Opinions expressed by Entrepreneur the taxpayers are yours.
The auto industry is undergoing significant and exciting changes. Over the next two years, manufacturers are expected to bring more than 30 new electric vehicle models to market, with autonomous vehicles likely to follow soon after.
It’s not just on the product side that things are in flux. Innovations in retail have simplified the complicated buying process by making changes to financing, exchanges, titles, registration, insurance and other parts of buying cars and trucks.
For the consumer, this is progress. For others, it’s an excuse to once again drag the tired old trope that the day at the local dealership is over. That’s a lot of snake oil. The truth is that the car retail and dealership model is remarkably resilient, growing in popularity among millennials and Gen Z.
Related: Four Tips for Finding Success as an Entrepreneur in the Automotive Industry
A recent article in the highly respected MarketWatch claimed that direct sales through companies like Tesla and Carvana represent the future of automotive retail. Statements like these are merely intuitive, lack real-world evidence, and ignore what those who buy cars and trucks have experienced.
Carvana, which sells used cars, is in the crosshairs of federal and state regulators over a range of issues involving customers and the buying process. Search for “Carvana complaints” on the internet and you will find an overwhelming number of dissatisfied customers across the country. With its shares down more than 80% since August and its business model in question, Wall Street is rethinking its support for this one market disruptor.
Ironically, Carvana is exactly the kind of middleman between seller and buyer that advocates of change criticize. Tesla, which does not allow price negotiation, has raised prices for its base model by 37% since launch, a hefty premium for a fixed price on a vehicle already too expensive for most working-class car buyers to consider. Meanwhile, Tesla customers often wait three weeks or more for simple service and repairs, in part because there is no competition from dealerships on the Tesla network.
That might be fine for high-income Tesla owners who have alternatives when it comes to personal transportation, but for mass-market consumers, a three-week wait for service isn’t a start. To say that Tesla’s sales model embodies the future of car buying is comical.
Related: The future of the automotive industry depends on a software-driven business model
The traditional franchised dealership model works. Sales prices may be rising due to microchip supply restrictions that have slashed supply and sales by two million vehicles since 2019 and reduced manufacturer incentives, but they are nothing like Tesla’s premium.
On the service side, customers benefit when locally owned and operated utilities compete. In the direct sales model, if the nearest Chevrolet franchise doesn’t fit you today, you’re almost certain to find another that does.
Don’t overlook the fact that virtually all dealerships sell online and in the showroom, and are increasingly adopting the one-price model. It creates massive efficiencies at the sales level. A large group of Minneapolis-based dealerships sell on a one-price model and are getting close to getting customers in and out of the dealership in less than 30 minutes. They believe they can reduce it to 15 or less.
The proof is in the data. Escalent, a Detroit-based research firm, has put together a massive study of electric vehicle “stewards” — customers interested in buying a new EV within the next two years. Escalent asked which sales model consumers prefer – the direct model or the franchised model.
Only 20% of the 30,000 respondents preferred the direct sales model employed by Tesla. Surprisingly, the number was even lower among millennials and Gen Z, where 94% of respondents under the age of 35 are satisfied with dealerships.
Local dealerships have changed dramatically over the past 30 years. Young and first-time car buyers know this firsthand. The ones that aren’t are the ones that are still stuck in the 40-year-old stereotypes that barely exist anywhere anymore.
Changes that produce greater efficiency, increase productivity or increase economies of scale are welcome. There are ways in which traditional franchisees can and have improved the way they do business. Just because something is new doesn’t make it better. Likewise, the tried and true methods of production and sale are reliable because they work well, as their performance in the market indicates.