Franchised dealers today must leverage their customer information connections

For nearly 70 years from its founding, NADA had never published a book. But in 1984, the association's executive committee -- on a split vote -- gave the go-ahead to Betting on the Franchise: Car & Truck Retailing into the 1990's, written by Jake Kelderman and me.

A year earlier, we had pitched the idea for a book that would analyze the growing number of voices and consultancies declaring that the franchise system of vehicle distribution and service was doomed to fail.

Jake and I wanted to explore the rate and direction of changes we could document and focus on how the auto dealership and the many businesses within it might evolve as the year 2000 approached. Our premise was that a challenged dealership network could adapt in the way it met customer expectations and thus shape the industry.

With the help of thoughtful dealers, industry executives, analysts and scholars, we concluded that the durability of the franchise system had been remarkable during the first 75 years of the industry and that the past was prologue to the future.

We were betting on the franchise and the remarkable way in which dealers and their employee teams adapted to change. Franchised dealers acting in their own best interests will always respond to challenges more quickly and effectively than any centralized system.

We also noted that there were no perfect alternatives to the franchise system, and that manufacturers should not underestimate the political clout of dealers. Ultimately, the private- and human-capital investments of dealer-owners were more efficient than capital provided from manufacturers' funds in an already capital-intensive business.

That was the big and correct forecast. The hesitancy within NADA's ranks about our conclusion, however, stemmed from the fact that we added a necessary "but."

The future of the franchise system was not guaranteed, we wrote. There were wild cards.

A manufacturer could decide to sell vehicles directly to consumers and service them at contracted centers. In the future, computer "house calls" could conduct remote diagnostics, and service appointments and parts ordering could connect a vehicle directly to designated independent shops.

We documented that dealerships had to grow in unit volume per outlet, especially those that sold domestic brands, which lagged major import brands' outlet volume. That growth, along with consolidation of ownership, would mean fewer dealerships and more dealer groups, and likely public ownership of retail outlets. 

Whatever the form of ownership, dealer satisfaction of customer needs would become more difficult. Territorial reach for operations would expand and overlap. 

And state licensing laws, approved in the 1978 U.S. Supreme Court ruling New Motor Vehicle Board v. Orrin W. Fox Co., were powerful because they aligned dealership interests with those of consumers. If that link broke, the laws could change or be abolished.

We forecast that dealership attrition would accelerate and that the trend would combine with ownership consolidation. A significantly smaller number of retail stores would evolve into two types of operations: one type in metropolitan and suburban areas, the other in rural areas where stores would be more traditionally organized. 

In either format, the future of the franchise system would depend on dealerships finding, training and keeping the right employees to satisfy more-demanding customers. 

In retrospect, we placed too little emphasis on the cumulative impact of computers and the Internet. Our view then of computer operations and the use of data to connect stores for management efficiency was limited primarily to generating the correct business reports and building customer databases. 

Today, the franchise system generates important customer information that everyone wants from the retail level. Vehicles will spew even more technical and consumer behavior data as they become connected and autonomous. 

These developments are creating opportunities to use big-data analytics to predict market shifts and individual needs. Looking ahead with better consumer insight is the order of the day for retail prosperity and survival. 

The term "resilient" still describes the franchise system.

To get our book published, we admitted that some of our forecasts might prove wrong. Our worst prediction was that any vehicle financing for more than 60 months would damage brand image. But we didn't miss much.

Since NADA published the book, it has been reprinted several times, been translated into several languages and become a university textbook. It was part of the NADA Dealer Candidate Academy's curriculum for years.

The book's findings and conclusions also sparked the creation of NADA's Project 2000, a formal process by which the association engaged dealers, other associations and distributors in candid exchanges about the importance and value of dealerships.

More than 30 years after NADA's first book appeared, consultants and distributors are asking many of the same questions about the value of the dealership role.

Dealerships are changing at even faster rates. Whatever the size of a dealership, the keys to its future involve tightening its connections with local customers and relating digitally to a wider group of customers of all its businesses.

Dealers and their manufacturers must leverage the customer information connections that dealerships enjoy, to strengthen their capabilities rather than shift them to other "personal mobility" entities.

Maintaining these connections successfully and analyzing consumers' intentions to satisfy their needs and expectations are the essential reasons that franchised dealers exist. Break that connection -- break the franchise system.