Cutting Out The Middleman

Posted at 8:51 AM (CST) by & filed under General Editorial.

With the coming financial crisis and subsequent economy, lots of things which have been a part of the American way of life will change out of economic necessity. Lots of “middlemen” will be removed from the stream of commerce. ┬áThis is already seen and fostered by online purveyors, but certain businesses could be eliminated entirely.

Auto dealerships are middlemen who may be eliminated. This will not really help the consumer through a better vehicle price because manufacturers will merely raise prices if permitted to sell directly to the public. The auto dealership has been a business which has been a historically significant part of our business culture, but may not be around for long after the coming financial crisis.

Dealerships are middlemen between the consuming public and the auto manufacturer. These dealerships exist due to franchise laws which prevent auto manufacturers from selling vehicles directly to the public. Dealerships are already struggling to keep their lights on in the present economy. Most people today don’t buy vehicles ~ they lease them. A restructuring or repeal of franchise laws could eliminate dealerships. A repeal of franchise laws may be viewed as necessary to keep the auto manufacturers financially solvent and able to continue production. Auto dealers don’t have a powerful lobby, but auto manufacturers do. The repeal of franchise laws could render franchise contracts avoidable and would have the effect of shuttering auto dealerships.

If dealership franchises were eliminated, the subsequent economic impact would be the loss of those retail jobs, services, utilities, insurance, taxes and attendant carrying costs which support such businesses. It would be possible then for vehicle manufacturers to merely have it’s agents place orders for vehicles and outsource warranty work. Then, manufacturers could raise prices to keep up with whatever demand remains for vehicles and be able to remain in production. The ripple effect of a repeal of the franchise laws would support the manufacturers and keep manufacturing jobs, but spell economic disaster everywhere a dealership presently exists. If this seems unlikely, it may not be when triage in supply and demand occurs. Dealerships can’t sell something which does not exist because manufacturers are out of business and government can’t bail them out. If the middlemen or the manufacturer is to be sacrificed, I submit to you that it will be the dealerships.

The auto industry is among the largest manufacturing industries which remain in the USA and keeping them going will have priority over middlemen who would go under anyway absent their vehicle supply from manufacturers. The government makes the laws and can change the laws. Although there is a mandate in the USA against government impairing contracts, this has not been the case, and we need to look no further than the healthcare sector to see what is required of the consumer and the provider whether, either agrees or not.

Another sector of middlemen which could be eliminated due to financial necessity is in Real Estate. It is already occuring and already being seen. This elimination is a slower consumer driven demise which doesn’t require a change in the laws, it only requires a change in public perception and public education. Real estate is not a sector which has or needs a lobby but it does need a constituency. The constituency is home buyers and sellers.

Many sellers are already moving to the personal sale of real property. Personal sales of property are legal and a seller doesn’t need a real estate broker/agent to sell their own property, privately. ┬áSome people are not capable of negotiating the purchase and sale of real estate, but many are, and only need information and opportunity to sell real estate privately.

Real estate commissions are ultimately a choke point for sellers who can’t afford the loss of those proceeds of a sale. This is especially true in an ever tightening market. More and more, sellers are disillusioned with listings not selling, and many are reverting to their lawful right of “For Sale By Owner” (FSBO). Real estate agents and brokers are middlemen just like auto dealerships. The issue sellers have with sales isn’t that they can’t achieve a bargain and sale with a prospective purchaser, it is the sellers inability to attract a buyer to make their property known to the buying public, and the information needed to sell. Anyone can go to a stationery store, or online to acquire a Real Estate Purchase and Sales Contract. Those contracts should ultimately be reviewed by an attorney, but the era of “caveat emptor” could be the framework of the future real estate market.

With online real estate advertising service providers like Zillow and Trulia, or FSBO sites, or even Craig’s list, real estate agents and brokers can be eliminated from real estate sales at a significant savings. Real estate agents and brokers could be the dinosaurs of real estate sales and it is happening already, especially in areas of already depressed housing market, and areas with older housing stock. The real estate agents and brokers are already a dying breed in some areas and for this reason, they may not survive a financial crisis.

Cutting out the middleman is going to be the new business model following a financial crisis. Any intermediary which can be by-passed in any supply chain will be eliminated due to economic necessity. The Internet which provides direct access to producers will continue to eliminate the middleman. Online purveyors like Amazon are already cutting out the middleman and it is the wave of the future. It really isn’t a wave…it’s a tsunami!

CIGA Kat