Dealership clustering is often viewed as a negative phenomenon, with some critics accusing car dealers of being greedy. However, this practice has a practical advantage: it allows customers to easily cross-shop between different brands and models. This convenience is particularly appealing in today's market where consumers have access to a wide range of vehicles from various manufacturers. By clustering near each other, dealerships can cater to the diverse needs of their customers, making it easier for them to compare prices, features, and services.
Despite its benefits, dealership clustering has little to do with helping customers. Instead, it is often driven by laws and economic incentives. State and local zoning laws can confine dealerships to specific areas, while economics and consumer behavior also play a significant role in determining their locations. In some cases, dealerships cluster together simply because it is more convenient for their owners, who may benefit financially from being close to other dealerships.
The growth of multi-brand dealerships has been notable in recent years. According to data from the National Automobile Dealers Association (NADA), the number of dealers owning 50 or more stores has doubled since 2016. This trend suggests that larger dealerships are becoming increasingly common, and they often locate their stores in the same area for convenience rather than competition.
The relationship between zoning laws and dealership locations is complex. Zoning regulations were first introduced to address the growing popularity of automobiles in the early 20th century. As people began owning cars, workers no longer needed to live close to factories and other businesses, leading to the development of suburban neighborhoods. Today, these same regulations are used to confine dealerships to retail-only zones, which can limit their growth and impact on local communities.
A deeper connection between zoning laws and cars exists than might be apparent at first glance. The theory behind modern zoning regulations is rooted in the desire to improve residents' quality of life by keeping factories out of suburban areas. However, this reasoning may not apply to dealership clustering, which can have a different impact on local communities.
Hotelling's law, named after American mathematician Harold Hotelling, plays a significant role in shaping dealership locations. The law states that customers generally prefer stores that are convenient to access over those that are farther away. This principle suggests that dealerships should be located near their target market rather than competing for space in rival-free areas.
While Hotelling's law is widely applicable, it may not hold true for all car buyers. Some enthusiasts have traveled long distances to purchase the right vehicle, highlighting the importance of personal preferences and individual circumstances in shaping dealership locations.
The proximity of dealerships to customers can have a significant impact on sales and revenue. By clustering near each other, dealerships can increase foot traffic and attract more customers, ultimately leading to higher sales volumes and revenue growth.
In conclusion, dealership clustering is often viewed as a negative phenomenon, but it has practical advantages that benefit both dealers and customers. Understanding the underlying drivers of this practice, including zoning laws and Hotelling's law, can provide valuable insights into its impact on the automotive industry.
The proximity of dealerships to customers can have a significant impact on sales and revenue.
