Network Density in Automotive: Finding the Perfect Balance for Dealers

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Understanding Network Density in the Automotive Industry

In recent discussions surrounding automotive retail, the concept of network density has gained significant attention. Industry experts are exploring how franchise dealer networks are oversaturated, which could lead to detrimental impacts on overhead costs, consumer satisfaction, and dealer performance.

Is There Such a Thing as Too Many Dealers?

Current observations by the International Car Distribution Programme (ICDP) suggest that many brands are becoming over-represented in certain markets. With multiple dealers of the same brand within close proximity to consumers, the resulting intrabrand competition severely diminishes sales for individual dealerships. This could translate to challenges for both dealers and customers.

Research indicates that customers may be willing to travel up to an hour for a new car purchase. In fact, studies conducted by Urban Science found that the typical journey time for new car purchases barely increased when dealer networks were significantly reduced. They modeled scenarios where halving the number of outlets from 120 to 60 didn't affect consumer convenience, maintaining average drive times well within acceptable limits.

The Case for Downsizing

The encouraging findings from this research may suggest a road map for network planners considering adjustments to their dealership structures. By reducing network sizes, companies could potentially solidify their market positions while improving operational efficiency. Still, despite apparent advantages, the restructuring of dealer networks is progressing at a sluggish pace.

Recognizing Resistance to Change

Why are significant cuts to dealer networks not taking place despite the findings? In conversations with industry leaders, it becomes clear that there's a reluctance to change long-established practices. Concerns regarding aftersales provisions, customer loyalty, and brand reputation complicate the decision-making process.

Ultimately, finding the right balance in dealer network density presents a complex challenge for automotive stakeholders. Making informed decisions could not only enhance revenue for dealers but also improve the overall purchasing experience for customers.

Conclusion: What's Next for Dealers?

As the automotive market continues to evolve, it's essential for dealers and manufacturers to stay agile in their approach. Reevaluating network density holds the potential for better margins, enhanced customer choices, and improved dealer viability. It’s time for the industry to embrace more strategic thinking and adapt to changing consumer behaviors.

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