One of Tesla’s key obstacles in the United States is the traditional auto dealership industry. Dealerships across the country have lobbied state and local governments to prevent Tesla from selling directly to its customers — and not just Tesla, but also Rivian, Lucid, and any newcomer that wants to sell directly to their customers and bypass the dealer model, which is not at all conducive to selling electric vehicles. But Tesla and others may have a way around the challenges, and there are certain young companies that are fully focused on playing the role of online, consumer-friendly dealer.
“Buying a car, new or used, is often a disenchanting shopping experience. Common complaints revolve around paperwork, haggling, and not knowing if you’re getting a good deal. Now, many buyers are moving online,” the CNBC video above states.
Data actually show that car dealers are seen as the least honest and ethical professionals in America and have been for quite some time. Gallup’s annual poll resulted in dealers winning the “Least Trustworthy” title more frequently than any other group — over the last 35 years! That’s almost as long as I’ve been alive!
The video noted that consumers are doing their research before buying a car. Some contact the dealer to secure financing or prices. Also, there are new online services that promise price transparency, short transaction times, and simple financing. These services also include vehicle delivery and the ease of returning cars if the customer isn’t satisfied.
As a result, more and more customers are making the decision to bypass dealers. CNBC‘s video explaining why car buyers are ditching dealerships for online sales included some commentary from Paul Hennessy, CEO of Vroom, which specializes in these services:
“The traditional dealership model or the traditional peer-to-peer sales where a consumer might be selling or buying a car from a stranger is fraught with friction and a process that was just begging to be disrupted.”
There are still some consumers who prefer visiting the dealership, but they are a minority. The narrator noted that fewer than 1% of people enjoy the dealership experience. He described it as an intimidating process that is dreaded and feared by many. The element of price negotiation and inconsistent pricing is a key issue for those who don’t like the experience.
For those who do go to the dealership, it’s normally because they want to experience the vehicle in person. McKinsey & Company found in a 2020 report that around 70% of those surveyed said that the main reason they go to a dealership is to see and touch the car. Less than half of those surveyed were confident that the salesperson could give them all the information they needed about the car.
Another note from this survey is that 50% of the consumers surveyed were prepared to buy a car online and 40% liked the idea of a price that didn’t require haggling. Carvana CEO Ernest Garcia III was also included in the video and he described the dealership price haggling experience as akin to a stomachache.
“It’s time, it’s effort, it’s discomfort, it’s uncertainty about whether or not they’re getting a good deal. […] There’s a stomachache afterward. And I think the goal is how do you build something that lets the customer get the new car and doesn’t generate a stomachache?”
Both Carvana and Vroom forgo the dealership experience and focus on automating as much of the process as possible. Both companies explained that their model allows them to keep a much larger inventory than dealerships are able to. Hennessy noted that a typical dealership has around 100–200 cars on the lot. By the end of Vroom’s second quarter, it had 14,000 cars in inventory.
Online Shopping Wins If Dealers Can’t Improve Customer Service
Both Vroom and Carvana specialize in used car sales. Used cars are the most commonly bought cars due to their affordability. Yet the dealerships are so worried about Tesla, Rivian, and other EV manufacturers running them out of town that they are not even paying attention to their real competitors.
Both new and used car dealerships have heavily flawed models. Their focus isn’t on the customer enough. It’s on the amount of money they can get from the customer. We are well into the age of online shopping, and bad customer service based on sketchy sales tactics just isn’t going to cut it.
It’s not EVs or Tesla that are a threat to dealerships. It’s the internet. People have options. They can buy online.
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