Will EVs Destroy the Auto Dealership?

By · November 13, 2012

Tesla store

Automakers Tesla Motors and CODA Automotive both operate company-owned showrooms, which are not being called “dealerships,” and which offer the ability to see, touch and feel vehicles, as well as order the vehicles. Tesla vehicles are delivered to consumers’ homes. Telsa claims this means these are not technically dealers, while CODA does have dealers in the traditional sense. Similar to what we’ve seen before, traditional auto dealers are not buying Tesla’s distinction and legal battles are sure to follow.

This is a bit of déjà vu from the late 1990s, when car dealers felt threatened by companies trying to sell cars directly online. This episode resulted in a strong response from auto dealers and legislated monopolies for dealers, under which particular dealers have exclusive rights to sell particular manufacturers’ vehicles in certain regions or cities. This regulatory environment still exists today, including in Telsa’s home state of California.

Going back even further, to the early years of the automobile, vehicle manufacturers sold off their company owned dealers to avoid anti-trust suits from the government. This has been the basis for complaints from auto dealers regarding any new perceived threat, whether Internet-based or manufacturer-based. Let’s be clear on one thing: the current auto dealer business model is not going anywhere soon. Auto dealers provide significant employment and political support in the United States, so it’s a near impossibility that the model will be demolished by a government or court ruling. However, a consumer shift seems likely to have a bigger impact on the dealership model. Tesla claims that it is not challenging the current dealer franchise laws so much as capitalizing on a unique marketing opportunity. Whether that distinction matters seems likely to be answered by state courts, rather than public opinion.

A New Retail World

Dealers do provide key important services within the new vehicle purchase process. They’re responsible for final inspections and detailing of vehicles for delivery and customer education and service during and immediately after sale. As a manufacturer, Tesla is taking on a much bigger role and is likely to see strong support from consumers. After all, what consumer wouldn’t want home delivery of vehicles, assuming inspections, education, and customer service are delivered with the car? Whether Tesla can truly deliver these services with a vehicle will prove whether the Tesla business model has long-term merit.

Still, I wouldn’t be surprised if some states (particularly Texas) force changes to Tesla’s current store model. At the same time, Tesla may be paving the way for a bold new world in automotive retailing.

Dealers are fighting what seems to be more of a consumer shift than simply a manufacturer skirting franchise laws. The early adopters of EVs are young, wealthy, highly educated, tech savvy, and disinclined to put up with the haggling of the traditional auto-buying experience. They want a more exclusive and customized experience than most dealers are delivering. Dealers will have to recognize this (some already do), and I anticipate in another 15 to 20 years the dealer experience may shift toward something more similar to Costco’s model. Costco works with a marketing firm and sells a manufacturers’ vehicle for a marketing fee or commission per vehicle sold, and the marketing firm then works with a dealer for ordering and delivery of the vehicle. I don’t expect this shift will be smooth, but if the prognosticated long-term shift away from vehicle ownership holds true, dealers and individual state dealer laws are in for a shake-up whether they come along quietly or kicking and screaming.

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