Automobile Dealers
SIC 5511, 5521
NAICS 441110, 441120
The world's car dealerships sell new and used cars and light trucks to the general public. They include manufacturer franchises and independent retailers. New car franchises also often perform repair services, including manufacturer-authorized repairs. For more details on trends affecting the broader automotive industry, see also the topics Motor Vehicles and Motor Vehicle Parts and Accessories.
Globally, the retail car industry remains highly fragmented. There are very few big players, with most dealerships being independent used car dealers or franchisers of the the major car brands. The industry is highly dependent on economic trends, with disposable income levels greatly dictating purchasing levels and patterns. Some markets remain virtually untapped. In mature markets, industry participants were continuing to use incentives to lure customers' purchases.
In China, only 3 percent of the population owns cars, and the world's major car manufacturers see this as the major growth area. China's Deputy Minister of Commerce Ma Xiuhong told the Detroit Free Press that Chinese automakers did not have the dealer relationships in order to successfully make major plans for moving to the U.S. The newspaper noted, however, that several Chinese automakers planned to export vehicles to the U.S. Chrysler's partner, Chery Automobile, was cited.
According to the Detroit Free Press, owners of the oldest GM-affiliated dealership in India expected an increase in sales among first-time buyers with the Chevrolet Spark. The minicar was believed to be well suited to India's roads and developing economy. By May 2007, Mahendra and Mayank Merchant reported having booked 30 orders for the Spark. Their dealership originally focused on selling Oldsmobiles. During India's decades of economic isolation, it sold Hindustan Motors' big Ambassadors. The father and son team owned two dealerships — an original one opened by Mahendra Merchant's father more than 60 years ago in the heart of Mumbai and another one near Mumbai's international airport.
The Detroit Free Press also reported that dealers who sell Chrysler, Dodge, and Jeep vehicles were optimistic that resolution of what would happen to the Chrysler Group might improve their sales. These comments followed a DaimlerChrysler announcement that Cerberus Capital Management offered to pay US$7.4 billion for 80 percent stake in Chrysler. Premier Chrysler-Jeep Chicago Dealership Owner Garrett Jioulos predicted, "It's going to be very refreshing. The dealer body will be a lot happier."
Dealerships tried to reach out to customers and their families by linking to special campaigns. One example took place during May 2007 National Military Appreciation Month. California teenager and founder of millionthanks.org Shauna Fleming was featured in a TV commercial celebrating the partnership supporting her efforts as the national spokesperson for the month. GM dealerships throughout the U.S. served as sites where well wishers could drop off letters or sign large cards for Americans serving in the military and on duty in Iraq and Afghanistan. The campaign's goal was to collect at least one million letters during the month to send to troops. "We appreciate our troops being there," stated Taft Chevrolet President Devinder Bains. "My gratitude for the troops comes since I come from a military background. My father and brothers served in the military in India."
While the central function of car dealerships is, of course, selling cars, dealerships often engage in two related business lines: financing and repairs. Small dealerships usually do not have resources to offer financing, but larger chains may grant car loans as a service to their customers and as a source of additional revenue and profit. Many more dealers also furnish maintenance and repair services, typically to customers of the dealership or to owners of cars from the dealership's franchised line.
Pricing has long been a debated issue in auto retailing, and it is one that regained attention as the new superstores eschewed negotiable pricing in their outlets. As in many retail trades, new car retailers priced their products based in part on a manufacturer's suggested rates and in part on other factors including current demand and incentive programs which usually resulted in cars selling at less than the manufacturer's suggested level. Sometimes the disparity between a car's list price and its usual selling price could be great. In France, for example, auto dealers routinely sold Renault and Citroen models, which manufacturers marked up at a premium to comparable imported models.
A major determinant in traditional pricing had also been buyer negotiation—more often termed haggling—based on what the buyer might know about the dealer's costs or prices of competitive products. In the 1990s and 2000s consumers increasingly paid attention to, and had greater access to, information about dealers' costs, the value of various option packages, and the average mark-up on car prices to cover dealer costs and profit. This information gave consumers considerable bargaining power and helped keep prices—and consequently, dealer profits—low compared to earlier periods.
Traditional used car pricing usually involved a similar process of negotiation. However, with used cars the cost and market value could be much more ambiguous. Factors such as a used car's age, condition, and relative popularity figured into its valuation, and while published "book" values were available for comparison, the procedure might be cloaked in much greater subjectivity in comparison to new car pricing. The murkiness of used car valuation is, in part, what made the used car side of the business more profitable, as dealers often had flexibility to mark up trade-ins and other acquisitions at much higher rates than new cars. But it also led to some abuses, notably when consumers were unaware of the average market price for a car (or the exact condition of all of its components) and a dealer convinced him or her to pay much more than it was worth.
Compared to other retail businesses, car dealerships were unusually dependent on manufacturers in that new cars in Japan, Western Europe, and North America were sold almost exclusively by companies that had been granted one or more dealership franchises by manufacturers. All of the world's leading automakers thus regulated, with increasing scrutiny, the number and type of retailers that sold their products. Some manufacturers watched with discomfort as consolidators purchased the businesses that they had granted franchises to. A notable dispute erupted in 1997 between Republic Industries Inc., parent company of AutoNation, and the automakers Honda and Toyota. The manufacturers attempted to ban Republic from acquiring more than a certain number of their franchise holders within certain markets and over a specific time frame. Toyota, for example, mandated a nine-month waiting period between acquisitions of its franchises and imposed maximum limits of seven separate Toyota franchises and three Lexus franchises per retailer.
New car dealership franchises were usually granted along the lines of the manufacturers' different marketing divisions. This means, for instance, that General Motors Corporation issued separate licenses to market different lines, such as Chevrolet and Pontiac; in other words, a Chevrolet-brand dealer did not automatically have rights to sell Pontiac models.
In the late 1990s, automakers both in the United States and abroad sought to derive a more-efficient cost structure from auto retailing. For example, in the United Kingdom, car manufacturers were redrawing their marketing districts in order to grant a wider geographic market to a fewer number of dealers. Similar moves were underway in the United States by the country's Big Three (Ford, General Motors, and DaimlerChrysler). In particular, Ford and General Motors began to trim the numbers of their franchises. General Motors reduced its 8,000-dealer base in the United States—the world's largest—by 1,000 between 1998 and 2000. Offsetting such moves in part, however, was an increase in the number of import-franchised dealerships, including those from Japan, Europe, and South Korea. In fact, these import dealerships increased by 299 in 2000, while Big Three dealerships declined by only 296.
While new car dealers often marketed used cars as well, including many that were traded in during the purchase of new cars, used car firms exclusively dealt in previously owned vehicles. These cars were obtained from wholesalers, auctions, or private individuals. As a result, used car dealers were considered independent, required no license from manufacturers, and were able to sell any make and any model.
Automotive retailing throughout the world underwent rapid transformation in the 1990s. In major markets —such as those of Japan, Western Europe, and the United States — the widely fragmented retail structures began to give way to larger, consolidated dealerships. Although new auto demand was relatively flat during the mid-1990s, squeezing already tight profit margins at dealerships and...
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