New Study Explodes Myth Behind Auto Trade Debate: Big Three Automakers to Consolidate Dealer Outlets in Japan
9 October 1997
New Study Explodes Myth Behind Auto Trade Debate: Big Three Automakers to Consolidate Dealer Outlets in Japan
SAN FRANCISCO, Oct. 9 -- The Japanese Automobile
Manufacturers Association (JAMA) issued the following:
For the last several years Ford, Chrysler and GM have argued that higher
sales volume in Japan depends on more existing Japanese auto dealers selling
their product. Their trade association has self-initiated a collective target
of 1000 more dealers in Japan's market by the year 2000 and has asked the U.S.
Government to help them achieve this goal, under the threat of trade
retaliation if necessary.
A carefully documented study of auto industry practices released by Scott
Latham Associates of Philadelphia this week explodes the premise behind this
so-called "results oriented" effort in clear unmistakable terms. The study
looks at successful marketing practices of the Big Three in the U.S. and of
European companies in Japan to conclude that volume and profitability in the
industry depends on putting more cars through fewer dealerships, not the
reverse. The Latham study shows that despite the rhetoric in Washington this
is indeed what the Big Three are quietly doing in Japan -- seeking
exclusivity, reducing their dealership network, and increasing dealer
efficiency. Among the study's observations and conclusions:
1. Page 5: "Most recently, as we will see, Ford and Chrysler have
announced aggressive plans to reorganize their operation in Japan,
actually cutting a large number of dealer outlets in an effort to make their
franchises more profitable and therefore more attractive to the independent
entrepreneurs they so much desire to represent them ...," (See chart, page
24).
2. Page 5: "General Motors has similarly introduced a new product -- the
well-known Saturn line -- while relying on a network of exclusive dealerships
and intentionally keeping the number of outlets to a minimum."
3. Page 6: "At that time (1992)...the Big Three had a dealer network in
Japan that consisted of 295 'direct franchise' outlets and 2,030 dealerships
that they supplied 'indirectly' through distribution agreements with Japanese
car manufacturers. ... European auto companies had already assembled a network
of 921 direct franchise outlets and 494 indirect sales centers that had
franchise agreements with domestic companies.... Because direct franchises
are a far more effective way for a company to control market and distribution,
the Europeans enjoyed a tremendous sales advantage over their American
counterparts. As a group they were outselling their U.S. competitors by a
factor of about 10-1, while their dealers efficiency ratio (the average number
of cars sold per outlet annually) was pushing 100 vehicles -- compared to
about six cars per year per dealership for the Americans."
4. Page 8: Referring to the MOSS Motor Vehicle Study commissioned in
1991-1992 by the governments of both Japan and the U.S., Latham writes: "While
the range of dealer concerns was quite extensive, the report said they 'are
identical to those expressed by domestic car dealer principals in any country
when confronted with the opportunity to handle the models of any foreign
vehicle manufacturers. Dealer principals are often skeptical about adding a
new imported model line until the foreign vehicle manufacturer has established
a solid distribution system, demonstrates an understanding of the market's
needs, and can support dealer principals in selling a relatively large volume
of cars' -- a level of infrastructure and commitment the Big Three had clearly
not yet made."
5. Page 12: Latham quotes a Toyota marketing executive responsible for
building Toyota sales effort in the U.S.: "Toyota had essentially no products
at that time (1957) that were suited to the U.S. market. So the United States
had very few potential dealers who were interested in selling Toyotas...we
struggled along, recruiting one dealer at a time. We talked to anyone who
would listen to us, including owners of gasoline stations and repair garages
...dealers for the Big Three auto makers generally turned us away at the
door."
6. Page 17: "All three American manufacturers are currently in the
process of implementing a consolidation plan to ameliorate the over-dealering
problem in the U.S...GM expects to cut European dealer outlets to 174 from 207
over 18 months..."
7. Page 16: "To take another example, in 1995 Saturn sold (in the U.S.) a
monthly average of 79 cars per dealer through more than 300 outlets. By
comparison, Oldsmobile had nearly 3,000 dealers nationwide and sold a monthly
average of only 14 cars per dealer."
8. Page 1O: Again referring to the MOSS study, Latham writes: "The team
eventually settled on a definition that defined a dual as a 'dealership which
handles models carrying the badge of two or more manufacturers regardless of
country of origin.' Under this definition, the dual ratios of the two
countries were virtually the same -- 18% for Japan and 22% for the U.S."
9. Page 18: "Unfortunately, all of the new Big Three entrants in the
Japanese market have been met with a lukewarm reception by consumers. This
response was foreshadowed at the 1995 Tokyo Auto Show, when the Chrysler Neon
and Ford Taurus prototypes failed to stir excitement. By the following year,
both models were well behind projections."
10. Page 19: "For the most part, Japanese consumers have continued to
cite problems in design, quality, price and after-sales service for Big Three
products. A survey of 7,023 car buyers conducted earlier this year showed
only one American model -- the Cadillac Seville at #18 -- in the 'Top 2O Most
Popular Imported Cars.' That was an improvement over the 1996 'Top 20' --
when no American models made the list."
11. Page 21: Latham quotes a recent interview with a longtime Ford dealer
in Japan: "The other day I was able to see the Ford line-up in the United
States planned through the year 2000. This encouraged me to keep at this
business for a while. If I hadn't had the chance to see the upcoming models,
I might not be inclined to stick with Ford."
SOURCE Japanese Automobile Manufacturers Association
