Channel abuse continues unabated

If you wonder why the distribution channel (retail or wholesale) gets even when they can, you only have to watch the abuse they take most of the time from the manufacturers who supply them. Sure, you can point to reverse abuse perpetrated by the Wal-Mart’s and Home Depots of the world, but look at what most channel “partners” have to endure.

Last year, during the automobile industry restructuring, many lifetimes of effort was lost when dealers had their franchise rights revoked thus taking a once valuable business and making it essentially worthless. Ah, but a reduction in dealers was necessary you say. And you are right, but there have been too many dealers for a long time. Many manufacturers like to be over-distributed so they can exert more leverage over the channel.

Now we see another example of channel abuse coming from Chrysler, which is partially owned by Fiat. Fiat intends to return to the U.S. for the first time in many years. I welcome their return as a former Spyder and X-1/9 owner. I have liked Fiats. And Chrysler is offering the right of first refusal to their dealers to handle the new Fiat line. Well line may be a bit of a stretch. It is a single car: the Fiat 500. To be fair a convertible version is coming in 2011. Wow sort of two cars.

What is required to earn the rights to this dealership? A separate operation. Separate showroom, separate staff, separate everything. Well not completely. You can use the same land if you have extra room. Unless Fiat has a product offering roadmap that includes several more cars … soon … I don’t see how a dealer can be profitable with a single car. Even Infinity and Lexus introduced two different cars at the same time when they entered the U.S. market.

Will Chrysler dealers comply? Probably. Or who knows, they could end up on the consolidation chopping block next time the discussion comes up. Abuse of channel is not really a winning strategy in the long term. I trust our readers who use channel understand the strategic value of treating them differently.

Mitch

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