NADA's McConnell Spotlights Franchise System Virtues

To kick off the National Automobile Dealers Association (NADA)/JD Power Automotive Forum on Tuesday, Forrest McConnell III, NADA chairman and a Montgomery, Ala. Honda and Acura dealer, made a rousing speech. It was a blunderbuss with at least three barrels, but the big one is one aimed at Tesla's efforts to erode franchise laws in order to open legislative locks keeping factory-direct retail models out of the market, therefore, cutting out dealers.

Just last month Tesla got entry to Arizona without a dealer network under a new bill approved there that was fought tooth and nail by auto manufacturers and dealers.

McConnell's major messages: franchised auto dealers are mom and pop small and medium-sized business that have real, personal relationships with car buyers; help keep automakers afloat because dealers are the drivers of new vehicle sales in a way that the automaker could never be by themselves; save automakers money because dealers handle service and marketing costs at the regional and local level; and save consumers money because the franchise model is inherently competitive and if automakers were controlling it they would have few incentives to give consumers a break beyond established incentives. 

"If manufacturers sold directly to customers there would be zero competition in pricing, parts and services. Customers would be stuck paying full sticker price because there would be no 'same brand dealership' to shop and compare prices: The biggest competition for the Ford dealer is the dealer down the street."

American consumers' distaste for haggling not withstanding, McConnell's point is that they will probably get a "good guy" break from the local hardware store owned by someone they see every day and they never will from the salesperson behind the register at a company store. 

"It is naive to think factory retail networks would pass on imaginary savings for customers instead of keeping it for themselves or shareholders. There would be no competitive pressure to pass on these savings," he said. "Our job is actually to advocate for the consumer." 

He also made a point about the dealership's role in recalls like GM's, noting that the automaker's 4,000 U.S. dealers are gearing up service bays to handle the ignition redo, "From New York to Yuma Arizona. When something goes wrong on an assembly line their service departments are there to make things right. Instead of dialing a faceless 800 number they have direct contact to provide retail and warranty at no cost." 

Finally he fired one over the bow at recent efforts to limit dealership price and profit, pointing out that dealers makes 3% net profit on total sales, on average. "If you tip a waiter 10% you're cheap. If you tip 3% they're on you like a rat on a Cheeto. The franchise system is a model that drives competition up and prices down. It is singlehandedly the best model for selling vehicles anywhere. The auto industry needs the franchise system." 

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1 comment about "NADA's McConnell Spotlights Franchise System Virtues".
  1. Greg Signore from Self , April 16, 2014 at 8:51 a.m.
    Not that same nada that abandoned there members during dealer terminations.