It’s hard to imagine a world without an auto dealer on every corner, but of course, it was not always like this, even in America. Auto dealers and dealerships are a response to the invention of the automobile and the mass production techniques that became standard in producing them. Read on for a brief history of how your auto dealer came to be.
Although the automobile was invented and perfected elsewhere, Henry Ford’s groundbreaking mass production techniques quickly became standard. By the 1920s Ford, General Motors, and Chrysler were known as the big three auto companies.
Pushing Out the Little Guys
Prior to Henry Ford’s production techniques, America had a lot of small producers and competition. But mass production was so popular and so efficient that more and more manufacturers begin to adopt it. In order to adopt a mass production schedule, one needed to outlay a lot of capital and had to be sure of a large volume of sales. This forced smaller manufacturers out, but also lowered prices for consumers. In 1908 there were 253 automobile manufacturers. By 1929 only 44 were left. The Great Depression destroyed almost all the remaining independent manufacturers, although Studebaker, Packard and a few others manage to hang on until after World War II.
On-Time Credit Sales
Although it may seem hard to believe in these days of mounting credit card debt, it wasn’t all that long ago that Americans only bought things when they had cash in hand. There were a few expensive items that could be bought with a down payment and regular installments, such as sewing machines, but before 1920 this was rare. By the late 1920s, the Depression resulted in too many new cars and too few buyers. An ever-expanding market was no longer a given. This spurred dealerships and auto manufacturers to encourage people to buy cars on credit, known as “on-time sales.” It was really the automobile and the auto dealer who started America down the path of regularly purchasing expensive goods on credit.
The Government Gets Involved
Why don’t car manufacturers sell to consumers directly instead of using a franchise auto dealer? State lawmakers long ago decided that that the dealership model was the best for everyone. The dealership was better able to protect the interests of consumers and competing local dealerships kept prices low and benefited local communities. Manufacturers, meanwhile, could invest capital in design and engineering instead of retail.
Does the Model Work?
In most ways, yes. Automobiles are quite different from other products that can be bought online or in stores directly. Cars are highly regulated at every step from manufacturing, to buying, to operating, to inspecting, to repairing. They’re unlike any other product for sale on the marketplace. Furthermore, selling a car is a complicated procedure. It takes an expert auto dealer to navigate all the issues involved. No one can buy a car and drive it away without a state-issued license and proof of insurance. The majority of car sales are financed, and car loans are another thing the state regulates. Technicians who maintain and repair cars are licensed by government agencies, and cars are full of dangerous materials that must be handled properly. Furthermore, cars that are operated improperly pose a serious danger.
An Auto Dealer and Costs
For many people, the assumption is that the existence of auto dealers adds a layer of cost to vehicles that would not be there if people could just buy directly from the manufacturer. In reality, as long as cars are retailed it will cost money to do so, and it really doesn’t matter whether that money goes to the auto dealer or to the manufacturer. In fact, because auto dealers are in competition with one another locally, there is incentive to keep costs as low as possible.
The auto dealer is an important part of ensuring that quality cars are available throughout the country. They help keep prices low, assist consumers in complying with local regulations and getting financing for their vehicles, and are an effective and efficient way of selling and buying cars.