Disintermediation in the U.S. Auto Industry

Disintermediation in the U.S. Auto Industry

By
Eric Marti, Garth Saloner, A. Michael Spence
2000|Case No.EC10| Length 20 pgs.

This business case study describes the traditional dealership channel for retailing new cars, and provides data on how the dealership value chain was coming under attack in late 1999 from online buying services (OBSs) and others. The case presents detailed data on the economics of the traditional dealership by line of business: new-car sales; used-car sales; finance and insurance; and parts and service. It also provides background information on the general structure of the U.S. automobile manufacturing industry (including key aspects of how production planning is handled), and it describes how the overall auto distribution system works. Under that system, car- makers pump product into a highly fragmented and overcrowded network of dealers, who employ high-pressure sales tactics to move their inventory. Reacting to this unpleasant sales experience, more and more car buyers began to use OBSs to avoid haggling with dealers or to arm themselves with price and product information that helped them negotiate more effectively with dealers. Though relatively few consumers were actually buying cars over the Internet, the rate was growing rapidly, and new companies were aggressively seeking to establish the Internet as a channel. Based on the data presented in the case, readers can analyze the economic and market forces at play in the auto retailing business and assess how these will affect the traditional dealership channel.

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