The Untold Story: The Indispensable Role of Franchise Dealerships in the Automotive Industry

Today, I want to address a topic that has sparked much debate and, frankly, a lot of misguided opinions. It seems there are those out there who believe that franchise dealerships in the automotive industry should be eliminated. Well, I'm here to tell you that such a notion is not only dangerous but also incredibly ignorant. So, let's take a moment to unpack this and focus on the importance of dealerships for now, leaving the discussion on salespeople for another time.

"Why can't we buy cars like we buy iPhones?"

Some people have compared the car-buying experience to purchasing a phone at an Apple Store. They wonder, "Why can't we buy cars like we buy iPhones?" Well, let me stop anyone from repeating this nonsense and ask them to wipe the drool off their faces and put their thumbs back in the hole from which they spew stupidity. Foremost, Apple Stores sell much more than just iPhones; they offer a wide range of Apple products and even non-Apple products. Secondly, only a mere fraction of the population, around 90%, have even stepped foot inside an Apple Store, considering there are less than 300 of them in the US compared to almost 19,000 dealerships.

Now, let's examine how the iPhone, a highly successful product, is sold. Initially, it was exclusively available through AT&T due to the overwhelming demand that Apple couldn't handle alone. This exclusivity benefited both Apple and AT&T. However, it's worth noting that AT&T has over 5,000 stores, almost 3,000 of which are independent dealers. These independent dealers operate in a structure similar to franchise dealerships in the automotive industry. Moreover, nowadays, you can buy an iPhone from various phone providers, as well as retail giants like Walmart, Sam's Club, or Costco. These providers not only sell iPhones but also offer other competitive brands alongside them. Therefore, comparing the sale of an iPhone to that of a vehicle is utterly absurd and devoid of any business or economic understanding.

Elon Musk himself would chuckle

Now, let's address the elephant in the room: Tesla. I know some of you might be thinking, "But what about Tesla?" Well, even Elon Musk himself would chuckle at that question. Elon has stated that Tesla initially focused on establishing its own stores because they were production-limited and needed to grow their production capacity. However, he also mentioned the possibility of transitioning to franchise dealerships if the right partner was found. Don't take my word for it; you can hear it straight from the horse's mouth in this video: (https://www.youtube.com/watch?v=HLR-KGVXnP0&t=5s) . As we all know, Tesla faces various challenges, such as production limitations, securing raw materials, and the historical reluctance of part providers to work with them. The unique circumstances surrounding Tesla's sales model are a result of these factors. Once Tesla ramps up production and demand stabilizes, you can be sure that Tesla franchises will start appearing everywhere.

Now, let's briefly touch on Carvana. Before you start drawing comparisons to Amazon, let me remind you that Carvana is losing hundreds of millions of dollars every quarter. The comparison between Carvana and Amazon is simply baseless. While Carvana has seen some success, it operates like any other dealership, with no significant deviation from the current system. Furthermore, Carvana exclusively sells used vehicles. I won't delve too deeply into the topic of Carvana for now, but it's important to understand that Carvana is Carvana—it's not a solution for everyone.

Now, let's address the question of why manufacturers need dealerships. Consider Toyota as an example, with around 1,200 stores in the US and an annual sales volume of approximately 2 million vehicles. As a manufacturer, do I want to gamble by selling vehicles directly to 2 million individual customers who can change their minds at the drop of a hat? Or do I want to collaborate with dealerships, receive their projections, and plan my manufacturing, plan operations, and raw material orders accordingly? Let's go back to the phone analogy. Most of you reading this article likely obtained your phones from service providers, many of which are independent dealers. Would a phone manufacturer want their product to become just another phone stored away in a drawer? Or would they prefer an exclusive store dedicated to their brand? To all the "Dealer Haters" out there, be careful what you wish for—especially those among the manufacturer's ranks. Any foreign country can flood the US market with millions of electric vehicles overnight, and all those dealers who were cast aside would sell them without hesitation. Manufacturers need dealers, and customers need dealers. However, I also believe that some dealers need to understand that their "market adjustments" aren't always helpful in building a positive brand image. But that's a discussion for another time. Manufacturers don't simply want customers from dealers; they want their money.

In conclusion

In conclusion, franchise dealerships play a vital role in the automotive industry. The comparisons to Apple Stores, the uniqueness of Tesla's sales model, and the rise of Carvana all contribute to the diverse landscape of car sales. However, let's not forget that dealerships provide crucial benefits for manufacturers and customers alike. So, let's not be blinded by misconceptions or envy, but instead recognize the value that franchise dealerships bring to the automotive ecosystem.

You can check out all my articles at?www.velazquezauto.com

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