DaimlerChrysler's New Marketing Strategy: The Beginning of the End for Car Dealerships?

You know you've gone too far when...you begin offering one-day test drives at churches in major cities like Chicago, Philadelphia, and Los Angeles. No, wait it can get worse. How about offering free tickets to a Patti LaBelle concert if you take one of these test drives at the church? This is what the Wall Street Journal reports this morning (sub. req.). Chrysler (DCX) is targeting mega churches in an attempt to “get into the communities and the lifestyles of customers ... "taking [their] products to people rather than asking people to come to us." Or so Dave Rooney, director of marketing for Chrysler was quoted as saying in the Journal this morning.

Now this may just sound like a silly marketing scheme that we all can chuckle at. But it actually has some pretty serious implications. Specifically, the idea that Chrysler feels it needs to “get into the communities.” Now I should point out that the idea is not entirely new. The article goes on to discuss how Mazda participated in a 2-day comic book convention in San Diego and Volkswagen (VLKAY) sponsored a San Francisco music and technology festival. Heck, I even remember seeing Chrysler at a Live (Live is the name of the music group) concert a few years ago down here in Florida. This seems to be a growing trend among the automakers. An idea that they can not just rely on the dealers to push their product. That they need to physically get out and be in the community. The bottom line question, however that it leaves us to ponder is that if the automaker is going directly to the customer, doesn'’t the dealer just become a “middle man?”

True, state franchise laws protect dealers and so automakers can not go directly to the customer. But take a look at the block exemption laws that passed in Europe and you can see how almost over night changes in the regulatory environment can be complete “game changers.” I tend to think there will always be a need for dealerships, although I am not convinced they will look the same as they do today. Imagine 15 years from now. A Chinese automaker emerges without a traditional dealer network. Instead, this manufacturer has “customer empowerment centers” where the sole idea of the store is to provide a place for test drives (demos,) repairs, the arranging of financing, and a drop zone on behalf of used vehicle market markers/retailers like lanelogic or CarMax. Heck, it may even come from an efficient manufacturer like Toyota (TM) or Honda (HMC), who seem to have pared dealer inventories down to a 30 days supply.

And to be honest, I don'’t see a problem with this. It just seems more efficient, and the dealers would likely be better off. The sale of a new vehicle is already basically a “pass through function” for franchised auto retailers, with them capturing a modest 7%-8% new vehicle gross profit margin, before factoring the carrying cost of the inventory (floor plan interest expense). Why not let the automaker go more directly to the customer, and simply leave the dealership focused on handling the final delivery of the vehicle? This way, the dealership could actually have one sales force: the service repair writer. The service writer can also build customer loyalty on a quarterly to semi-annual basis (hopefully you get them back for the oil change) than trying to build a relationship with a customer that might not be back in the market for a new vehicle for another 3 –or 4 years.

DCX 1-yr chart:

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Comments

[Mike Bowers:]

I don't think this is an attempt to circumvent retail dealers at all.

Chrysler's move is similar to what Toyota did in marketing the Scion. Traditional advertising wasn't delivering the desired returns so toyota turned to event marketing and word-of-mouth to reach its target audience.

Besides, Chrysler tried to sell direct to consumers once before and lost a bundle. So did Ford with Jac Nasser's ill-fated experiment in Oklahoma in the late 1990's.

Mike Bowers
Car Dealer Insider

2006 Oct 20 12:57 PM

[Gregory Noonan:]

As more than a casual observer to the automotive industry I say let’s be open to promotional campaigns that explore better, more aligned relationships with customers.

Cross marketing or crossing the line. A political candidate considers working through the Mormon Church in corralling his constituency to raise funds for possible run, a politician appears on Saturday Night Live to show they understand the generation of this particular audience, a church Bingo is sponsored by a local car dealer, a newspaper advertises on the radio; the list is endless.

Franchise car dealers are just that franchises; the fact that they happen to usually be the top businesses in their communities aside, they are still franchises. There are many reasons (benefits) to being a franchisee rather than a stand alone business. Perhaps the biggest benefit is the national or international recognition the franchisor offers the franchisee and the associated advertising and marketing power that comes with this.

The automotive history books attest to tried and failed attempts of manufacturers to bypass the dealer and I believe, for the most part, manufacturers are no longer interested in this approach. You are right that state franchise law protects the dealer, but as previously stated with the failed attempts of some manufacturers, it really protects the manufacturers from themselves. Ask any seasoned factory executive and they will tell you they rely on the sage advice their franchisees give them in forging ahead in this market. The average car dealer has decades of experience in their community, is a recognized leader in many community events, is one of the first to come to the aid of disaster relief and most of all, these men and women are members of the communities they do business in.

I won’t assume I know the market better than you do Jerry but Lanelogic is involved in the used side of the market and is allied with some of the most advanced, forward thinking companies in the world of automotive, lanelogic.com. Each of these allied companies is very interested in supporting the franchise dealer and goes to exhaustive means to do so. Chrysler is interested in manufacturing and selling new vehicles; this is what keeps the factories rolling. The franchisee is the expert in selling and distributing the used cars to make room for more new car sales. New cars, not used cars, move the stock price. Also, Chrysler has dealer councils that help keep the Franchisor (Chrysler) in touch with the marketplace and they rely on this advice often.

Now for your comment on the service side; you are absolutely right that the car is sold in the front end and the relationship is, or should be, built in the service department. The dealer is very reliant on the profit that is generated from the service department. If dealers have a failing it is usually in this area. But that is not bad news as they are easily positioned to remedy this, in fact they are, and build relationships that will lead to more new and used car sales. The service writer has a much larger role than they will ever get credit for. The industry is constantly learning more about keeping these customers for life and building relationships with their car customers. This is something the factory could never do, Never!

Jerry, just like your article, who nobody but you could write, the dealer is the right answer and this is the right time to support them if there ever was a time. Imagine if someone told you; here is an article with your name on it, you just handle the response to the article ….. Wow…. How would you feel?

Chrysler should support their dealers in every way possible and it is that effort, for the past 100 years, which made these small manufacturers the world giants they are today.

Thanks for prompting all of this thought from me on this Saturday morning! Thanks to GOOGLE, I found your article. Gee … you are sort of like a franchise with Google promoting how to find you.

Greg Noonan
President/CEO
Constellation Enterprises, Inc.

PS: I also agree with Mike Bowers.

2006 Oct 21 10:00 AM