Impact of E-commerce on Auto Dealers

by Jack Faucett Associates. 2001. [65 pages.]

4550 Montgomery Avenue, Suite #300 N

Bethesda, MD 20814

under contract no. SBAHQ-00-M-0798

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Purpose

The purpose of this study is to understand the effect

electronic commerce has on auto dealers and to

focus on how well auto dealers are adapting to an

e-commerce environment. The automobile retail sector has experienced some consolidation over the last

two decades, partly resulting from mergers and

acquisitions of publicly owned dealerships, which

further complicates the issue. This study can assist

understanding of how current state and federal franchise laws affect auto dealers, and what additional

e-commerce policies, if any, are needed.

Scope and Methodology

Data utilized in this report come from a variety of

sources. The researchers used private and public data

from the U.S. Census Bureau, the Transportation

Research Institute, associations, academia, and other

sources. The study covers three areas: literature

review, analyses, and relevant policy issues.

Highlights

• There has been a steady decline in the number of

new-car dealerships, from 28,500 in 1979 to an estimated 22,250 in 2000.

• In 2000, over 80 percent of the franchised new car

dealers in the United States were small businesses.

• New-vehicle dealer sales revenue rose to $654.1

billion in 2000. These sales constituted approximately 19 percent of total U.S. retail sales.

• For the typical auto dealer, used vehicle sales

increased from 22.8 percent of sales in 1989 to 28.9

percent in 1999; service and parts sales declined

from 13.8 percent of sales in 1989 to 11.2 percent in

1999; and new vehicle sales dropped from 63.4 percent in 1989 to 60 percent in 1999.

• In 2000, 83 percent of dealerships had a website,

up from 47.1 percent in 1997; about 97 percent of

dealers with websites had staff dedicated to monitoring and maintaining the website.

• On average, dealers completed 6.2 percent of

sales exclusively over the Internet, while roughly 12

percent of dealers used their site for business-to-business communication with suppliers. Most dealerships

also used the web for communication with suppliers

or to sell other products.

• Dealerships who have had websites since 1995

average 13 new-vehicle sales a month through their

sites whereas those who have had websites for less than

two years average only five vehicle sales per month.

• State franchise laws also significantly affect

Internet commerce by acting as a barrier to entry for

online retailers. Only two states had laws that

restricted new franchise licenses in 1970; this number increased to 36 in 1983 and 41 in 2000.

• Among a number of policies that can have disproportionate impacts on the small business auto

industry are the Robinson-Patman Act and the

Gramm-Leach-Bliley Act.

Conclusions

The internet has had a major impact on the automobile wholesale and retail sectors of the U.S. economy. It has enhanced the efficiencies of markets by

expanding the market area from which dealers can

draw customers and by increasing the number of

potential competitors for each dealer.
While electronic commerce has had important

impacts on the auto retail industry, state and federal

franchise laws and other policies have played an

important role in mediating and structuring this

marketplace.

Ordering Information

The full text of this report and summaries of other

studies performed under contract with the U.S. Small

Business Administration’s Office of Advocacy are

available on the Internet at www.sba.gov/advo/research.

Printed copies are available for purchase from:

National Technical Information Service

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Springfield, VA 22161

Tel. (800) 553-6847

TDD: (703) 487-4639

Order number: PB2002-102201

The National Technical Information Service’s

complete database of federally funded business

research is available on the Internet at www.ntis.gov.