What is the best form of defence?
I have spent the last few days at the NADA (the US dealers’ association) Show in the USA – always an efficient way to get a lot of meetings with friends and contacts from around the globe from only one trip, but also an opportunity to check what’s going on in the US. It’s not a market that in my view presents many benchmarks for distribution, but there are still some lessons to be learned, and innovations that may be transferrable.
What stood out for me – in presentations to the main sessions and in some smaller side-meetings was the clear view from NADA leadership and other observers that the strength of US dealerships (on average, larger and more profitable than elsewhere) stems from the protections offered by the state franchise laws. The laws are set state by state, rather than at federal level, but in broad terms give dealers protection over the density of dealer networks, restrict the ability of manufacturers to sell direct, and provide protections over termination without due cause. In his speech, NADA Chairman, Charlie Gilchrist, also suggested that the franchise laws work in in the interests of the consumer.
By coincidence, in the week that the show opened, the state of Michigan finally gave up its fight in a federal lawsuit with Tesla to stop them selling and serving cars in the state. Until now, a Michigan resident had to do their own research, then order a Tesla online for delivery out of state, and take the car to a neighbouring state for service. In future, Tesla can open mall-type outlets in Michigan to provide information and provide advice following which the, customer will still have to order online with a sales contract legally made out of state, and Tesla can open directly owned service points in state. Michigan was unable to demonstrate how the previous restrictions worked in the interests of consumers.
In an editorial, Automotive News made the point that despite their support in principal for franchise protection, “dealers and their automaker partners must recognize and respond to the demographic and cultural forces driving increasing consumer interest in sidestepping the franchised dealership to buy both new and used vehicles.” They also made the point that “digital natives and converts alike want pleasant shopping experiences. They want to feel like their time and intelligence are respected. If they view a way of doing business as archaic, they will seek out something new — even if there are risks.”
As we continue with the BER review process in Europe, it is worth focusing on what consumer actually want, and for players in different sectors of the industry and those who will be lobbying the Commission on their behalf to consider that a defensive position may take multiple forms. I recall interviewing Austin Ligon, one of the co-founders of CarMax, who described data as the “deep defensive ditch” that protected their business. By this he was referring to the use of data to buy better, refurb better and sell better. This has benefited their operations to the extent that they remain a top performer over 25 years after their foundation. They are now rolling out an omni-channel buying and selling experience to meet current consumer expectations. They abandoned new car sales very early on when they found the environment too restrictive.
Manufacturers, dealers, repairers and parts manufacturers all need to find the balance between protecting their business from unreasonable use of commercial power and leaving enough flexibility for innovation to deliver flexible, transparent purchase options and convenient good value service solutions to consumers.