Despite the rapid digital transformation reshaping the automotive sector, the traditional franchise dealership model remains the gold standard for automotive retail both locally and globally.
Insights from NADA’s recently concluded US Study Tour reinforce why the franchise model, which has its origins in the early 20th century, continues to provide the most efficient and customer-centric experience for vehicle sales in South Africa and around the world.
According to NADA, the franchise dealership model was born out of a need for manufacturers to scale car sales rapidly by partnering with local entrepreneurs who understood the communities in which the car companies sought to increase their market share. By the 1920s and 30s, it became clear that a local presence was essential not just for sales, but for the complex lifecycle of a vehicle, including maintenance and trade-ins. Today, that core truth remains as customers still seek a relationship they can rely on for confidence, and convenience throughout their ownership journey.
While the industry has recently seen a growing interest in the agency model – where the manufacturer owns the stock and sells directly to the customer, while the dealer acts as a delivery agent – findings from the NADA Study Tour suggest this model is proving suitable mainly to premium and luxury automotive brands.
Giving historical context, the association explains that the agency model was envisioned as a way to reduce distribution costs by up to 3% and give manufacturers more control of the sales process. However, most car brands have maintained or reverted to the franchise dealership approach in the realisation of the operational and administrative burden assumed by local dealers. Most manufacturers prefer thus to focus on their primary strengths, including research, development and manufacturing.
NADA notes that while the agency model may offer benefits for specific niche segments, it is not a one-size-fits-all solution.
According to NADA, the agency model can be suitable for low-volume premium and luxury brands where high inventory costs and highly specialised, bespoke sales processes are the norm. For the mass market, the franchise model is vastly superior, as it allows dealers to hold significant inventory, manage trade-ins, and provide the customer service and retention that volume brands require.
Engagements with high-performing dealerships in the US support this notion, placing high importance on the quality of the customer journey.
“Customer experience has become the new license to operate,” NADA notes. The US automotive retail sector – one of the most mature in the world – shows that despite the advent of AI technologies and the proliferation of online shopping, it is the dealers’ ability to run smoother, faster, and more customer-centric operations that has kept showroom traffic volumes high.
“The focus should always be on removing friction, with fewer delays, less paperwork, and faster response times, and that’s what modern franchised dealers are doing through the adoption of digital tools to ensure 24/7 responsiveness and seamless service,” states NADA.