The pros and cons of selling cars online
A trip to the dealership has long been an unavoidable part of the car purchase process. We all love to hate them, and it wasn’t until Tesla pioneered the online-only sales model that we saw a viable alternative. But how viable is it really? Are dealers on a sinking ship, or will they endure as the dominant vehicle purchase platform?
Almost every vehicle manufacturer worldwide uses dealerships to sell their cars. The basic idea is that local sales- and service-people are better equipped to cater to the needs of consumers than multinational automakers. For most of the 20th century there was no other way to see a car in action. Customers had to go to dealers to see what was available.
But that all changed when Tesla hit the scene. The electric auto manufacturer has been committed to vertical integration since day one, making as many of its components in-house as possible. They clearly saw an opportunity to integrate sales, too, and used an online store to bypass laws prohibiting manufacturer sales from dealerships.
As the company grew from a niche luxury to a mainstream automaker, they constructed display stores to show off their latest models and entice customers. These fulfilled many of the same functions as a conventional dealership, but often couldn’t finalise sales directly.
Direct-to-consumer sales seem like a perfect solution to the stagnant and labour-intensive dealer model. We live in the age of Amazon, after all. Why should we be forced to haggle over warranties and service packages when we could do the same thing at home in a fraction of the time?
Online sales platforms make the process as easy as it can possibly be. You know exactly what you have to choose from and how much it will cost. Delivery is handled by the manufacturer and all your questions can be asked via email or over the phone. Perfect, right?
Service not included
A 2009 report from the US Department of Justice goes over a lot of these points. They recognise that dealers are often pricier and more difficult than a direct-to-customer model, with the added pressure of haggling and aggressive salespeople clouding the industry’s reputation.
But they make the point that those aren’t the reasons dealerships exist. Independent dealers are often local, or at least regionally based, and are incentivised to maintain a positive relationship with the community they work in.
Regional customers in particular would likely struggle to test drive cars without a dealership network in place. In the age of proprietary software they’re often the only ones qualified to service new vehicles without voiding warranties, or even capable of doing so.
Adopting online-only sales could seriously harm less populated locations with less incentives to service. Australia has the 2nd lowest population density in the developed world behind Greenland, so we’d likely be the first to suffer.
While online models can accommodate this using showrooms and servicing centres, how well can we rely on them to stay open when manufacturers’ profits fall? We’ve already seen this happen when Tesla closed several retail locations this year as part of a cost-cutting measure.
Autonomy on the horizon
But it might not be direct-to-customer sales that kill the car dealership. Some have speculated that the growth of rideshare and vehicle autonomy might be what does it; a rideshare service without driver costs has the potential to be cheap enough to lure many customers away from vehicle ownership altogether.
Several automakers are working on this right now. Tesla have pledged to create a “Network” allowing owners to send their vehicles off to provide autonomous rideshare while they aren’t using them. Existing rideshare giants Uber and Lyft are already using vehicle autonomy for rideshare in select US cities.
Ultimately, it’s unclear what the future holds for car dealerships. They certainly won’t be giving up easily.
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