forcing dealers to compete for business, something that many consumers take advantage of, serves to cut margins and overall profits among dealers. The dealers act as an extension of the manufacturer and if the dealer is hurting the manufacturer will feel it in return. It also makes more sense in the interest of efficiency. Placing 5 dealers in an area that previously had 1 does not multiply sales by 5.

[OC Investor2]

Originally Posted by iTsLiKeAnEgG

Because forcing dealers to compete for business, something that many consumers take advantage of, serves to cut margins and overall profits among dealers. The dealers act as an extension of the manufacturer and if the dealer is hurting the manufacturer will feel it in return. It also makes more sense in the interest of efficiency. Placing 5 dealers in an area that previously had 1 does not multiply sales by 5.

In theory ,as long as the level of competition does'nt cause massive disruption in a market, the dealers competing for business should be good for the manufacturer. Hopefully it would force the dealer selling their product to stay sharper on pricing to beat the other shop across town. This should make them a better place to buy a car then the lone store in town for another brand that is less on the ball becuase they have no competition w/in 50 miles where a shopper could buy their type of car.

I understand that having 5 dealerships won't raise sales 5x, but would it 1.2x or 1.5x? Plus if a dealer holds a market captive, they have more power back with the manufacturer. If a carmaker has multiple stores in a market, would'nt allow them to play one off against the other to keep them more in line. I guess I am operating under the assumption the dealer and carmakers interests are'nt always aligned.

Again, I get that it isn't the best for the dealers, but how is it bad for the carmaker?

[little elmer]

Putting too much of anything in one place devalues the commodity.

[mikeyyc]

Dealerships work on a "floorplan". An allotment of cars financed short term by the car company, and then eventually by the dealer.

Fewer dealers, fewer vehicles to float inventory for. Fewer mechanics and salespeople to train, and a more streamlined operation overall.

[idahosales]

Used to work for a software company that sold software to car dealerships. I was always shocked at how many small(and I mean really small) towns have at least 1-2 new car dealerships. The big three could easily trim a quarter of their dealerships and I doubt it would impact overall sales. Does a town of less than 5,000 people need a new car dealer when all you have to do is drive less than an hour to a bigger city?

[OC Investor2]

Originally Posted by idahosales

Used to work for a software company that sold software to car dealerships. I was always shocked at how many small(and I mean really small) towns have at least 1-2 new car dealerships. The big three could easily trim a quarter of their dealerships and I doubt it would impact overall sales. Does a town of less than 5,000 people need a new car dealer when all you have to do is drive less than an hour to a bigger city?

I thought this was viewed as an advantage for the big 3?

My understanding was all these small towns had a Big 3 dealer whereas the nearest Japan inc or german store was hours away in the big city. This made people more inclined to buy from the local (Big 3) store so they could get easy maintainence & service. Also the small town dealers had established long term relationships with their customers and they really added alot of marketing & sales value to the big 3's sales efforts.

[getmeoutofhere]

Too many dealers means too much competition, which means too little profit for the dealers. Which is bad.


Also, the stupid deals that an overcrowded market forces kills resale value.

[Stratford, Ct. Resident]

This is pretty simple to explain. How many pleasant, honest transactions have you conducted with auto dealerships? If you're like most people, it's a turn-off when you have to wade through a bunch of dealerships until you find one that's professional and legitimate.

I think you're going to see the # of dealerships decrease drastically in the coming years due to, the availability of auto searching tools on manufacturer's websites, and the availability of web-based price quotes. I wouldn't be surprised if 20 years from now, dealerships co-op with rental car outlets. The current dealership model is a dinosaur that costs too much to run.

[Toyman at Jewel Lake]

The flip side is that more dealerships means more convenient locations for the customer for service after the sale. One of my considerations is what dealership is located near where I work and offers shuttle service. On the other hand, it's been very rare that I've had a dealer do anything on my rigs.