Study shows franchised dealerships rival direct sales in cost efficiency

A new study has revealed what many auto retailers have contended for years – the cost benefits of direct-to-consumer sales have been largely oversold.

Background: The study – conducted by the consulting firm, OliverWyman was commissioned at the request of the National Automotive Dealers Association (NADA) to compare the cost of the traditional dealership franchise model to the DTC approach. 

Key findings:

• The net cost difference between franchised dealerships and DTC is minimal, about $200 per vehicle. This shows that the dealership model remains competitive despite perceptions of DTC being cheaper.

• DTC models save by centralizing tasks like inventory management and marketing, eliminating dealer-level roles. However, these savings are balanced by the higher wages manufacturer-run dealerships tend to pay.

• Hybrid distribution reduces labor costs, but not as significantly as DTC because independent stores still operate some local functions.

• While DTC models eliminate intra-brand competition, they don’t offer the same flexibility as dealerships.

Why it matters:  The Oliver Wyman study means little to automakers like Telsa, Lucid, and Rivian, which have always operated using the DTC sales model. 

• However, as many of the legacy automakers continue to look for ways to make the car buying process more seamless, the OliverWyman study could help temper efforts and initiatives that inherently reflect a direct-to-consumer approach. 

• State laws pertaining to direct-to-consumer vehicle sales models that seek to protect dealerships have been one of the biggest deterrents for many automakers looking to implement DTC-centered sales strategies.       

Common ground: A recent study by CDK found that while most consumers prefer to deal in person when purchasing a vehicle (69%), one out of four buyers opt for a hybrid approach when buying a car, where they start online and finish the process at the dealership.

• A January study by Cars.com found that even 80% of Gen Z buyers want to finalize their vehicle purchase at a dealership, compared to 9% who prefer to complete the deal online.  

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