Can growing companies learn something from recent events in the US auto industry?
In 2009, the big three US automakers had two times as many franchised dealers vs. all import brands combined. Accepted wisdom for years was that more intensive distribution translates into more sales, but then total sales dropped from a steady 17 million in 2006 to 10.5 million in 2009, and Big Three market share dropped under 50%.
Further exacerbating the problem is the economics of the auto retailing have shifted toward a higher fixed cost model as the cost of showrooms and service facilities are up. The problem is more serious for US automakers because their dealers are selling one third as many cars per dealership as Toyota, or half of what Honda and Nissan dealers sell.
It shouldn’t surprise anyone that US automakers have cut 1500+ franchised dealerships from their systems. Markets shift over time, and those shifts may require a company to change strategy. When auto makers were closing dealerships, people asked “Doesn’t it hurt customer service when potential buyers and owners travel farther to a dealership?” and “Are US manufacturers trying to restrict supply so they can raise prices?”
In fact what we are witnessing is US automakers trying to adapt to a new market reality in which franchised dealers need more sales volume to survive. Similar shifts are occurring in other industries too, such as books, and electronics retailing. As markets shift, companies need to spot these changes, and be willing to revise their strategies in light of these new market realities.