ARE THERE REALLY TOO MANY NEW AUTO DEALERSHIPS?

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The conventional wisdom, lapped up by the Obama Administration "Auto Czars" and most of the motoring/business press is that the Detroit 3 have too many dealerships.

But a Wall Street Journal "Deal Journal" article somewhat calls this assumption into question.

Veteran dealer Jack Fitzgerald claims:

There were 12,836 dealerships before the auto makers swung the axe. That is down from roughly 40,000 dealerships in 1950. In that time number of Detroit cars running on the road rose to 150 million from 50 million. That means there are 75% fewer domestic dealers out there even as the number of cars in operation tripled . . . .

And automotive historians are often quick to point out that weak dealer networks cost many "independant" manufacturers sales in the 1940s-1960s and helped doom their survival chances.

"40,000 dealerships in 1950. . . .75% fewer domestic dealers out there even as the number of cars in operation tripled,"

Perhaps it's really lack of domestic competition that's allowed the remaining Detroit 3 dealers to become such scam artists and so unresponsive to customer desires.

Cutting dealers to compete with the Japanese invaders makes as much sense as Sears/KMart cutting the number of stores to take on Walmart.

(Sam Walton figured out that a proliferation of stores in underserved smaller markets, highly-involved local managers, and advanced inventory control would ultimately beat the consolidated urban superstore model of Sears, Montgomery Ward, J.C. Penney, K-Mart, Target and the other "unbeatable" titans of 1960s retailing)

Increasing the number of smaller dealers, improving "build to order" response times, vastly improved inventory management (is there any reason in the internet age that buyers should not be able to search a manufacturer's entire national inventory by color, options, price, and location in thirty seconds?), and more regional dealer group/co-op advertising would improve competitiveness.

The current franchising system has created a monopoly of megastores that is mostly controlled by a handful of huge chains, like Sonic, Group One and Penske. The archaic practice of carrying 200-500 units in stock under a floorplan financing arrangement and having a huge multi-million dollar service department also bloats the overhead of auto retailing and hurts competition. Protected territories also hurts competition.

Back in the 40,000 dealership days, it really didn't require more than a half-dozen people in a low-overhead filling-station-sized store to run a viable, small volume retail outlet. And there were plenty of alternative sources for the same brand if you didn't like a particular dealer's practices. Integration of the dealers into their local communities also improved consumer relations and built relationships that lead to repeat business.

However, the OEMs have long disfavored small dealers, forced expensive, unreasonable and unnecessary investments in facilities that could only be covered by building megastores, and encouraged anti-competitive sales territory protection.

Now, the problem is becoming that if potential customers don't like how the impersonal, local megastore treats them, they often have few convenient options other than shopping other brands (usually sold in thinly-veiled companion stores operated by one of the megachains).

Multi-manufacturer megastores also lead to reduced brand promotion effort and spiff-based sales poaching. A smaller dealer committed to one manufacturer will be more motivated to promote the brand.

Thus, a better system would break up the monopolies, cut out layers of management, and proliferate the number of dealers and retail locations across America. Much of middle America is being left without any convenient dealerships.

When Detroit copies the Japanese urban megadealer model, it is inevitable that they will lose rural and "heartland" sales because of loss of convenience and increased cross-shopping at multi-brand megastores.

At the dawn of the auto age, Henry Ford dominated the market in part through a huge national dealer base. Although modern vehicles aren't simple commodities like the Model T, advanced technology could make a dealer re-proliferation model work again.