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Competition in the U.S. Auto Industry

Competition in the U.S. Auto Industry

In early 2000, the automotive retailing industry seemed on the front edge of

fundamental change. For a number of years, there had been rumblings of dissatisfaction

among vehicle buyers with their purchasing experiences at local franchised dealerships.

Many customers felt price haggling and high pressure sales tactics distasteful or

intimidating. Automakers were looking at ways to overhaul their franchised dealer

networks to squeeze some of these distribution inefficiencies out of the industry value

chain. But other hometown dealers were facing unprecedented competition from

megaretailers, like, AutoNation buying services that so happen to threaten to reshape the

role and function of franchised dealers.

Meanwhile, manufacturers had launched Internet sites where vehicle buyers could

get information; compare models and features, and be referred to nearby dealers for price

quotes. That is when thousands of franchised dealers had joined the dealer networks of

the direct sales and were providing the vehicles sold online. These developments

reflected a growing understanding among both manufacturers and franchised dealers that

the Internet had changed the dynamics of automotive retailing.

· Online competition of dot-com companies

-Microsoft’s CarPoint -CarPrices.com -CarOrder.com

-Autobytel.com -Car.com -DriveOff.com

-CarsDirect.com -Greenlight.com -StoneAge.com

· National Automobile Dealers Association (NADA)

· Block Manufacturer-owned dealerships

· E-Commerce strategies of vehicle manufacturers

· Cars are lasting longer with higher mileage.

· Cars have better warranties in place and APR.

· Used-car sales are just as valuable as new, for this because people are keeping their cars longer and keeping them in great condition.

· The auto industry will always have consumers in a wide range of demographics.

· Growing buyer use of the Internet to shop for vehicles

· Manufacturer efforts to enter the Automotive retailing market

· Dealer efforts to combat manufacturing owned dealerships

· Dealerships order too many new vehicles from manufacturers and this causes the MSRP to be larger than what it should.

· Lead generators like Microsoft’s CarPoint, cars.com, Autoweb.com, and carclub.com. The Web sites of lead generators let customers peruse all the various manufacturers’ brands and models and make side-by-side model comparisions. They also provided base sticker prices and the prices of all the various options, and allowed visitors to check the models, colors, and optional equipment they wanted. Shoppers could fill out a simple form online requesting a price quote; the lead generator forwarded the customer requests for price quotes to nearby participating dealers, who followed up with an e-mail price quote and perhaps a telephone contact if a phone number was provided on the site form.

· Direct sellers like CarsDirect.com, carOrder.com, Driveoff.com, and Greenlight.com. The Web sites of direct sellers went a step further than lead generators, providing an immediate price quote and letting shoppers place an order online, then partnering with area franchised dealers to deliver the vehicle ordered.

· Hybrid sites, like Autobytel.com, that provided content for research, generated leads for participating dealers, took orders online, and used their franchised dealer networks for order fulfillment. Autobytel.com and some other hybrid sited also conducted auctions and provided online classified advertising that customers could use to sell a vehicle through online channels.

The number of new-car dealerships had declined gradually over the last three decades of the 20th century. Dealer mergers and acquisitions, combined with manufacturers’ efforts to weed out weak dealerships and reduce the overall number of dealer locations. It was small-volume dealerships that were disappearing; dealerships selling more than 400 units annually were on the increase. In 1979 there were 11,500 dealer locations with sales of less than 150 new vehicles per year; in 1999, there were only 4,256 such dealerships. In 1999 there were over 5,800 dealerships that sold more than 750 new units per ;year, compared to only 4,100 in 1979.

· Dealer Marketing and Sales Strategies

Franchised dealers relied heavily on advertising to attract the attention of people who were in the market for a new vehicle and especially to draw price-sensitive customers to their showrooms and lots.

· Dealer-Manufacturer alliances to block market invasion by the dot-com companies.

