Quietly, an entire class of American entrepreneurial businesses is passing into extinction. The neighborhood, family-owned new-car dealer is an endangered species, few of which will survive into the next century.
They are succcumbing to what the industry calls "mega-dealers" - operations with a large number of stores, selling numerous brands in a variety of locations. The trend toward concentration in the retail automobile business has accelerated in the 1980s. From a high of 39,000 dealerships 30 years ago, the number has declined to fewer than 25,000.In the current decade, the proliferation of new brands - Hyundai, Suzuki, Acura - and the explosive growth in other brands such as Honda have created a huge pool of new franchise opportunities at the same time that the number of dealerships has been declining. There were 59,000 franchised new-car outlets in the United States in 1978; now there are 72,000.
New franchises go to well-established and well-financed dealers. The 72,000 franchises in 25,000 dealerships are controlled by just 16,500 owners, according to the National Automobile Dealers Association. On average, then, the individual dealer controls four to five franchised outlets. Just 22 percent of the dealers, according to the NADA, control 50 percent of the business. According to figures from an industry trade magazine, the top 10 dealers each reap over $100 million in sales from new cars alone.
Suburban areas suffer the greatest shrinkage in dealerships. On the other hand, rural dealers, with low overhead, can more easily survive economic downturns, and they enjoy less competition. Urban dealers are protected from competition by the extraordinary cost of land development.
The reduction in the number of new-car stores means more to the car buyer than a loss of convenience. There is also a loss of personal contact with the dealership owner, who has given way to the corporate manager. Department heads - the new-car and used-car sales managers, the parts manager, service manager, finance and insurance manager - are each expected to report a profit to the owner. Volume drives the mega-dealer.
To generate the needed volume, mega-dealers resort to blaring television spots and flashy full-page newspaper spreads. Prospective buyers often make the assumption, based on this mega-advertising, that the big dealer offers the largest inventory and best price. That's not necessarily true.
The mega-dealer has a substantial overhead cost and advertising expense. The small dealer may have more price flexibility. The large dealer has more cars on his lot, but many manufacturers offer a computerized vehicle-locating service that helps dealers with less inventory find the car they want at another dealer.
The automakers, naturally, are happy to sell to a dealership that can "move the iron" in large numbers. In addition, the large dealership enjoys greater financial resources for upgrading of facilities and investment in new equipment.
The downside of the factory-mega-dealer relationship is a shift away from brand loyalty. The consumer who enjoys good service from a multi-line dealership returns to purchase another car - but it may be a Toyota instead of a Ford. Thus, the manufacturer loses a customer.
The greatest concern to the automakers, however, is the onset of public ownership. Dealers, seeking new sources of capital, are looking to the equity markets. That threatens the one-on-one relationship that is the heart of the dealer franchise agreement.
Already, one multi-line dealership in Kansas has offered stock to the public, and dealers elsewhere are exploring limited partnerships, among other options. Although the automobile manufacturers profess disdain for public ownership, in practice they may have little choice but to go along with these arrangements.
Once a dealership becomes the property of a group of investors or shareholders, its primary concern becomes the quarterly earnings report, possibly to the exclusion of customer satisfaction.
If the prospect of trying to resolve a complaint with a group of anonymous investors seems frustrating, consumers may soon find themselves having to deal with foreign corporations. A British company is currently completing the purchase of a 50 percent share in a chain of California dealerships. And a large Japanese concern is known to be shopping for dealerships in the United States.
Almost all industry analysts agree that the trend toward fewer dealerships, greater concentration of ownership and outside investment is likely to continue. Yet, even the largest dealers say that customer satisfaction is enhanced by better communication between the car owner and the car dealer.
A prime example is the Greater New York Automobile Dealers Association AUTOCAP program. When a customer with a problem problem calls AUTOCAP, association officials contact the dealer principal directly. In almost 94 percent of the cases, that call resolves the problem. But if the dealership is owned by a corporation in Tokyo, who will take the call and make the decision that solves the consumer's problem?