This week, Automotive News has a huge "bonus" edition trumpeting the virtues of the franchise system of selling cars in the US. As far as I've seen here in Los Angeles, you don't get any better sales or service experience from having an independent franchise car dealer -- whether it's privately-owned by a family or part of a mega-dealer public entity like Auto Nation or United Auto.

I understand the economies of scale that are achieved with multiple franchises when you deal with finance, insurance, purchasing and back-office functions. However on the front end of things, where the customer interfaces with the sales, service and financing people, I haven't been impressed with many operations. I have, on an individual basis, been impressed with a sales associate or a general manager. The service side has been less reliable; however, from time to time, I've experienced a great service advisor who keeps you informed about your vehicle's status while in service and makes follow-up phone calls. Unfortunately, usually the next time I go back to that particular dealership, the staff has been replaced (again).

The franchised dealer system is 100 years old and counting. In the beginning of the automobile business at the turn of the twentieth century, the US was a vast growing country with the railroads being the main form of cross-country transportation. Roads were just beginning to be built that would accommodate the nascent automobile. Startup capital was scarce when it came to financing all the new automobile manufacturers and it made sense to outsource -- or franchise -- the retail selling function to entrepreneurs who saw the opportunity to capitalize on selling automobiles in a given geographic region.

At the same time, because much of the West had yet to be flooded with new settlers and businesses, large geographical regions were given to some franchised dealers. When the manufacturers tried to sell cars directly to the customer, the salesmen were paid a flat salary whether or not sales were made. This was a fatal mistake and it's the reason the hungry franchised dealers seemed the best option at the time.

This system grew and flourished -- albeit with periods of stress -- over the next 80 years. Over that time, unions became strong, all states put in their own arcane and restrictive laws protecting the franchised dealers, Congress passed bills, the Supreme Court upheld the dealer franchise system and ruled that federal arbitration laws trumped state franchise laws.

In 1984, Porsche decided to challenge the system and institute a more European-style system that was tightly controlled by the manufacturer. It should be no surprise that Porsche had the arrogance to do this. After all Porsche is owned by the Porsche/Piech families and it does what it wants. Arrogance is expected.

At the beginning of 1984, Porsche decided to terminate its US distribution deal with Volkswagen AG and set up its own US subsidiary, Porsche Cars North America, Inc. in Reno, Nevada. I think this was probably a good move by Porsche to establish its existence apart from the VW (and its Audi subsidiary) in the US marketplace. It also explains why so many Porsche dealers today are Porsche/Audi dealers because Audi was also seeking a foothold in the marketplace as a "luxury" German brand and it seemed natural for VW to pair Audi with Porsche in the US.

As recently as this week, Porsche's ego-manical CEO Wendelin Wiedeking proclaimed that "Successful people want to drive successful cars from successful firms." Of course, he's referring to Porsche, but that could equally apply to BMW and other car companies. But even back in 1984, Porsche thought it needed tighter control of its own sales and distribution function in order to boost its sports-luxury image in the growing US market.

Porsche's idea was a good one -- I think. Porsche set up another subsidiary, Porsche Centers, Inc. PCI would build 40 stores across the country, in major cities, in industrial areas near major airports. These stores would all be approximately the same size -- 22,000 sq. ft. on two acres of land. The stores would sell cars directly to customers as well as distribute cars and parts to existing dealerships. Further, Porsche wanted some of the dealers and wealthy customers to help Porsche make this investment.

This is where Porsche failed. It didn't take into account the fact that existing dealers didn't want to finance their own competition and that the powerful National Automotive Dealers Association (NADA) was not about to let Porsche create the model to eliminate their way of life. There was a bit too much German arrogance and precision announced at the time.

It was also fatal to tell the existing dealers that their dealer discount -- around 16.7% -- would be cut to 8% -- something Porsche would pay to its "agents" in Germany. That was enough to get any dealer pissed off, and it sure did. NADA, along with a newly-formed Porsche Dealers Action Committee (a political lobbying group), filed suit against Porsche in both Washington DC and California. Why California? Well the answer is simple -- Porsche's biggest market back in 1984 was California, and I don't think that has changed.

And that's not where our love affair with litigation stopped. The dealers filed lawsuits against Porsche and VW that collectively asked for more than $3 billion in damages. In turn, VW had to sue Porsche for terminating its lucrative US distribution contract. Then the states got involved because dealers filed 69 different administrative protests with the states' motor vehicle authorities. With different franchise laws in each state and a long history of the dealers' power in both Washington and the states, Porsche had severely underestimated the opposition to its plan. Porsche was essentially buried in legal actions.

In the same year, 1984, Porsche caved in. It's pretty obvious that their attorneys advised them that the cost of litigation and arbitration -- coupled with the very uncertain outcome and the possibility of loss in an important market like California -- that Porsche should just go along with the dealership franchise system. Porsche kept PCNA, scrapped PCI, ditched VW and renegotiated a new franchise agreement with the Porsche Dealers Action Committee.

The problem is that we, the consumers, are left with the remnants of this acrimonious event 22 years ago. If Porsche had succeeded, it might have better distribution and service in Los Angeles and many other locations. The European model simply treated dealers as sales agents with an 8% commission. Those agents would also have the rights to lucrative Porsche factory authorized service and Porsche certified mechanics. And because the territories granted back in 1969 were overly broad in some major metropolitan areas -- such as Los Angeles -- Porsche is unable to grant additional franchises or force much change.

If Porsche had succeeded, many other car companies may have been able to better control the sales and service channels. As GM, Ford and Chrysler scramble to shrink, franchised dealers are kicking and screaming. The reality isn't pretty, but with Ford looking to dump 300 dealers, negotiating franchise by franchise abiding by each state's laws, is costly and cumbersome.

But growing is a problem too for companies like Porsche, Toyota or Honda. Growth automobile companies don't have the option to open another store in a densely populated urban community when one franchised dealer holds the rights to, say, all of Hollywood or all of the San Fernando Valley. That sucks and makes it inconvenient for people to get service near home or work.

It would also be nice if the retail sales and service staff were trained by the factory and were held to factory standards rather than individual dealership standards, which vary greatly. Every time I drive down the new Santa Monica Blvd in West LA, between Beverly Hills and the 405 Freeway, I look at the dingy, small, ugly service center for Beverly Hills Porsche Audi (Santa Monica Blvd at Veteran Ave). And I wonder what could have been had Porsche been able to have more to say in this vast lucrative marketplace that is Los Angeles. And maybe if the dealers were more cooperative with Porsche, Porsche's website would be able to search for all certified pre-owned inventory rather than listing only a fraction of those cars from participating dealers. Unfortunately, the time seems to be past to scrap the franchised dealer system in the US. It's too bad because what might have been would have been a real benefit for consumers.