The auto industry is undergoing significant, exciting changes. Over the next two years, manufacturers are expected to bring more than 30 new electric vehicle models to market with autonomous vehicles likely to follow soon after.
It’s not just on the product side that things are in flux. Innovations in retail have streamlined the complicated buying process, making changes to the financing, trade-ins, titling, registration, insurance and other parts of car and truck buying.
To the consumer, this is progress. To others, it’s an excuse to once again drag out the tired, old trope that the day of the local dealership is passed. That’s a bunch of snake oil. The truth is that the auto retail and the dealership model is remarkably resilient, growing in popularity among millennials and Gen Z.
A recent piece in the highly respected MarketWatch claimed direct sales through companies like Tesla and Carvana represent the future of auto retail. Assertions like these are merely intuitive, lacking real-world evidence and ignoring what those purchasing cars and trucks have experienced.
Carvana, which sells used cars, is in the crosshairs of federal and state government regulators over a variety of issues involving customers and the buying process. Search “Carvana complaints” on the internet and you’ll find an overwhelming number of unhappy customers nationwide. With its stock down more than 80% since August and its business model called into question, Wall Street is rethinking its support for this one-time market disruptor.
Ironically, Carvana is just the kind of middleman between seller and buyer the proponents of change decry. Tesla, which does not allow negotiation pricing, increased prices on its base model by 37% since it launched, a steep premium for a fixed price on a vehicle already too expensive for most working-class car buyers to consider. Meanwhile, Tesla customers often wait three weeks or longer for simple service and repairs, in part because there is no dealership competition in the Tesla network.
That might be okay for high-income Tesla owners who have alternatives when it comes to personal transportation but for consumers in the mass market, a three-week wait for service is a non-starter. To say Tesla’s sales model embodies the future of car buying is comical.
The traditional franchised dealership model works. Sale prices may be up because of microchip supply constraints that crimped supply and sales by two million vehicles since 2019, and reduced manufacturer incentives but they are nothing like Tesla’s premium.
On the service side, customers benefit when locally owned and operated dealerships compete. In the direct sales model, if the nearest Chevrolet franchise can’t fit you in today, you can almost certainly find another that can.
Don’t overlook the fact virtually all dealerships sell both online and in the showroom, and are increasingly embracing the one-price model. It creates massive efficiencies at the sales level. One large dealership group based in Minneapolis sells on a one-price model and is coming close to getting customers in and out of the dealership in less than 30 minutes. They believe they can bring it down to 15 or less.
The proof is in the data. Escalent, a Detroit-based research firm put together a massive study of Electric Vehicle “intenders” — customers who are interested in purchasing a new EV in the next two years. Escalent asked which sales model consumers prefer — the direct model or the franchised model.
Only 20% of the 30,000 respondents preferred the direct sales model employed by Tesla. Amazingly, the number was even less among millennials and generation Z, where 94% of respondents under 35 are satisfied with dealerships.
Local dealerships have changed dramatically in the last 30 years. Young and first-time car buyers know that firsthand. The ones who don’t are those still hung up on 40-year-old stereotypes, which scarcely exist anywhere anymore.
Changes that produce greater efficiencies, increase productivity, or add to the economies of scale are to be welcome. There are ways traditional franchisers can and have improved the way they do business. Just because something is new doesn’t make it better. Likewise, the tried-and-true methods of production and sale are trusted because they work well, as their performance in the marketplace indicates.