How do car producers choose their distributors?  How does this relate to globalization?

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brettd's profile pic

brettd | High School Teacher | (Level 2) Educator Emeritus

Posted on

There are a number of factors that come into play when choosing the location and number of dealerships for their cars.  The first would be the strength of the local sales market, for example, a larger city like Los Angeles would get more dealerships than a small town in Iowa because the sales market is stronger to begin with.  Secondly, they would consider the wealth of the area, which translates into the ability of people there to purchase cars at regular intervals, and cars in certain price ranges.  They do not want to foster competition between dealers that are both selling their cars, so they tend to give dealerships monopolies in specific areas, and/or they place them next to competitor auto dealerships to try and capture more market share.

In terms of globalization, auto companies no longer have to factor in the tarriffs that have been charged in the past, and their negative effects on sales.  They can compete in a level playing field and consider only the marketing and sales potential in a given area.  It also allows them to more easily locate auto factories in the same countries they are selling in, to cut down on the transportation costs and distance involved, making them more profitable.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

The process of selecting and appointing distributors for cars by the manufactures differs from company to company. However, there are likely to be some common considerations for all the manufacturers.

The first consideration is the size of the market in different geographical location and the ability of existing dealership network to serve the current and potential market. Based on this the car manufactures decides on the number and location of additional dealerships to be awarded. This decision also includes some clarification on nature of dealership in terms of stock of cars to be maintained and services to provided.

The next step is to identify people and firms interested in taking up the dealership in each of the identified location. It should be noted that in most of the cases a person is interested in taking dealership in some specific geographical location only. As a matter of fact one of the advantages of appointing dealers is that it gives the company he benefit of the strengths and advantages enjoyed by dealers in their respective geographical location.

The next step is to assess and compare the suitability of prospective parties that have come forward with offer to set up dealership at each of the location. This is the core of the the decision on choice of the dealer. It involves assessing the suitability of applicants for dealership on factors such as, financial capability, technical and marketing capability, managerial and administrative capability, past experience in the same or related businesses, willingness to invest sufficient money in facilities and stock of cars, and willingness to devote personal time and attention to the dealership work. Many a times possession of a  land or premises at an advantageous location for the dealership outlet is also an important consideration.

Once a dealer is identified as most suitable on the basis of evacuation and comparison as above the car manufactures then, generally, enter into negotiation with the prospective dealer about details of the dealership arrangement such as agreed location, investment in premises and equipments, services to be provided and range of products to be sold, and a schedule for establishment of the dealership.

Choice of dealership has no direct influence on globalization. However is is quite obvious that a company that sells is products abroad will have to factor in the considerations of international business for appointment of dealers for such markets.

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