No, this is not an automotive blog, or financial or political blog for that matter. But with all the hoopla around bailout of the Big Three automakers, it is kind of hard to not think and talk about it. There is a lot of debate for or against the bailout with ideas ranging from rapid evolution of product line to higher fuel efficiency, favorable union contract, trimming down model lines and dealerships are all being talked about.
People are pointing out the inefficiencies in auto business, and some of them have found a place in the viability plans put together by Big Three. However, there is one thing that I feel is still so sorely missing: complete dissolution of dealerships and overhaul of auto sales model which is totally off the age, inefficient, and obsolete. Rick Wagoner talks about cutting down GM dealerships to 4700; how about having a goal of get it to a big 0 (yes indeed zero) over next 5 years or so. They all admit that it is a huge component of their cost that is built into the cost of the vehicles and is passed on to us, the consumers. I believe if they do so, not only will they become a lot more efficient, they will also tremendously improve the buying experience – a huge component of making your product more attractive and competitive.
Dealerships are obsolete
Dealerships serve 3 main purposes: 1. Provide product information and experience, 2. Influence buying decision to make the sale, and 3. Keep stock and deliver vehicles. However, dealerships are inherently inefficient and expensive in performing all these 3 functions. People do not need them to get information on vehicles anymore.
There is internet and plethora of sites and blogs that provide ample information, comparison, pros and cons about every vehicle and blogs that talk about trends and upcoming models. And information that people don’t get at dealerships: firsthand experience from existing owners; there are user forums on almost each model year where owners talk about the problems with the vehicle and experience of ownership. There is no need to have a dealership or a sales person for this purpose anymore. People are amply educated about their buying options and can make their own choices. Same goes with financing products if they need to finance their vehicles.
A dealership’s ability to influence buying decision is still there, but realize that it goes only one way – if dealerships try to influence it (through pricing and haggle gimmickry), it just detracts informed buyers from buying the vehicle. The positive influence is long gone. And informed we all are, usually more than they are about their own vehicles. In lieu, automakers can adopt a direct internet based sales model with no-haggle pricing. This will be a much more pleasant buying experience. Surely, automakers can keep several showrooms for those of us who need to touch before we buy.
Similarly, the role of dealerships in holding inventory and delivering the vehicles to consumers makes the industry as a whole even more inefficient. Automakers have no direct control over this inventory that they should be shift easily following the demand. In addition it fuels prices wars between dealerships which ultimately hurts the automaker.
It is time for big 3 to follow the airlines. Not that the airlines are a paragon of efficiency, but at least they have adopted technology well to market their products and sell tickets more efficiently, moving from the traditional travel agent network.