Opinion: Death to the car dealership – the Tesla sales model is about to take over America

Few would mourn the death of the traditional car buying experience. The haggling and the I-have-to-talk-to-my-manager routine. The hour-long wait for financing while you attend sales pitches for extras like leather protection and roof racks.

Fortunately, it is now tending to become a thing of the past.

We are already seeing a sea change in the way we buy cars. Companies like Tesla TSLA,
+1.23%
and Carvana CVNA,
-4.27%
use the direct-to-consumer model. Electric vehicle buyers are essentially doing the same, preferring to order from the factory as the U.S. fleet transitions from gasoline to electric. And as manufacturers have learned during the pandemic, when supply chain issues have drained dealerships, there’s no need to stockpile that batch of 900 cars when sales are just as strong without it.

The reality is that almost everyone is already researching a car purchase online, but state laws make it difficult for consumers to buy without an intermediary, at least for new cars. (Tesla uses loopholes and Native American reservations to circumvent government trade protections for new car dealerships.) There are no equivalent dealer protection laws for used cars, so these online sales are booming.

Dealerships may have a role to play in recalls, warranty work and service, but will the price haggling and bad coffee that have become synonymous with the car-buying experience be missed- they really to consumers?

In short: The traditional concession no longer makes sense. And the car buying experience will be better.

Stuck in the pre-internet era

Think of the traditional retailer as the giant department store of yesteryear. It’s built on a dated premise: that people want to shop in person from a wide selection, rather than doing so from the comfort of their home. But as we all know buying everything from electronics to furniture, we no longer need a salesperson to guide us through the options. All this information is at your fingertips on a computer. When it comes to buying a car, all we really need is a test drive.

Yet the automotive industry is largely stuck in the pre-internet era. Before the pandemic, manufacturers assumed they needed dealerships for local advertising and promotions, the allure of auto miles, and all the costs that came with it.

Then Covid caused a shortage of microchips. Production has slowed down. Suddenly, this batch of 900 cars contained only 50. The manufacturers discovered that sales were stronger than they had ever been. Buyers were perfectly comfortable testing a model at the dealership and then ordering exactly what they wanted from the factory.

This proved a boon for automakers, proof that it no longer needed the vast inventory cost of millions of cars that would sit on a lot. He could now build each vehicle to a customer’s specifications. They would be sold before they even left the factory. This meant dealers had to change or die.

The dealer of the future

Massive industries don’t change a dime. These changes are expected to reverberate over the next five years. But they will be dramatic and likely to parallel the auto industry’s overall shift to electric vehicles.

Start with the disappearance of this batch of 900 cars. Dealerships will have little choice but to move from shopping malls to test drive and order sites. The real estate at this suburban Auto Row dealership could be put to better use – the economics are just too compelling.

There will no longer be a need for a 10 acre expanse of parked vehicles. Instead, this giant selection will be replaced with a few versions of each model. Shoppers will schedule test drives and then order at a kiosk or online from home. You’ll see a repair center, maybe a showroom, and a smaller lot for trades. You’re also likely to see micro dealerships popping up in more convenient locations, much the same way Enterprise Rent-A-Car has expanded into neighborhood storefronts.

You will still be able to purchase the bundle, of course. But you are bound to pay a premium as dealerships strive to reduce overhead. With manufacturers taking more control over sales, prices will be set across the board, Tesla-style. That means more haggling. Don’t let me talk to my manager. No driving through town hoping for a better price. You’ll simply order a car, color, and accessories, while arranging a deposit and financing all from one screen. The anxiety of buying a car will largely become a relic of the past.

Cutting out the middleman may not mean more savings for the consumer, however. The average price of a new car is now over $47,000, according to Kelley Blue Book. With inflation at 8% – and an end to supply chain problems nowhere in sight – the cost is only going up, at least in the short term.

Still, buyers can take comfort in knowing that car prices have always fluctuated with demand and the health of the economy as a whole. During tougher times or struggling sales, manufacturers can always turn to rebates, financial incentives and seasonal sales, if only to maintain revenue and production. But the big sales organized by the dealers themselves will be over. Without all those cars sitting on a lot, there won’t be a need to move stagnant inventory or clean up stock for a new model year.

Still, it remains a victory for consumers. Changes may not lead to better pricing. But they will certainly go a long way in taking the fear and wasted time out of the traditional car buying experience.

Tom Holgate is CEO of iReady.