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

Includes: DDAIF, F, GM, HMC, TM, VWAGY
by: Jerry Marks

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 (NYSE:TM) or Honda (NYSE: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:

DCX 1-yr chart

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