A new study from the consulting firm, Oliver Wyman, reveals that the traditional franchise dealer model is actually more cost-effective for manufacturers than direct-to-consumer sales. On today’s episode of Inside Automotive, we’re joined by Mike Stanton, CEO and President of NADA, to discuss the key takeaways from this study and what this means for the future of the franchised dealer model.
Key Takeaways
1. A major conclusion from the Oliver Wyman study is that dealers are not an added financial burden on manufacturers, as some in the industry have suggested. Stanton emphasized that dealers offer significant value to automakers by managing the sale, servicing, and customer support. The personalized service dealers provide makes them indispensable, and removing them from the equation would increase costs for manufacturers. This insight counters the narrative that direct-to-consumer sales are a more cost-effective approach.
2. The study utilized NADA’s internal data and publicly available information to create a robust financial model. Stanton underlined that this data-driven approach added weight to what many in the industry already suspected—that franchise dealerships bring considerable value by shouldering many operational costs that manufacturers would otherwise have to manage.
3. Additionally, Stanton detailed how dealerships handle large financial responsibilities that would fall on the manufacturers under a direct-sales model. For example, dealers bear the costs of maintaining vehicle inventory, often for over 120 days. They also manage floor plan expenses and invest in local marketing, taking significant financial pressure off automakers. This reality contradicts any notion that automakers would save money by bypassing dealers.
4. The study’s most significant finding is that automakers would incur an enormous cost if they attempted to replicate the extensive infrastructure already provided by the franchise network. Stanton noted that recreating dealer facilities, acquiring land, and building the necessary support systems would require tens of billions of dollars in investment. The study shows that this network already exists through franchise dealers, allowing automakers to focus their capital on product development rather than duplicating efforts in distribution.
5. Nevertheless, Stanton affirmed that the franchise model is not going anywhere and will continue to evolve with the industry. While new sales strategies like agency models or subscription services have been floated, they don’t replace the essential role of dealers. He mentioned that dealerships offer flexibility in customizing each customer transaction—something a direct-to-consumer model would struggle to replicate. Stanton also emphasized that while new OEM executives or analysts might propose new ideas, many have tried before, and the franchise model has consistently proven its resilience and value in the marketplace.
“Dealers are not a cost—they’re a value. They’re motivated to sell cars and take care of customers in their communities. Our study with Oliver Wyman shows that removing dealers from the mix isn’t cost-saving for manufacturers; it’s quite the opposite.” – Mike Stanton, CEO and President, NADA.
