As the world gradually shifts to electric vehicles, the auto industry is also beginning to witness the decline of the decades-old dealership model. For buyers and automakers both, companies like Tesla and Carvana are disrupting the industry’s traditional dealership approach, and there’s probably little the old guard of auto cronies can do to stand in their way.
Above: Tesla Model 3 at a service center (Photo: Tesla Fans Schweiz / Unsplash)
Tesla’s direct-to-consumer model changes the game for buyers, eliminating the long days of haggling prices at a dealership, according to an opinion piece from MarketWatch. Additionally, it removes the need for dealerships to stock 900 cars at a time on the lot, when buyers themselves prefer to buy online.
Where manufacturers used to believe they relied on dealerships, the COVID-19 pandemic has also proven that to be false. As the pandemic brought on a major chip shortage, manufacturers slowed production and saw 900-car lots drop to just 50, despite the fact that sales remained strong — consumers were proving more satisfied with just a test drive before buying vehicles online.
State laws in some states still prevent these direct-sales models. However, in states like Texas, Tesla must use legal loopholes to sell direct to local buyers.
Other examples include Oklahoma, where Tesla has requested help opposing legislative attempts to ban direct sales, and New Mexico, where the automaker must use Native American reservation land to bypass laws against direct sales. Meanwhile, used car sales are seeing a surge across the board since dealership protection laws don’t apply to many of them.
Above: Toni Sacconaghi, Bernstein senior research analyst, sees dealerships as a disadvantage for Big Auto (YouTube: CNBC Television)
Still, it’s only a matter of time before the auto industry’s pre-internet dealership dreams come crashing down, with some traditional automakers already shifting to a model more like Tesla’s with the advent of EVs. For instance, Volkswagen recently launched its online sales program for its upcoming EV models ID.4 and ID.5 as detailed in a press release, and Volvo also announced plans to go online-only with sales by 2030.
While the shift will be a win for the average consumer’s buying experience in eliminating dealerships, it may not necessarily be a win for the buyer’s budget — especially not at first, as the onset of EVs remains expensive prior to mass adoption. Kelley Blue Blook reports that the average price of a vehicle now tops $47,000, and with inflation at 8 percent, consumers can expect to spend a little more for vehicles for a little while before EV prices come down.
Despite pricing, Tesla’s unconventional sales model is mostly positive for buyers. And the shift, however gradual it may be, will almost certainly spell the end for dealerships as we know them.