Given there was a time when cars were (proportionately) more expensive, much less reliable, and mergers of companies were more common, requiring a dealer network to avoid you getting a very expensive dud probably seemed an attractive idea to the public.
More precisely though, those potential cost savings are primarily attributed to shifting from a build-to-stock to a build-to-order model, which at least in principle could be done with existing franchised dealerships. That paper also found that dealerships didn't consistently make money on new car sales. They make a lot more from service and parts.
Manufacturer, in theory, could pull out and close down the shops during financial downturns (which with US companies seems to happen every few years), leaving a bunch of owners stranded on service and spare parts (in pre-Internet days). A local dealer would be financially independent from the manufacturer, and provide needed liquidity for the car maker, the theory goes.
This made sense when automobiles were new and the infrastructure wasn't heavily established, but that's no longer the case. Now, car support infrastructure is so ubiquitous that you could wipe every dealership off the face of the planet and people would still be able to get their cars repaired. Even ignoring the independent mechanics, it's in the manufacturer's long-term interest to ensure that their customers have support for their product, since a customer who can't get their $MAKE repaired isn't going to buy another $MAKE in the future. Even if they pulled out of a market, they would almost certainly ensure some form of continuing support.
Yep, even the longevity argument is no longer valid - where are the local guys who will support my Mitsubishi and Suzuki after the respective manufacturers pulled out of the US market?
Selling an automobile based on a list price offers less potential for profit than all of the other things that dealerships do. They find numerous ways to milk customers out of money during a sale by jacking up the price of the car or shafting people on trade-in value. Aside from that there's financing and dealership servicing, both of which can come show high profit margins.
