Pub. 2 2022 Issue 2

conditions before setting the price they want for that car. There is plenty of competition to force prices down because there are franchised new car dealers throughout the state. OEMs want to fix the retail price and control the margin. They also want to own the customer data. As it is now, the customer is the dealer’s customer. How did the dealer get the customer? They did it by offering a vehicle for the right price, developing a personal relationship with the customer, providing excellent service when necessary, providing a loaner and likely washing the repaired car after the repairs are done. All the personal customer service-type work would go out the window with the agency model because the dealership becomes just the delivery location. The dealer’s opportunity to develop a personal relationship with the customer would be very limited in that circumstance because they would only be doing deliveries. There are other issues with the agency model that the OEMs never talk about. For example, what happens to used cars? Nobody goes into the showroom to buy a car without a trade-in. What’s going to happen to the trades? Will the dealer have to buy them from the OEM for an OEM-fixed price? Who is to say the OEM price on a trade vehicle will interest the dealer? The more important question is how can the dealer stay in business with no cars to sell if all they do is make deliveries for a fee set by the OEM? The agency model appears to be inappropriate in the state of Montana. Dealers in large cities might sell enough cars at $100 per car to stay in business, but if a small city in Montana only sells a few cars in the same amount of time, that’s not enough money to keep the doors open. The trade press I’ve read states the agency model would make more money for the OEMs, plus they would own the customer data. I’ve already talked about the fact they want to control the data. But I don’t see the agency model going anywhere here. It may, but I don’t see it. Does the agency model have any benefits for dealers? Zip. Zero. None. And there’s no benefit for the consumers either. They won’t necessarily be able to get a good deal on their trade and will have to pay a fixed price. Prices stay artificially high when manufacturers control the price. Think about an Apple iPhone. Would the high-end models cost $1,000 if they were sold through distribution? Using an agency model, manufacturers hope to reduce the number of dealers by 5-6% each year, depending on the market. That reduction means 5-6% of service departments go away yearly, too. Sometimes Teslas need service. If you have one that needs repairs, where do you have to take it? Do they give you a loaner? Do you have to travel a substantial distance for warranty work? I heard an anecdotal story about someone with a Tesla that needed service. The car was put on a flatbed truck and hauled to a service center. It was gone for some time, and the owner was left without a car. Repairs on a Tesla are different from taking a vehicle into your local dealership’s service center at 8 a.m., getting a loaner car to use during the day, and picking your vehicle up at 5 p.m. What would you say to customers who like buying a car without haggling over the price? Are there hidden harms they should be aware of? Paying fixed prices means spending more money than you need to. If you are not price conscious and want a particular car, you will have to pay the price. However, customers will pay the price if the value is there for them. One example of that was mid-engine Corvettes. Initial buyers had to pay a premium if they wanted one that was just off the line. How can dealers reward loyal customers if they can’t give them a discounted price? Loyalty doesn’t have much to do with discounted prices. It has to do with how businesses take care of you. Are you somebody who is treated with respect? Do they know you by name? There was a show called Cheers (1982-1993). The theme song talked about a place you can go where everybody knows your name. You don’t go to the local bar for the cheapest beer; you go there for the people who know your name. You may not get the cheapest deal at your local dealership, but you will get a good one and feel respected and appreciated there. The best business relationships have a personal element. Price has something to do with making a sale, but when you see a customer over the life of their car ownership, you will see them when their car needs service and repairs, not just when they need to buy another car. Agency models overseas differ between brands. For example, Mercedes and Honda have different programs. Which are the best or worst? The agency model is so new overseas that manufacturers are testing the water to see what they can get away with. Manufacturers such as Mercedes might test out one plan in some nations, another plan in other nations, and the third plan for Germany. I see some references to the “light” version of the agency model, where the dealer is involved to some degree, but the references aren’t particularly relevant to us yet. I don’t know the details about how the plans differ. How do franchises work with an agency model? What’s the difference between a traditional franchise and a franchise that uses an agency model? Never say never, but the combination doesn’t seem practical. In a rural state like Montana, we don’t want to give manufacturers more power than they have now and turn dealers into delivery places. What can dealers do to protect their livelihood in the future? Get involved with the association. Your livelihood depends on it. Continued from page 15 16