That was the uneasy consensus reached Tuesday by a panel of experts on vehicle retailing at the Automotive News World Congress.
By taking advantage of new technology, especially the Internet, the century-old franchise system may even help automakers overcome one of their oldest, most costly problems — building too many vehicles that customers don't want.
Using feedback from their dealers, factories could start producing more build-to-order vehicles, selected online by consumers but delivered by traditional dealers and sold at premium prices, panelists suggested.
Adapt or die?
Still, not every panelist argued that the franchise system should survive.
"Darwin would say that when a species' environment has changed to the point that it is no longer able to adapt, it is time for it to die," said Chris Denove, a partner at J.D. Power and Associates.
Likewise, Gary Lapidus, vice president and senior analyst at the investment firm of Goldman, Sachs & Co., said, "We would suggest that the franchise system probably has outlived its usefulness to the extent that it is part and parcel of an industry model that doesn't work."
The problem across the industry — too much cost and not enough profit, he said.
Dealers here to stay
Panelists agreed, however, that because dealers have used their political clout to get states to enact, and recently beef up, franchise laws, they are here to stay, but perhaps in some altered forms.
Joel Manby, who has experience both with manufacturers and dealers and now is CEO of the online buying service Greenlight.com, said he expects factories, dealers and third-party companies such as his will use the Internet in their own ways to reach customers.
Each has strengths and weaknesses, he said. Greenlight, which is not constrained as dealers are by laws to offer the same prices to all customers, can offer lower prices to Internet shoppers, he said.
"Why are OEMs and dealers so focused on protecting a negotiating process that at least half the customers hate?" he asked. "The Internet provides a solution to that."
But Lapidus and Denove both questioned whether Greenlight can make money using its business model. Car shoppers use the online prices from companies such as Greenlight to negotiate better deals with dealers, Denove said.
Bill Lovejoy, General Motors group vice president for North America vehicle sales, service and marketing, said the "bricks and clicks" business model is the one that will succeed. That is, traditional dealers using their own Web sites and factory sites to attract and keep customers.
He said there are benefits for both consumers and businesses.
"The need to carry a large vehicle inventory will decrease as manufacturers work on improved order-to-deliver capabilities and as customers become more familiar at selecting models, colors and options over the Internet. Dealers will find opportunities to reduce their floorplan and a lot of other related expenses, including advertising," he said.
But consumer education is going to be necessary, Lovejoy added. He said 90 percent of GM employees who could get a lower price by ordering still go to dealerships and pay more to pick vehicles out of stock.
Makers shouldn't meddle
Fritz Hitchcock, chairman of Hitchcock Automotive Resources, which has 10 franchises at seven dealerships in California, said the speed with which dealers adapted to the new e-biz environment surprised the business world.
"Right now, the brick-and-mortar dealers don't look quite as antiquated as maybe people thought we were four or five years ago when they started hinting about taking the distribution costs out of the system," he said.
Hitchcock criticized manufacturers for meddling in a part of the business they don't understand.
He said manufacturers added dealerships where they weren't needed to get around franchise law provisions, and their central planners tried to impose ideas, such as one-price selling, in markets that weren't suited for them. Plus, automakers wasted money on retail experiments and legal battles.
Said Hitchcock: "I think manufacturers have enough major issues on their plate without getting bogged down on our side of the business."