Pub. 13 2014-2015 Issue 1

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 2 , 2 0 1 4 22 new jersey auto retailer The franchise system has been in place for more than a century. The landscape of the system (and the relationship betweenmanufacturers and dealerships) in the early 1900’s has gone through a tremendous evolution over the decades and is a vastly more complex relationship in the 21st century. From the first “horseless carriage” offered for sale by a franchised distributer in the late 1890’s,many family-owned businesses have been built through incredible entrepreneurial spirit and the willingness to risk a sizeable financial investment in their communities. The early relationships between automakers and dealerships were mutually beneficial. Dealers worked to create the best environment to offer the latest automotive technology. Automakers viewed dealers as a way to build a network Some of the earliest vehicles were sold by “dealers,” who may have been the townblacksmithor abusiness that sold tools, farmequipment, tires, horse supplies or any number of other items. Within a few decades, the earliest carmakers realized the benefit of selling vehicles through a third-party and the earliest seeds of the franchised dealer system were planted. One of the main reasons for third-party distribution was geography. Automakers mainly headquartered inMichigan andOhio needed away to distribute their vehicles across the entire country. Another reason automakers chose to develop a dealer network was to educate consumers on the latest technology. Many customers had never seen a vehicle inperson. Anetworkof dealerships offered greater opportunity to learn about the new technology first-hand. Early in the franchise model’s development, automakers gave their dealers exclusive rights over a very large geographic area. In exchange for this exclusivity, dealers faced tough conditions including large cash deposits on vehicles they ordered and agreeing to accept vehicles on a pre-arranged schedule. As automakers continued developing the earliestmotorizedvehicles, itwas the investments fromentrepreneurial dealers that kept them solvent. According to the 1956 book, AutomobileFranchiseAgreements, writtenby Charles Hewitt, the country’s first franchised dealership (for Winton Motor CarriageCo.) opened inReading, Pennsylvania in 1898. Those early franchises hadagreements that typically gave the dealer exclusive How (and Why) the Franchise SystemWas Developed