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Last week we provided some perspective on car manufacturers and the challenges they face in the modern economy. This week we focus on the car dealer.

The alliance between car dealers and car manufacturers is older than peanut butter and jelly (by about 40 years). In 1895 there were just four registered automobiles in the US. Early cars were sold from factory owned stores through mail order, consignment, and even traveling salesman. However, it quickly became obvious that a more efficient channel was needed. By 1896, the first independent auto dealership opened in Detroit, and the industry soon flourished. Not only did independent dealer networks provide critical marketing and sales support to car makers, they also used strong customer demand to finance manufacturers (how’s that for a role reversal?), whose high-risk profiles made it nearly impossible for them to obtain traditional bank loans. While the dealer-manufacturer relationship has evolved over the past 115 years, both sides still need each other.

Today as ever, dealers and manufacturers are locked in mutual dependency. Manufacturers supply dealers with new cars, national marketing platforms, and leasing and financing support. In turn, dealers supply manufacturers with brand stewardship, used car price point support, a customer point of contact, and product maintenance and repair. Despite their continued importance to manufacturers and drivers, dealers aren’t immune to the sluggish economy or to the technological winds sweeping the industry.

The recession and web marketing have complicated dealer operations. During the automotive crisis and bailout of 2008, GM and Chrysler in particular initiated legislatively backed campaigns to consolidate dealer networks, in attempts to refocus distribution and support to more efficiently operated and better-located points of sale. Also, just as technology has changed the car, technology has changed car marketing. As the third party consumer internet market has grown over the past 15 years, innovations such as instant price reporting and reverse auctioning have squeezed dealer margins. This squeeze has moved many manufacturers to pay dealers more on volume incentive and less of margin per transaction. Despite these challenges, in light of the mission-critical role that dealerships always have (and always will) play in the automotive space, capable dealers will have the opportunity to flourish in an increasingly dynamic environment.

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