Direct Sales: A Perfect Storm May Have Come For Auto Dealerships
I took the dogs for a long, long walk the other night. Along our winding, unplanned route was a Ford dealership, something I usually drove at 40 mph and didn’t pay much attention to. Walking through was a very different experience. Where there were once dozens and dozens of vehicles for sale, now there’s a scene that looks like something out of a post-apocalyptic movie: a few cars out front (half of which looked like they were used) and nothing. other than an empty space behind .
While it’s fun to blame all of this on the dealerships, the truth is much more interesting. Although many Americans hate buying from dealerships, it’s always fun to get behind the wheel of new cars and walk away with one. But buying a car in 2022 isn’t like that because of production shortages. Either you place an order online or you go to the dealership to order the vehicle in person. It doesn’t always work as it should, but you can usually get a car for something close to the MSRP if you’re willing to wait for the factory to build you one.
While all of this is going on, another trend has crept in everywhere it could: direct selling. In a number of states, EV makers like Tesla have convinced state lawmakers to grant them an exception to dealer franchise laws. This means that instead of going to a dealership, you buy your vehicle directly from a manufacturer. Like buying almost anywhere in 2022, the buying experience is basically the same: place your order and get the EV when it’s built, and for the “MSRP” (when you buy from the manufacturer, the manufacturer’s suggested retail price doesn’t really have to be a suggestion).
In other words, the experience of buying a Ford or Toyota isn’t all that different from buying a Tesla now, even if you want something that runs on gas.
The CEO of Ford talked about it recently
A flurry of recent media articles (like this one) have told readers that Ford CEO Jim Farley had the courage to discuss this situation recently at Bernstein’s 38th Annual Strategic Decisions Conference. .
“We have to go for non-negotiated prices. We need to go 100% online,” Farley said. “There is no inventory (at the dealerships), it goes directly to the customer. And 100% remote pick-up and delivery.
With the exception of a few very shady dealers, he didn’t describe what he would like to see. It describes what we already mainly see. Vehicle shortages mean no one is getting the sub-MSRP prices they used to get from dealers (if they were willing to haggle stubbornly and threaten to walk). Dealerships have very little inventory. People place their orders without going to the dealership or taking a test drive.
What once looked like something you could never convince dealerships to do, now that’s how it’s done. For Ford, it works well, so it’s something he would naturally want to continue doing.
States are already moving
The room at The reader I linked in the last section (and I’ll come back here) does what most of the articles on this topic have done in the last week: get into the challenges that such permanent changes would face in the dealer lobby. People like to complain about the gun lobby or defense lobbying, but anyone familiar with the industry knows that car dealerships are about as powerful as these other lobbies, and even more powerful in some states. They blocked a number of states from letting Tesla do direct sales, for example.
But, another piece from a few days ago at Automotive News shows us that States are already moving on the issue. While they don’t completely repeal dealer franchise laws that prevent manufacturer-direct sales and service, they do bring those laws into the 21st century. Instead of requiring all services, including updates, to happen at dealerships, they open exceptions for things like over-the-air updates so everyone can compete with Tesla. They are also considering allowing more direct sales, or at least allowing the manufacturer to set prices for online sales.
So it’s a problem that can and will change, especially if these production shortages keep things running in a near straight-forward fashion for longer.
A big storm doesn’t necessarily mean you’re dead
While the 2000 film The Perfect Storm shows us a storm that leaves no survivors (the ship sinks with all but one on board, and the guy floating in the brutal waves doesn’t make it), we also have to keep Forrest Gump in mind.
In this film, the storm destroys most of the shrimp boats, but the seemingly foolish decision to stay out to sea during a hurricane pays off when Forrest and Lt. Dan end up with the only surviving shrimp boat. This not only leads to a great season, but also to great fortune for the titular character in later years as he invests the windfall wisely and secures the success of the Bubba Gump Shrimp Company.
A transition to direct selling will leave the less scrupulous and less innovative dealerships at the bottom of the ocean, but dealerships with the strategic foresight to seize opportunities and deal directly with customers will likely come out on top.
On the one hand, selling every vehicle at MSRP seemed unthinkable a few years ago, but it would have been a dealer’s dream. With every vehicle making a profit, even if it’s not outrageous profits, there’s still plenty of room to make the whole sales side profitable with fixed prices.
Another great thing for dealerships is that service (excluding things like OTA updates) can stay in the service department as it is today. There will still be a lot of work to do on electric vehicles, even if they don’t have combustion engines and transmissions with legions of moving parts. Again, the profits won’t be crazy, but they will be achievable.
On top of that, there’s a lot of non-automotive profit to be made on the dealer side. If someone is buying an electric vehicle, it shouldn’t be too difficult to get them to also consider installing solar power on their roof with battery storage, as this keeps future fuel prices low. You can also sell efficient heat pumps and air conditioning systems, charging station installations and many other related services directly or through local partners.
While some dealers will only see lemons here, dealers who open a lemonade stand will likely be sitting pretty ten years from now.
Image selected by Zachary Shahan, CleanTechnica.
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