Independent car dealerships: an American gray swan?
It had to happen
Posted: Monday, January 31, 2022 – 12:03 PM
VShens come home to roost and canaries die in the coal mines. But hey, we knew there was a high probability that each would happen eventually, right? However, when a black swan shows up with serious impact and consequences, everyone is caught off guard. I wonder if it’s a black swan when you could did you see it coming?
A swan of another color
Curiously, definitions of the term generally include ambivalent statements regarding hindsight:
“A Black Swan event is an event in human history that was unprecedented and unexpected at the time it occurred. However, after assessing the surrounding context, experts in the field (and in some cases even laypersons) can usually conclude, “It had to happen.”
“A black swan is an unpredictable event that goes beyond what is normally expected of a situation and has potentially serious consequences. Black swan events are characterized by their extreme rarity, severe impact, and the widespread emphasis on which they were evident in hindsight.
Maybe the writing was on the wall telling a story of impending change in an industry’s business model, and maybe instead of evolving, companies dug in their collective heels and fought the change beak and nails. And then they got crushed by progress, and competition left them in the dust. Would this be considered a black swan event?
Maybe it’s just a grey swan. But these things happen. It happened to the personal computer industry when Michael Dell began selling computers directly to the public by mail order and then online in 1996. His recipe for success: Build the computer exactly to the customer’s specifications, after the customer orders it; cut out the middleman and drastically reduce the price.
If we pay attention, we could see the same type of transformation for the new car sales business model.
Shedding light on an existing problem
The Covid-19 pandemic has revealed or amplified many current trends, one being the blatant willingness of shoppers to buy anything and everything online, if possible. This includes automobiles.
The used car industry is at the forefront of the customer-centric automotive shopping experience. Companies like Vroom, Carvana and CoPilot enjoyed a traffic bonanza as home shopping and home delivery increased. And, while that’s not the only way to buy from Carvana, yes, they do have auto vending machines. . . .
Much of the change in the way we buy cars is due to new technologies. For example, Montway Auto Transport offers a vehicle-to-home delivery service, an end-to-end auto transportation solution that allows dealerships to provide estimated delivery dates and shipping prices on their website.
“Dealers today offer very different car buying experiences with premium and VIP services, like door-to-door delivery, in today’s personalized online shopping experience,” says Dimitre. Kirilov, president and CEO of Montway Auto Transport, one of the largest third parties. logistics companies in the United States. “The role of automotive transportation in supplying and moving inventory has never been more important with today’s high-value new and used cars, especially since American cars on average have over 12 years, a historic number that will likely boost sales this year.”
One of the brilliant parts of Montway’s gig is providing an in-website widget that makes it easy for dealers to expand their target audience with nationwide sales opportunities. This includes an online dealership portal, a managed service that allows dealerships to manage consumer shipping requests, provides full quote-to-delivery transparency with visual status charts, and more.
The problem with auto sales is the New– car sales model; current state laws prohibit OEMs from selling New vehicles directly to consumers (D2C). Selling direct would eliminate the franchise of the dealer – the middle man – and all associated price mark-up costs. This could theoretically save car buyers 30% of the cost of a car. Whether that’s true remains to be seen. Without dealer franchises, would OEMs increase the cost of a physical sales facility and pass the cost on to the customer as usual? Or, OEM dealerships could transition to a model where customers order their vehicles, then the OEM makes their cars, Tesla-like. This would generate huge savings on static and unsold inventory, which could reduce the retail cost of a vehicle… could.
It’s no secret that the decades-old pushback against D2C new car sales is a movement made up of independent auto dealers and lawmakers embracing protectionist policies (one might assume in return for generous campaign contributions ). Find out what happens to pro-consumer bills in the legislative vote.
As far as I know, there is not a single state that allows D2C sales of gasoline vehicles. Although many bogus D2C bills have been passed, they contain clauses that render the entire bill moot, except for electric vehicles. Check out the clauses of this list of state regulations and you will understand what I mean.
The fact remains that, from the customer’s point of view, buying from a traditional dealership
sucks is unattractive, to say the least. Whether they’re baby boomers, Gen Xers or Millennials, potential car buyers are doing a lot more research online, and purchase online is also increasingly common.
Millennials are twice as likely as baby boomers to buy a car entirely online
For the record, I haven’t set foot in the dealership where I bought my last truck (I’m a boomer/gen X). I had narrowed my choices online down to two models, and affordability dictated the rest. Paperwork? In line. Exchange ? They drove my new truck home and left in my old truck. The deal was done with a 10-minute phone call.
Now my experience was with a brand new vehicle. But OEMs are apparently taking notes on the current used-automotive trends, as evidenced by the launch by General Motors of an online used vehicle marketplace, CarBravo, this spring. The move will allow the automaker and its dealers to challenge online used car retailers like Carvana and Carmax.
Ford has already dipped a toe in the water with its Ford Blue Advantage program, which allows potential buyers to browse inventory online before contacting the independent dealership. Same for Toyota.
And then there’s Tesla, the OEM leading the charge for D2C auto sales. Tesla led — and won — a long legal crusade to turn the tide of dealer protectionism. Tesla has no dealerships, in itself, but it does have service centers that serve as physical touchpoints for potential buyers to see and drive the various models (the models available are limited) and ask questions. What is missing are the dozens – if not hundreds – of vehicles ready to be chased out of the lot. The actual purchase is made online, whether at the dealership…er, at the service center…or on your laptop at home. This business model appeals to my sensibilities a lot, although the downside could be that testing the car you want could be a challenge.
Drivers Only shows the ins and outs of the Tesla shopping experience in this 22-minute video:
What would it look like if standard automotive OEMs adopted Tesla’s way of selling cars?
Is a gray swan coming?
So, if Tesla’s D2C tactic is proving to be a big enough differentiator in profits versus OEMs selling through dealer franchises, and if as used car sales take an even bigger market share due to online shopping trends, will automakers rise and bury dealerships who have become an overweight burden on the high seas?
Maybe then everyone but independent dealership owners will look on and say, “It had to happen.”