Abstract The car market is characterized by heavy overcapacity and an interest in strengthening brands, and at the same time minimizing distribution costs. The study identifies a number of inconsistencies created by the complex pressure from overcapacity and intentions to meet increasing customer demands. Performance measurement systems have been implemented by car manufacturers to turn focus from sales volume to a complex set of measures to identify dealer performance, including quality and customer satisfaction. On the one hand, car manufacturers encourage dealers to sell customized vehicles built to order in order to increase customer satisfaction. On the other hand, manufacturers stock the channels with pre-produced cars which are forced on dealers by means of economic incentives. Distribution chains on the car market are characterized as heavily dominated by manufacturers (Hoffmeister et al, 1998; Rafer et al, 1997), who sell their products either through franchised dealers or own outlets. Franchised dealers are associated with motivational advantages (Coughlan et al, 2001) and higher performance (Arruñada and Vázquez, 1998) compared to manufacturer-owned outlets, since dealers receive the residual income of the business. Both manufacturers and dealers strive for maximizing profits, but this inherent tension is not the end of the story. Manufacturers and dealers are found to have fundamentally different views on retailing, which makes cooperation and coordination difficult. Manufacturers want dealers to provide high-level facilities in order to secure a brand-specific retail experience, while dealers see investments as a burden. Through performance measures and economic incentives, manufacturers try to implement their ideas at the retail level. However, the study reveals that the thinking behind the performance measures is not accepted by dealers, who experience less freedom. Thus, the performance measurement system may produce confusion and negative attitudes which dealers convey to the customers. The performance measurement systems are found to be heavily focused on numbers, which mirrors strategies to reduce complexity in order to facilitate control. Lack of feedback in terms of market knowledge and performance at the retail level may restrict the manufacturer-s knowledge of what is happening at the retail end. It even appears that the performance measurement systems may not identify negative attitudes created by the system itself, thus the intention to coordinate channel members- interests may be counterproductive. In order to get a broad understanding of the issue, 102 in-depth interviews were conducted with manufacturers, importers and dealers across five European countries, including Australia. The study proposes a number of strategies to find a balance between control and motivation, e.g. through highlighting communication problems instead of disowning them. In securing the efficiency of the performance measurement system, there is a limit to the extent of variation and complexity that the system is able to handle in producing performance improvements at a low control cost.