The Contribution of Dealers to Competitive Advantage of Manufacturers

Abstract

Most automobile manufacturers use a network of franchised dealers to sell and service their products. These dealers perform the initial sales process as well as deliver after-sales services. Some arguments and studies suggest that the quality of the sales process and subsequent post-sales services can impact sales, repeat sales, and reputation. Other arguments and studies suggest that dealer services are a commodity and that their quality may only impact sales in the extremes. We expand from previous studies by considering both the dealer and their dealership network, consisting of other dealers in the area that compete for sales. We observed a total of 105,080 automobile sales in the US over 32 days. This yielded daily sales and consumer rating information for all dealerships and all new cars in inventory in five car classes. We find that dealer quality positively influences automobile brand sales. Brands with highly rated dealer networks also had higher market share. The results show that dealer service quality has a stronger effect in markets where the focal brand’s dealer network is sparse and the competing dealer networks are dense. Finally, we find that quality of after-sales service have a stronger effect on market share than that of the sales process.