Civil war has broken out in the U.S. auto retail industry.
It is dealer against manufacturer in a multistate lobbying battle over who will control the future of a business that last year generated $534 billion in sales.
The automakers, led by giants such as General Motors Corp. and Ford Motor Co., are trying to establish factory-owned stores in states such as Virginia, Florida and Utah--an initiative that could put manufacturers in direct competition against the franchised dealers who sell their products.
The manufacturers say their plan is good for business and consumers because it will cut distribution costs while reducing consumer frustration with traditional auto retail practices.
Dealers say the manufacturers are trying to sell the public a bill of goods, the true cost of which will be a concentration of control over car sales--and a resulting rise in vehicle prices.
"The real battle is over who is going to control pricing in the auto industry," said Scott Painter, chief executive of CarsDirect.com, an Internet auto-buying service. "The major source of consumer irritation with car buying has been pricing--one person going in and buying the same car as another consumer at a substantially different price. As entrepreneurs, the dealers want to control those prices," he said.
"But the manufacturers are looking for more profits, and they want to control those prices, too," said Painter, whose service works with 1,700 dealers nationwide to help consumers buy new vehicles at "market-based prices," which supposedly are more fair and uniform than those gotten through traditional showroom haggling.
What is ominous, from the dealers' viewpoint, is how the car companies plan to link factory stores via the Internet.
By putting their stores on the World Wide Web, automakers could facilitate the direct sale and delivery of new and used vehicles to consumers, bypassing traditional dealerships altogether.
The dealers, as a result, are up in arms. They are flexing lots of political muscle in statehouse legislative battles to pass laws that limit manufacturer participation in retail sales. So far, they are winning.
They have blocked GM's effort to establish 770 factory-owned stores nationwide through its newly established GM Retail Holdings division, and they frustrated Ford's efforts to set up its Auto Collection factory stores in Virginia, Utah and several other states.
In Nevada and North Carolina last month, the dealers also picked up major victories in their bid to keep the car companies at bay.
The rewrite of Nevada's dealer franchise laws is the toughest, and it is being used by state auto dealer associations nationwide as a template in statehouse lobbying.
In summary, it stops car manufacturers from competing directly against dealers in retail sales, prevents car companies from selling identical components to different dealers at different prices and forces automakers to take additional steps that favor the dealer's position before being allowed to terminate the dealer's franchise.
At least 17 states now have laws expressly forbidding car companies to operate factory-owned stores within their jurisdictions. Most other states have weaker provisions, usually in the form of "dealer day-in-court laws," aimed at protecting dealers from manufacturer abuses.
Tougher laws are needed "because it looks like the manufacturers are trying to leave us out of the equation," said Lou Kairys, chairman of industry relations for the McLean-based National Automobile Dealers Association.
"Everything that GM and Ford are doing with factory stores is aimed at bypassing established dealers. They apparently believe they can run this business by themselves. Well, the dealers are and have been an important part of this business, and we're not going to let them change that," said Kairys, whose association has voted to increase support to state dealer groups fighting factory stores.
To say the least, this has been frustrating for the car companies. "They have us locked up," a top Ford official said of the dealer rebellion.
"We can't move as fast as we would like to move, or need to move" in establishing factory stores. "And when we do move, we have to move very carefully," said the Ford official, who asked not to be identified.
For their part, GM executives said they have no intention of trying to run their dealers out of business with factory stores.
Instead, said GM spokesman Terry Sullivan, the stores are needed to help build "brand loyalty" in an era where non-alligned megadealers, such as Florida-based AutoNation USA and Richmond-based CarMax, are beginning to dominate U.S. auto sales.
GM's concern is that the megadealers eventually could operate like supermarkets, stocking multiple car brands in the manner of breakfast cereal. In that scenario, both GM and GM's traditional dealers could wind up losing, Sullivan and other GM officials said.
Dealer consolidation in the auto industry is wiping out smaller stores. Of the nearly 40,000 new-car dealerships operating in the United States in the 1960s, an estimated 29,000 were in business in 1978--and 22,400 are in operation today.
Most of the defunct stores are those that sold fewer than 150 new vehicles annually, according to NADA figures.
Factory-to-consumer sales are still more myth than reality in the auto retail industry. Most state laws still require dealerships to be involved in some aspect of the new-vehicle sales transaction.
But the emergence of e-commerce is rendering those laws obsolete, automakers contend.
Kairys of the dealers association disagrees.
"There is an attempt by the manufacturers to make it seem as though dealers are against the Internet, when nothing could be farther from the truth," Kairys said. "I'd say that about 80 percent of the dealers in this country are involved in Internet sales," he said.
"We're not against the Internet," Kairys said. "We're just against Internet sales going on without us. We add something valuable to the process. We want the manufacturers to recognize that."
CAPTION: Dwindling Dealerships (This graphic was not available)