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The Development of the Franchise Distribution System in the U.S. Automobile Industry

Published online by Cambridge University Press:  11 June 2012

Thomas G. Marx
Thomas G. Marx
Affiliation:
Thomas G. Marx is director of plans consolidation, Corporate Strategic Planning Group
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Abstract

In this note on the history of automobile distribution methods in the United States, Dr. Marx examines the development of franchised dealerships. He traces the changes in the nature of consumer demand and the growing complexity in relations between manufacturers and their sales force that led to the predominance of the independent dealer franchise in the automobile “distribution channel.”

Type
Note
Information
Business History Review , Volume 59 , Issue 3 , Autumn 1985 , pp. 465 - 474
Copyright
Copyright © The President and Fellows of Harvard College 1985

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References

1 Thompson, D. N., Franchise Operations and Antitrust (Lexington, Mass., 1971), 20.Google Scholar

2 Sloan, Alfred P. Jr, My Years with General Motors (New York, 1965), 282.Google Scholar

3 Thomas G. Marx, “Automobile Distribution,” unpublished paper.

4 This growing uncertainty increased the importance of a common data base, as illustrated by the 1924 inventory crisis in the auto industry, which led to the introduction of the ten-day sales reports.

The big gap in our information system at headquarters and in the divisions was at the retail level. We knew how many cars and trucks our divisions were selling to our dealers, but we did not know the current rate at which those vehicles were being resold to the public. We were not in touch with the actual retail market. The division managers gave me monthly reports on the number of cars in the hands of their dealers, but most of them estimated dealers' inventories without asking the dealers themselves to supply current data. This method—or lack of it—limited our sensitivity to changing market trends and required the staff at headquarters to base its sales forecasts on figures that were not only weak, but several weeks old. Such a time lag could be dangerous. It became, in fact, the source of a new crisis, (Sloan, General Motors, 129).

5 As described by General Motors in the 1920s, these allowances on unsold cars ensured that manufacturing managers would not make decisions that ignored the interdependencies with dealers by putting more of the risks of excessive production on the plants:

This policy [of carry-over allowances on unsold cars], I believe, was new in the industry when we began it. It reflected our desire to protect dealers against unreasonable production schedules in the latter months of the model year on the management of the divisions. It imposed a penalty on the factory in the form of an automatic assessment if for any reason there was an excess supply of cars in the model year. (Sloan, General Motors, 286).