Death Of Car Salesmen?

When automakers created the franchise dealer network in the 1910s, they believed they had invented a means of passing off enormous inventory costs to an army of salesmen. But as dealers became the sole point of contact with the auto-buying public, Detroit has often regretted the decision.

Today, simply getting a car to the customer adds more than a third to the sticker price. If manufacturers could just cut the dealers out of the picture, they could increase their margins significantly.

When auto shoppers started flocking to the Web to kick virtual tires years ago-8 out of every 10 car shoppers now browse online before making a purchase-carmakers believed they finally found a cost-effective way to make an end-run around the dealers. Nice try.

They ran head-first into a wall of state laws and other regulations that prohibit manufacturers from selling their vehicles directly to consumers-rules set in motion by Detroit itself decades ago.

While GM joined forces with its dealers in 1999 to form BuyPower, a site that helped consumers find dealers in their area, Ford argued that websites should be exempt from such restrictions. The state of Texas took Ford to court some years ago and won a ruling barring it from selling used cars over the Web.

Ford appealed, but the case strained relations with the 4,100 franchises in the Ford Dealer Council, casting a pall over its online sales ventures. “Ford got burned,” says Bruce Belzowski, a senior research analyst at the University of Michigan.

But some far-sighted dealers didn’t want a war with Ford – they wanted to fatten their razor-thin profit margins (an average 2 percent on new car sales, according to the National Automobile Dealers Association). That’s why Bill Keith, a Ford dealer with franchises in New Jersey and Colorado, got together with David Kain, a Kentucky dealer, and pitched Ford e-czar Brian Kelley with an offer he couldn’t refuse: Let’s collaborate. The result is FordDirect.com, now has been around in many states for many years. Read here why some start-ups fail.

Not to be outdone, GM launched a 90-day pilot program some years ago in the Washington, D.C., area to sell Chevys over the Web. Like FordDirect, it’s designed to permit car shoppers to locate cars by accessing the inventories of participating dealers. GM hopes to turn the project into a stand-alone company in a 50-50 partnership with dealers. But in contrast to the Ford venture, Mark Hogan, GM’s chief e-commerce executive, says the site was run and branded by Autobytel, the online firm that has referred 7 million online customers to its 5,000-strong dealer network.

By not branding it a GM site, Hogan says it should draw more traffic, since only a third of all online car shoppers visit sites run by manufacturers. But GM will pay a price: The site also features models from virtually every other automaker, which could dilute GM’s message.

These two projects seemed to hold the most promise among all online car-selling ventures. By permitting dealers to call the shots, the automakers now have a real chance of fully exploiting the sales potential of the Web. Why? Because dealers control the most valuable asset in the car sales process: inventory. At any one time, for example, GM has $24 billion worth of vehicles on dealer lots, but it doesn’t own them anymore – franchises do.

Similarly, online companies such as Autobytel and CarsDirect.com are dependent on participating dealers for the vehicles they list on their sites. As a result, dealers hold the most power in the online car sales equation, not technology providers or manufacturers. “The dealers may have looked fat, dumb, and undefended,” says Mark Lorimer, CEO of Autobytel, “but the franchise system runs lean, very intelligently, and is extremely well-defended.”

Automakers may build the cars and trucks that fill franchise lots, but when it comes to selling them, the dealers are in the driver’s seat, offline or on. So plenty of employment opportunities, especially in the Michigan car manufacturing and sales industry.