Worldwide trends, including the rise of companies like Tesla, the shift towards greener energy, higher interest rates, changing demographics, and tech, are putting pressure on Auto Dealerships in the US.
Direct-to-Consumer Sales – An Alien Invasion is changing the way cars will be purchased.
When older US consumers think about buying a new car (after some shopping online of course), they imagine a process like this:
1. Go to the dealer showroom
2. Look at all the available cars, drive a couple
3. Haggle with the salesperson
4. Salesperson talks to a manager about lowering the price
5. Finally, talk with the finance person about paying for the vehicle.
One of the reasons that process is being disrupted are the appearance of an “Alien Invader,” an overwhelming competitor who swoops in, follows none of the usual rules, steals the margin out of business, and blindsides the competition. Tesla is an Alien Invader with its direct-to-consumer model, but consider that Ford is changing the way consumers can buy EVs.
Here is a quote from Jim Farley of Ford at last year’s Alliance Bernstein 2022 38th Annual Strategic Decision meeting –
“I believe for retail, we have to... It's kind of like what happened between Amazon and Target. 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. They use their expertise as a physical retailer to their advantage, but they modernize the e-commerce piece, so it would be really easy to do business with them. It's exactly what we have to do on the retail side. We got to go to non-negotiated price, we got to go to 100% online. The vehicle, there's no inventory, goes directly to the customer, 100% remote pickup and delivery. But then we have this opportunity to use our physical presence to outperform them.”
So there is no inventory held at the dealership? No haggling with the salesperson. Certainly, no test drive. Even "conventional" manufacturers are looking at a different process to buy EVs.
There are considerable barriers to new business models. Tesla is still only legally allowed to sell cars (although they have ‘showrooms’) in about 30 states. In the headquarters state of Texas, buyers must ‘buy’ the vehicles on the Internet from California and then ‘pick up’ the vehicle at a Texas location. In New York, there are strict limits – 5 – on how many locations where Tesla may sell cars. The economic impact of Tesla’s direct-to-consumer model is less understood. The threat to a highly visible – and highly politically connected – the business model is clear.
So the direct-to-consumer model has been popularized by Tesla, but the option is changing the thinking of other major car companies.
The next trend that should worry Auto dealerships is the changes in car buying habits. Our next piece will talk through a few of the trends in car buying: Car Retention and Car Financing.
EkaLore looking to talk with Dealership owners and companies that supply them about what these trends mean for their investment long term.
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