Carmakers have good reason to focus their efforts in the 1990s on distribution. Thanks to fundamental changes in the role of automotive distribution, the existing system has for a long time not met the market’s needs. The result: industry stress at both dealer and OEM¹ level, coupled with notable dissatisfaction among customers.

One way to resolve this conflict is to optimize the current system. Long-term success, however, will require a more radical approach, centered on unbundling and rescaling the four or five key functions within the overall distribution system. Deciding to pursue the unbundling path represents a major strategic choice for any carmaker, but there are steps it can take to ease what will be a very difficult transition.

Weighing costs and benefits

There is much to be gained by improving the efficiency and effectiveness of the channels that move cars from manufacturers to consumers. True, there are plenty of reasons not to open this "Pandora’s box." First, the system seems, at least on the surface, to be working well. Moreover, other OEM challenges—such as taking costs out of manufacturing and accelerating product development cycles—have been more pressing in...