Why Do Consumers Have to Buy Products Through Middlemen Instead of Manufacturer Directly?

Introduction

Consumers often wonder why they have to purchase goods through middlemen such as car dealerships instead of buying directly from manufacturers. This article explores the reasons behind this practice, the role of middlemen, and the impact this system has on consumers.

The Role of Middlemen

Manufacturers focus on what they do best—manufacturing—while leaving the distribution and sales aspects to specialized entities. This system ensures that consumers can access a wide range of products and services through reputable retailers and dealerships.

The Case of the Auto Industry

Manufacturing Scale: Approximately 14 million light vehicles are manufactured for US sales annually. This massive scale of production requires efficient distribution channels. Distributio Marketing Channels: These vehicles are then distributed to nearly 18,000 new car dealers. Each dealership handles several critical processes, such as financing, state licensing, and vehicle preparation for delivery.

The Challenges of Direct Sales

Imagine the burden manufacturers would face if they had to handle direct sales for such a large volume. They would need to manage the entire sales and post-sales service, including:

Sales Personnel: Hiring and training thousands of salespeople to manage direct sales. Post-Sales Support: Handling recalls, repairs, and ensuring customer satisfaction. Employment: The automotive industry employs hundreds of thousands of people in various capacities. Direct sales would eliminate these jobs.

This scenario applies to other industries as well, from electronics to household items. Manufacturers are better suited to focus on production, leaving distribution to wholesalers and retailers.

Franchise Laws and Protection of Independent Dealerships

Most states in the U.S. have franchise laws that prohibit auto manufacturers from making direct sales to consumers. These laws were put in place to protect independent dealerships from becoming direct competitors to manufacturers.

Ensuring Competition and Protection

These laws ensure that independent dealerships remain viable, providing a competitive market and protecting jobs. This system allows consumers to compare prices and choose dealerships that offer the best deals and services.

Consumer Benefits

Consumers benefit from the current system in several ways:

Test Drive: Consumers can test drive the vehicles before purchasing, ensuring they make an informed decision. Financing Options: Dealerships provide financing options, making it easier for consumers to afford their purchases. Post-Sales Support: Dealerships offer post-sales support, including maintenance, repairs, and customer service.

Alternative Scenarios

While direct manufacturer sales are possible in some instances, the complexity and challenges of such a model make it less attractive. Here are a few scenarios:

One-Stop Pick-Up Area: Manufacturers could offer self-pick-up areas where consumers can collect their vehicles. However, this option may not work for all products, especially those requiring significant customization or high prices.

Online Sales: Some manufacturers have experimented with direct online sales. While this model can be successful, it often requires significant investment and still relies on additional support from retailers or third-party distributors.

Conclusion

The current system, involving middlemen like car dealerships, strikes a balance between manufacturing efficiency and consumer needs. While direct manufacturer sales may appeal to some consumers, the complexity and challenges involved suggest that the current model will likely remain the norm for the foreseeable future.