When shoppers went to local dealers to look for a new vehicle, they were armed

with information gathered from the Internet concerning the invoice prices paid by

dealers, the markups and margins that dealers had on each model and each option, the

trade-in value of their present model, and perhaps price quotes from the new breed of dot-

com auto retailers. Over 60 percent of car buyers were said to be using the Internet for

research and price comparisons. Instead interested shoppers could go to hundreds of

Internet sites to get free, detailed information on the various brands and models, read

reviews of vehicle performance, and check out prices, rebates, and financing. This caused

sales to be accounted for approximately 2.7 percent of the 15.5 million new vehicles sold

Dealers placed orders for specific models and styles based on the experience of

what their customers liked and what styles, colors, and equipment options were selling

best. This pressured dealers to take delivery of slow-selling, less-popular models and

styles that they needed to move out of their own inventories of freshly produced models.

Franchised dealers relied heavily on advertising to attract the attention of people

who were in the market for a new vehicle and to draw price-sensitive customers to the

showrooms and lots. Dealers to this day draw attention to the wide selection of models

and styles, discounts off sticker prices, special manufacturer rebates and promotions, low-

cost financing, and low monthly payments.

In the case study Toyota Motor Corporation, Ford Motor Company, and General

Motors all have similar issues. They all are out to see who can market the first online

make yourself automobile. These companies are rushing the whole issue that they are

finding many problems are arising. It will be a benefit to the consumer but what will it do

National Automobile Dealers Association

Approximately 19,500 of the 22,400 franchised dealers were members of the

National Automobile Dealers Association (NADA), which fought to represent the best

interests of its members. NADA had spent considerable time and energy fighting both

Internet car-selling firms and the attempts of manufacturers to integrate forward into

manufacturer-owned dealerships. In speaking with Hyundai they said that the Internet has

not reduce their car selling. For this is the customer still goes to the dealership to see the

exterior and interior, and take the vehicle for a test drive before actually deciding. It is

still the second largest purchase that the consumer made. NADA is committed to

spending millions on technology, training, and facilities.

Since Henry Ford’s first Model T, more than 670 million new vehicles had been

sold in the United States as of early 2000. Automotive retailing in the United States was

nearly a $700 billion market in 2000, with annual sales of new cars and trucks running

close to 15.5 million units in 1998 and 1999 and annual sales of used vehicles equal to

about 40 million units. There were an estimated 205 million vehicles in operation in the

Automotive retailers in the United States consisted of some 22,400 franchised

dealers, who accounted for virtually 100 percent of new-car sales ($370 billion in

revenues) and bout 30 percent of the used-car sales ($120 billion in revenues). In

addition, there were close to 35,000 independent used-car lots accounting for annual sales

of $270 billion and close to 22 million used vehicles, plus a handful of blossoming online

car sellers with sales of about 500,000 vehicles in 1999. Private-party sales of used

vehicles were estimated to run close to 5 million units annually. Used vehicles had gained

greater acceptance over the past 15 years due to improved vehicle quality and upward

creep in the prices of new vehicles.

Combined revenues of the 22,400 new-car dealers in the United States in 1998

were a record $533.6 billion. New-vehicle department sales were up 7 percent in 1998

over 1997, used-vehicle sales up 4 percent, and service and part sales up 2 percent. Pretax

profits at the typical dealership averaged $403,000. The biggest expense dealers incurred

was for labor: In 1999, franchised dealers collectively spent $5.7 billion for advertising;

this total included $2.9 billion for newspaper ads, $900 million for TV spots, $800

million for radio ads, and $272 million for Internet advertising. Advertising costs

amounted to an average of $209 per new vehicle sold and $217 per used vehicle sold.

*Create a website for the franchise showing the dealership’s current new and used care inventories as well as service, financing and so on.

*Sign on with several lead-generators and agree to pay referral fees.

Dealerships should continue working at a pleasant buying experience and pay

close attention to delivering good after-the-sale service so that customers would be loyal

in returning for their next purchase.


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