Case Analysis: Competition in the U.S. Automotive Retail Industry
Presiliano Briones & Nathan Kunkel
Abstract
The purpose of this analysis is to look at how the rise of the internet has changed the way
consumers buy cars and automotive retailers sell cars. For years, traditional franchised
auto dealerships have had a monopoly on the new car retail industry. The only competition
they faced was from other franchised dealerships. The rise of the internet has changed this
forever. There are three types of new firms all trying to get a piece of the online vehicle
sales market. They are lead generators like cars.com, direct sellers like CarsDirect.com,
and hybrid sites like autobytel.com. If these dealerships do not embrace the internet and
the new type of consumer it has created they will be left in the dust.
Economic & Business Characteristics
The auto retail industry has been changing over the last 20 years. There has been a move
towards megadealerships. These megadealerships offer a wide selection of vehicles often
from several different manufactures. This was done for a number of reasons. The
manufacturers desired to reduce the number of dealerships and wanted to weed out the
weaker dealers. Small volume dealers also could not match the steep discounts that were
offered by the megadealerships. Price competition among manufacturers wanting to build
market share and dealers wanting to clear out inventory had caused the retailing of new
vehicles to be a high volume, low margin business. These mega dealers, often based in
larger cities, had the necessary volume needed to remain profitable. The smaller
