Automakers are pushing for radical changes in the way they sell vehicles, but how do they factor franchisees into their plans? On this episode of Inside Automotive, host Jim Fitzpatrick is joined by longtime CBT News friend Tim Jackson, president and CEO of the Colorado Automobile Dealers Association (CADA), as well as one of the most influential leaders of industry, to talk about paper. dealers are playing in the transforming auto business.
Electric vehicles are one of the many points of conflict between manufacturers and dealers. Automakers and politicians have increasingly pushed for widespread adoption, but as many dealers know, the market has yet to budge. In his home state of Colorado, Jackson notes that the governor’s first executive order, issued in 2019, ordered the auto industry to put 940,000 electric vehicles on the road by 2030. Four years after that directive, the state has yet to pass even 100,000 units. He explains that while the public is certainly interested in the technology, the limitations of zero-emission cars, such as long charging times, poor cold-weather performance and minimal driving intervals, mean that many stick with the ‘Standard ICE. To solve this problem, Jackson believes that “the industry will have to get the charging network and the cars that can carry the fast chargers.”
Differences of opinion between OEMs and distributors have sometimes led to heated disagreements. One such case occurred last year when Ford introduced its electrification program to franchisees. Under the original policy, dealers were required to invest up to $1.5 million in the automaker’s electric vehicle efforts and cover the costs of charging facilities in their stores. Those who did not comply with these requests would be blocked from obtaining or selling the brand’s electric models. Although some dealers found the policies too demanding, Jackson believes the program was necessary to prepare the industry for change. He points out that many of his associates shared his point of view. “We have small-town stores that come in at the highest level,” he says. “One of them said to me, ‘Tim I’m all in. I’m going in. I’m making this investment. I hope some of my competitors … don’t make it.'”
Another point of contention between OEMs and distributors is the industry’s traditional agency model, which places franchisees as an intermediary between the manufacturer and the customer. Some electric vehicle brands, such as Tesla and Rivian, have introduced direct sales models that remove third-party dealers from the equation entirely, and even legacy automakers are pushing back against state franchise laws that protect retailers of corporate competition. Jackson believes dealers are right to be concerned about these challenges in their place in the auto business. “New car dealers today do a much better job than they did … 25 years ago,” he notes. “The new cars that are selling today are so much better. … So the products are better, the sales process is better, which continually increases to where we have to find ways to … keep raising the bar.”
Jackson strongly believes that the dealership model is still the best way to sell cars, as retailers have spent decades perfecting the process and, as competitors, are more motivated to improve than a corporate-owned shop. However, he notes that distributors still share the blame for the current weakness of the franchise system. Companies that used the COVID pandemic to sell vehicles through MSRP did their fellow retailers a disservice and helped both consumers and auto brands counter the agency model. “There are many ways to increase revenue … but this is not the best way to do it.”
That said, the vast majority of vehicles on the road are sold at or below MSRP, the latter of which would never happen with a direct sales model. “Tesla has never sold a car at MSRP, probably, but they’ve never sold a car at MSRP,” explains Jackson. “And even today … more than 90% of cars on the road today are priced at or below MSRP, most below.” Dealerships are not only better for the industry, but also for consumers, but keeping the agency model intact will require store owners to prioritize ethical pricing and customer service above all else. Above all, both sides of the industry will need to continue working together to solve the problems they face.
