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The automotive industry is undergoing significant and exciting changes. Over the next two years, automakers are expected to bring more than 30 new electric vehicle models to market, with autonomous vehicles expected to follow soon after.
It’s not just on the product side that things are moving. Retail innovations have streamlined the complicated buying process, bringing changes to financing, trade-ins, titles, registration, insurance and other parts of car buying and trucks.
For the consumer, this is progress. For others, it’s an excuse to repeat the tired old trope that local dealership day is over yet again. It’s a bunch of snake oil. The truth is, the retail and car dealership model is remarkably resilient and growing in popularity among Millennials and Gen Z.
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A recent article from the highly respected MarketWatch claimed that direct sales through companies such as Tesla and Carvana represent the future of automotive retailing. Claims like these are simply intuitive, lack concrete evidence, and ignore what car and truck buyers have been through.
Carvana, which sells used cars, is in the crosshairs of federal and state regulators over a variety of issues involving customers and the buying process. Search the internet for ‘Carvana complaints’ and you will find an overwhelming number of disgruntled customers nationwide. With its title down more than 80% since August and its business model questioned, Wall Street is rethinking its support for this former market disruptor.
Ironically, Carvana is exactly the sort of middleman between seller and buyer that proponents of change decry. Tesla, which does not allow price negotiation, has raised prices for its base model by 37% since launch, a steep premium for a fixed price on a vehicle already too expensive for most car buyers in the region. working class. Meanwhile, Tesla customers often wait three weeks or more for simple maintenance and repairs, in part because there’s no dealership competition in the Tesla network.
That might suit high-income Tesla owners who have personal transportation alternatives, but for mass-market consumers, a three-week wait for service is a no-start. To say that Tesla’s sales model embodies the future of car buying is comical.
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The traditional franchise franchise model works. Sale prices may be up due to microchip supply constraints that have reduced supply and sales of two million vehicles since 2019, and reduced manufacturer incentives, but they are nothing like the premium of Tesla.
On the service side, customers benefit from competition between locally owned and operated dealerships. In the direct sales model, if the nearest Chevrolet franchise can’t be right for you today, you can almost certainly find another that can.
Don’t overlook the fact that virtually all dealerships sell both online and in the showroom and are increasingly embracing the one-price model. This creates massive efficiencies in sales. A large group of Minneapolis-based dealerships sells on a one-price model and is poised to have 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, conducted a massive study of electric vehicle “intentions” – customers interested in purchasing a new electric vehicle within the next two years. Escalent asked which sales model consumers prefer – the direct model or the franchise model.
Only 20% of the 30,000 respondents preferred the direct selling model employed by Tesla. Surprisingly, the number was even lower among millennials and Gen Z, where 94% of respondents under 35 are happy with concessions.
Local dealerships have changed dramatically over the past 30 years. Young car buyers know this firsthand. Those who don’t are those who are still clinging to 40-year-old stereotypes, which hardly exist anywhere anymore.
Changes that produce greater efficiency, increase productivity or add economies of scale are welcome. There are ways in which traditional franchisors can and have improved the way they do business. Just because something is new doesn’t mean it’s better. Similarly, proven production and sales methods are reliable because they work well, as indicated by their performance in the market.