Auto dealers: A dying breed?
Direct, online sales by Tesla, others force big carmakers to reevaluate old retailing ritual
In 2019, many auto experts said Tesla was making a big mistake by deciding to sell cars only online, arguing that whatever bad feelings people had about dealerships, they were essential to the car business.
But the strategy, which combines direct sales with a limited number of stores and service centers, appears to be proving the naysayers wrong. The company dominates the fast-growing electric car market even as other manufacturers struggle to sell cars because of a shortage of computer chips.
Tesla’s approach, which has been copied by other young electric carmakers like Rivian and Lucid Motors, could eventually have major ramifications for the auto industry. Car companies and dealers may have to eventually adopt some of the changes Tesla has introduced to win over buyers who have grown used to buying cars online.
People who have traded in conventional cars for electric vehicles made by Tesla and newer companies said they were pleased with the experience and would consider buying future cars in the same way.
“Easiest big purchase of my life, crazy easy,” Rachel Ryan, who lives near Los Angeles, said about her 2021 purchase of a Tesla Model Y. “I bought it while my husband was at work,” she added.
Tesla, Rivian and Lucid customers can buy only online and directly from the manufacturer. But online car shopping appeals to a large proportion of all car buyers, even those buying combustion-engine cars through dealerships, said Michelle Krebs, an executive analyst for Cox Automotive.
“Our data shows consumers want to do more of the process online but most don’t want to eliminate the dealer visit altogether,” Krebs said. “They just wanted the dealer experience to be something else — focused on the product, the features of the product and a test drive.”
Ford Motor Co. CEO Jim Farley, at an investor conference this month, likened what is happening in the auto industry to the retail sector, where the rise of Amazon forced established retailers to sell more on the internet and use physical stores in new ways.
“It’s kind of like what happened between Amazon and Target,” Farley said. “Target could have gone away, but they didn’t. They bolted on an e-commerce platform, and then they use their physical store to add groceries and make returns much easier than Amazon.”
Established automakers are unlikely to do away with dealerships for another reason: State laws often require them to sell cars through franchised dealers and can make it hard or impossible for automakers to deal directly with customers.
Tesla has lobbied state lawmakers to change laws governing auto sales and has gotten lawmakers in many places to allow the company and other automakers that never had dealerships to sell cars directly to customers.
The National Automobile Dealers Association, which represents dealers, has long opposed direct sales of cars and has urged lawmakers to require Tesla to use dealers, arguing that dealerships are vital to the auto industry and local economies. They have also said Tesla’s approach is much less convenient for car buyers and owners.
“Franchised dealers are absolutely essential to widespread EV adoption in the U.S.,” Jared Allen, a spokesperson for NADA, said in an email. And as more legacy automakers enter the EV market, “effectively selling to these mass-market customers requires leveraging — not rejecting — the existing franchised dealership network,” he added.