Car dealership system needs overhaul
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Kai Ryssdal: After a 24-hour delay courtesy of the U.S. Supreme Court, Chrysler and Fiat didn’t waste any time this morning closing their deal. Forty-two days after it entered Chapter 11 bankruptcy protection, the new Chrysler came out this morning lighter by billions of dollars in debt and free of 789 under-performing dealerships. Both Chrysler and General Motors say they want to dramatically reduce the number of dealers to cut costs and become more competitive. Commentator David Frum says it’s about time.
DAVID FRUM: Americans don’t like the auto bailouts. That dislike does credit to the people’s understanding of a market economy. It also represents payback time for decades of unhappy motoring experiences with the Detroit Three.
Too many Americans have bought too many bad cars. But it’s not just the product that is the problem. It is the car buying process.
Some years ago, the car-rating service Edmunds.com sent a writer to work undercover in a car dealership. Here’s his first meeting with potential customers:
“I gave them a cheerful, ‘Good afternoon!’ They turned and, in an instant, I saw the fear on their faces. What were they afraid of? They were afraid they would be cheated, ripped-off, pressured, hoodwinked, swindled, jacked around, suckered or fleeced.”
American business excels at retail: low, predictable, clearly marked prices in low-pressure environments. Except autos, a shopping experience more like medieval Damascus than like modern Wal-Mart or Home Depot.
The source of the evil is the dealership system. The big idea in American retailing since Montgomery met Ward was to accept lower margins in return for higher volume. Cars and trucks however are sold through a vast network of dealerships, 43,000 of them at last count. Even at the top of the home refinancing bull market, that translated into one dealer for every 500 vehicles sold. Too many dealers are trying to squeeze too much profit out of too few customers.
We need a revolution in auto selling to match the revolution that Toyota has brought to auto manufacture. Fewer dealers. Lower margins. More predictable prices. No more after-market ripoffs. A clearer separation of the cost of purchase from the cost of financing. Car selling awaits its Sam Walton. Somebody who can figure out that when consumers cease to dread the showroom, they might buy more of the cars shown.
RYSSDAL: David Frum is a resident fellow at the American Enterprise Institute.
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