Tesla is forcing the auto industry to rethink how it sells cars

Tesla is forcing the auto industry to rethink how it sells cars

In 2019, many auto experts said Tesla made a big mistake by deciding to sell cars only online, arguing that the bad feelings people had about dealers were essential to the auto industry.

But the strategy, followed by Tesla CEO Elon Musk, which combines direct sales with a limited number of stores and service centers, seems to prove opponents wrong. The company dominates the fast-growing electric car market, even as other manufacturers struggle to sell cars due to a shortage of computer chips.

Tesla’s approach, which has been adopted by other fledgling electric car makers such as Rivian and Lucid Motors, could ultimately have major implications for the auto industry. Most automakers and car dealers are currently making rich profits as the shortage of new cars has pushed up prices for both new and used cars. Still, auto companies and dealers will eventually have to implement some of the changes Tesla has made to entice buyers who have become accustomed to buying cars online.

People who have traded conventional cars for electric vehicles from Tesla and newer companies said they were pleased with the experience and would consider buying future cars in the same way.

“Easiest major purchase of my life, insanely simple,” said Rachel Ryan, who lives near Los Angeles, of her 2021 purchase of a Tesla Model Y. “I bought it while my husband was at work,” he added. them to it. “When he got home, I told him he wouldn’t be driving my minibus anymore.”

Ms Ryan said the only service issue she had was a puncture due to a nail. “Tesla came to my house to fix it,” she said. “Any questions I have, I just email them and they’re ready in minutes.”

Buying online is a must for people who want to buy an electric car made by Tesla, Rivian or Lucid, whose customers can only buy online and directly from the manufacturer. But online car shopping appeals to a large portion of all car buyers, even those who buy combustion-engine cars through dealerships, said Michelle Krebs, an executive analyst at Cox Automotive.

“Our data shows that consumers want to do more of the process online, but most don’t want to eliminate the dealer visit altogether,” Ms Krebs said. “They just wanted the dealer experience to be something different — focused on the product, the product’s features, and a test drive.”

She said some dealers had begun digitizing some or all of the buying process in the early days of the coronavirus pandemic, when showrooms were closed like other retail outlets. In Europe, some car manufacturers have gone even further. Daimler, Volkswagen and Volvo sell cars directly to consumers or have announced plans to do so.

American automakers have also indicated that they want to make major changes. Ford Motor CEO Jim Farley said at an investor conference this month that the company’s distribution and advertising costs per car are approximately $2,000 higher than Tesla’s† mr. Farley said Ford wanted that… only sell electric cars online at non-negotiable prices without keeping a large inventory of cars at dealers.

He added that dealers would remain important, but should become more “specialized”. He compared what is happening in the auto industry to retail, where the rise of Amazon has forced incumbent retailers to sell more online and use brick-and-mortar stores in new ways.

“It’s kind of like what happened between Amazon and Target,” said Mr. farley. “The target could have gone away, but they didn’t. They moved to an e-commerce platform and then use their brick and mortar store to add groceries and make returns much easier than Amazon.”

Established automakers are unlikely to abolish dealerships for any other reason: State laws often require them to sell cars through franchise dealers and can make it difficult or impossible for automakers to deal directly with customers.

Tesla has lobbied state lawmakers to change the laws governing auto sales, and has persuaded lawmakers in many places to allow the company and other automakers that never had dealerships to sell cars directly to customers.

But in some states, such as Texas, where Tesla is now based and has a factory, the company is struggling to convince lawmakers to change laws and regulations that favor dealers. For example, Texas offers a $2,500 discount to people who buy electric vehicles, but buyers of Teslas are not eligible because those cars are not sold by franchise dealers.

The National Automobile Dealers Association, which represents dealers, has long opposed direct sales of cars and has urged lawmakers to require Tesla to engage dealers, arguing that dealers are vital to the auto industry and local communities. economies. They have also said that Tesla’s approach is much less convenient for car buyers and owners.

“Franchised dealers are absolutely essential to widespread adoption of EVs in the US,” Jared Allen, a spokesman for NADA, said in an email. And as more older automakers enter the EV market, “effectively selling to these mass-market customers requires leveraging — not refusing — the existing franchise dealer network,” he added.

“We are the face of the manufacturer in every small town in America,” said Bill Fox, past president of the association. told in 2015.

It’s not just dealers who have criticized Tesla. Some Tesla owners complain that repairing or troubleshooting their car can be an ordeal.

The car manufacturer works approximately 160 service centers in the United States, which is much less than more established companies — Chevrolet, for example, has more than 3,000 dealerships nationwide. Tesla promises to send a technician to customers’ homes for minor repairs, but bigger problems need to be solved by mechanics at the service centers.

James Klafehn of Ithaca, NY, hosts a YouTube channel that focuses on electric vehicles and related topics. He bought a Tesla in 2019 and has published videos documenting how difficult it is to fix various problems since he lives several hours from a Tesla service center.

in a Video from October 2019, he was scathing about problems with his Model X SUV, including a hole in a panel and a cut in a door weatherstrip. “I’m not excited to make this video. I feared it in the hope that something positive would happen,” he said. “Unfortunately, the experience with Tesla service after five weeks of Model X ownership is very poor.”

Tesla did not respond to a request for comment.

Other owners who live far from Tesla service centers say the distance hasn’t been an issue. This may be because electric cars generally require less maintenance than cars with a combustion engine.

Bill McGuire, the editor-in-chief of Mac’s Motor City Garage, a website for car enthusiasts, said he drove 100 miles from his home in Toledo, Ohio, to Clarkston, Michigan, for a test drive at a Tesla store and then picked out his car. . car to a Tesla service center in Columbus, Ohio.

“It was my first experience buying a car online – it was a bit of a surprise and most importantly a pleasant one,” said Mr McGuire. “Some people may want to hold hands a lot more.”

The only problem he encountered with his Model 3 was condensation in the taillights. Tesla sent a mechanic and the taillights were replaced in his garage.

Other fledgling electric car companies, such as Rivian and Lucid, have even fewer showrooms and service centers than Tesla. Rivian has 19 in the United States and Lucid only has 10, with seven more set to open this year. That hasn’t stopped tens of thousands of people from reserving cars from the two companies.

Like Tesla, both automakers offer to send technicians to customers’ homes for minor repairs and say major repairs will be done in service centers. To allay buyers’ fears that bulkier mechanical work might be a problem, Lucid goes so far as to promise free transportation to the nearest service center for cars in need of major repairs.