Even though automobile manufacturers and dealers need each other to survive in an increasingly competitive landscape, the relationship is often strained. While it is clearly in the best interest of both to sell more vehicles, and both parties generally do wish to maintain good relationships, there are fundamental differences that often lead to conflict and result in disputes which may divert resources from the task of staying competitive.
Marketing and Economic Realities Strain Relations
One of the most important strains on manufacturer/dealer relations is the sale of new vehicles. Both parties want to sell more units at greater margins, but manufacturers focus on international and national sales trends and strategies, while dealers primarily focus on local requirements and dealership profitability, of which new vehicle sales are only one component.
According to the 2004 Automotive News Market Data Book, sales of U.S.-produced cars and trucks was lower in 2003 than 2002. And while 2004 has seen improvements, the increase has not been uniformly realized. Naturally, sales are largely dependent upon product quality, promotion, and pricing, characteristics largely controlled by the manufacturer. Sales are also affected, however, by customer services provided by the dealer. For example, in order to replace declining warranty revenues, some dealers must compete with independent service facilities for customer-paid service work, sometimes detracting from the quality of warranty repair service, which may ultimately impact sales.
Inconsistent State Regulations Promote Disputes
Another problem for manufacturers (and indirectly dealers) pursuing a national market is the unstable legislative landscape, including inconsistency among the various jurisdictions within which the manufacturer competes.
This lack of uniformity/predictability can adversely impact the manufacturers' flexibility in addressing a highly dynamic marketplace. For example, in a market where an excessive supply of an increasingly redundant product is available and brand loyalty is no longer assured, manufacturers must do all they can to improve the customers' buying experience. While manufacturers have significant flexibility in some jurisdictions to impact the customers' buying experience, this flexibility is more restricted in other jurisdictions. In different jurisdictions, for example, manufacturers do not have the same control over variables such as dealership location and attractiveness, the sales and service experience, etc., making it difficult for manufacturers to design strategies for uniform implementation by dealers.
Regulatory Developments Disrupt Competitive Strategies
Areas in which states exercise regulatory control include franchise transfers, relocation and termination, establishment of new dealer points, vehicle allocation, defining of discriminatory practices, manufacturer influence or ownership of dealership operations, manufacturer direct sales, warranty repair, performance-related criteria, manufacturer imposed dealer qualification, and used vehicle sales. Regulatory control is continually evolving.
Used Vehicles Sales: Historically, manufacturers could own or control a dealership engaged only in the sale of used vehicles. But some states now prohibit manufacturer ownership of used vehicle dealerships. The sale of used vehicles is important to manufacturers for various reasons. For example, vehicle leasing has become popular because many consumers are attracted by the perceived ability to lease a vehicle for a monthly payment less than it would cost to purchase the vehicle. The manufacturer's ability to lease new vehicles at a competitive price is directly dependent upon the vehicle's residual value at lease end, i.e., the higher the residual value, the lower the monthly lease payment. Residual value is directly impacted by used vehicle sales. Hence, manufacturers have pursued various means (e.g., factory owned dealerships, CPO programs, etc.) to favorably influence the marketing of their used vehicles.
Incentive Programs: Manufacturers have employed various incentives to motivate their dealers in areas of CSI, SSI, facility upgrades, etc. in an attempt to attract and retain customers. Incentive programs, however, have been attacked in some jurisdictions on various grounds, including alleged lack of uniform application or other allegations of discrimination.
"Motor Vehicle": Even the definition of "motor vehicle" for purposes of regulatory control is evolving, and is not uniform throughout the jurisdictions. For example, certain specialty vehicles (e.g., school buses, fire trucks, ambulances) or vehicles in excess of a specified gross weight are excepted from certain regulatory controls in some states.
Conclusion
Continually evolving market pressures require a highly flexible marketing strategy. Flexibility, however, is often restricted by conflicting market demands and by the inconsistent regulatory schemes adopted by states. Considering the dealers' need to address local trends and the manufacturers' need to implement nationwide strategies, it is not surprising that this combination of forces promotes manufacturer/dealer disputes and will continue to do so for the foreseeable future.