ElI5 why do we have car dealerships?
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Auto-mod deleted my previous comment cause it was too short of an explanation.
But what I said was, car dealerships exist so you can buy a new car.
There are not nearly as many independent sellers with brand new cars to sell.
Well we do have car dealerships for the reason that people want to buy cars, preferable not online. Because they want to see cars.
We have car dealerships just like we have supermarkets or any other type of store
Because Ford and GM don’t want to deal direct with millions of customers. They want to deal with a few thousand dealers and let them handle the customer service.
Because the owners of car dealerships have, in most states, been able to get laws passed that prohibit the manufacturers from selling directly to consumers.
How would you expect to buy a car otherwise? Car dealerships are not all that different than other retail models, buying goods wholesale and selling them… just like buying some Nikes from Foot Locker or a Samsung TV from Best Buy.
The local franchise dealer model was put in place in part to insure access to repair and parts for repair, and to know that they’re meeting the manufacturers’ standards.
But the manufacturers didn’t want to own networks of 1000’s of dealerships and be in the retail business on top of manufacturing.
And the franchise dealer model creates more competition for customers, as an area might have 5 or 10 Ford dealers that customers can cross shop if they want an Explorer, vs. corporate Ford stores all selling for same price.
Because of anti-competitive laws that were formed in 1950 practically prohibit anybody else from selling cars, like manufacturers. Look up the fight that Tesla had to do.
Assuming you’re referring to the situation in the US, it is mostly for historical reasons around anti-trust and monopoly power.
About a century ago, the rapidly growing car companies had a lot of abusive and aggressive practices. As an example, Henry Ford demanded things like local franchise auto shops have exclusivity and ONLY work with Ford vehicles, and that they keep a supply of ALL parts on hand so they could instantly service any vehicle in their lineup. Some of the other big companies did the same.
The exclusivity of the big companies shut out a lot of smaller competitors. In 1908 there are 253 automakers. By 1929, there were 44, but the vast majority in the US were Ford, GM, and Chrysler. All three had exclusivity deals, and took heavy demands on companies that sold them.
The trust-busting movement came into full swing, first against the railroads, but also grew against many other monopolistic industries. States found it was easiest to start with their local laws. In the 1930’s and 1940’s, a bunch of laws came into effect trying to break up the power of the big three auto makers. Laws prohibiting direct sales. No exclusivity deals with local franchises. No exclusivity on support. Manufacturers were forbidden from competing with franchised dealers, as they could easily undercut their sales. Etc.
The result is what we see today, manufacturers get non-exclusive licenses to dealerships, who sell whatever sets of vehicles they can negotiate. Stores compete against each other in ways that are generally healthy for the market. Manufacturers compete against each other through dealerships, but thanks to the various laws forbidding exclusivity many dealerships receive the incentives from multiple manufacturers, also keeping the market stirred up in many consumer-friendly ways.
There have been attempts to break it up, most notably Tesla in recent years that still isn’t allowed to have direct sales to consumers in many states.
To sell a product, a manufacturer can either use an e-commerce web site or a physical store. The latter is preferred for goods that customers strongly prefer to check out in person. Specifically for cars, most customers won’t buy a vehicle without looking at it in person and taking it for a test drive.
If you want to sell to most of your customers yourself (direct sales) you have to open hundreds of stores. That means building, staffing, training, and managing those hundreds of stores. That is a lot of work.
If you offer your products to authorized retailers, then you mostly worry about product distribution, and let those retailers handle their staffing, training, and management themselves.
There are some advantages to direct sales. You have more control over the customer sales experience. (More consistent pricing and service, etc.) This is the approach that Tesla took. (Tesla is also able to do this in part because EVs have relatively fewer service needs compared to vehicles with internal combustion engines. Far fewer moving parts that wear out and need service.)
As others have stated already, car dealerships don’t want their existence threatened. Imagine if Ford decided to pursue direct sales, possibly offering a customer experience superior to that of traditional car dealerships. So these car dealerships worked to get laws passed in their locations, stating that vehicle sales must always occur through a third-party dealership.
Because most states have laws requiring new cars to be sold through dealers.
The theoretical justification is that you need dealers to be around to service the cars. You don’t want the manufacturers selling cars direct and not having a physical presence where they can do warranty work, recalls, etc.
The real reason is the dealers lobbied legislatures hard to keep their piece of the pie.
It’s because
a) people still want to test drive cars, and
b) manufactures find it more efficient to do whole sale to dealers and let the dealers do what they are best at.
This is also true where there are no laws against direct sales.
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