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

In 2019, many auto experts said Tesla was making a big mistake by deciding to sell cars only online, arguing that whatever bad feelings people had about dealerships were essential to the auto business.

But the strategy, which was adopted by Tesla chief executive Elon Musk and combines direct sales with a limited number of stores and service centers, appears to prove naysayers wrong. The company dominates the 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 copied by other young electric car makers like Rivian and Lucid Motors, could eventually have major ramifications for the auto industry. Most automakers and car dealerships are making big profits right now, as the shortage of new cars has driven up prices for both new and used cars. Still, automakers and dealerships may eventually need to embrace some of the changes Tesla introduced to win over shoppers who have grown accustomed to buying cars online.

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

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

Ms. Ryan said the only service issue she had was a flat tire from a nail. “Tesla came to my house to fix it,” she said. “Any questions I have, I just emailed, and they’re there 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 attracts a large chunk of all car shoppers, even those who buy combustion-engine cars through dealerships, said Michelle Krebs, executive analyst at Cox Automotive.

“Our data shows that consumers want to do more processes online, but most don’t want to eliminate the visit to the dealership altogether,” Krebs said. “They just wanted the dealership experience to be something else – focused on the product, the product features and a test drive.”

She said some dealerships started digitizing all or part of the buying process at the start of the coronavirus pandemic, when showrooms closed like other retail businesses. In Europe, some automakers have gone even further. Daimler, Volkswagen and Volvo sell cars directly to consumers or have announced plans to do so.

American automakers have also signaled that they would like to make big changes. Ford Motor chief executive Jim Farley told an investor conference this month that the company’s distribution and advertising costs per car were about $2,000 more than Tesla’s. Mr Farley said Ford wanted to sell electric cars online only at non-negotiable prices without keeping a large inventory of cars at dealerships.

He added that dealerships would remain important but should become more “specialised”. He compared what’s happening in the auto industry to retail, where the rise of Amazon has forced established retailers to sell more on the internet and use physical stores in new ways.

“It’s kind of like what happened between Amazon and Target,” Mr. Farley said. “The target could have walked away, but they didn’t. They’ve equipped themselves with an e-commerce platform, and then they use their physical store to add groceries and make returns much easier than Amazon.

Established automakers are unlikely to cut out dealerships for another reason: State laws often require them to sell cars through franchised dealerships and can make it difficult, if not impossible, for automakers to deal directly with customers.

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

But in some states like Texas, where Tesla is now based and has a factory, the company has struggled to persuade lawmakers to change laws and rules that favor dealerships. For example, Texas offers a $2,500 rebate to people who buy electric vehicles, but buyers of Teslas aren’t eligible because those cars aren’t sold through franchised dealerships.

The National Automobile Dealers Association, which represents dealerships, has long opposed direct car sales and has urged lawmakers to require Tesla to use dealerships, arguing that dealerships are vital to the auto industry and businesses. local economies. They also said Tesla’s approach was far less convenient for car buyers and owners.

“We’re the face of the manufacturer in every small town in America,” former association president Bill Fox told AutoGuide.com in 2015.

The dealer association did not respond to a request for comment.

It’s not just dealerships who have criticized Tesla. Some Tesla owners complain that repairing or fixing issues with their cars can be an ordeal.

The automaker operates around 160 service centers in the United States, which is far fewer than more established companies – Chevrolet, for example, has more than 3,000 dealerships nationwide. Tesla is committed to sending a technician to customers’ homes for minor repairs, but larger issues should be handled by mechanics at 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 posted videos documenting how difficult it was to troubleshoot various issues because he lives hours away from a Tesla service center.

In an October 2019 video, he was scathing about problems with his Model X sport utility vehicle, which included a hole in a panel and a dent in a door weatherstripping. “I’m not excited to make this video. I was dreading it hoping for something positive to happen,” he said. “Unfortunately after five weeks of owning the Model X, the service experience of Tesla has been very mediocre.”

Tesla did not respond to a request for comment.

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

Bill McGuire, editor of Mac’s Motor City Garage, a website for car enthusiasts, said he drove 99 miles from his home in Toledo, Ohio, to Clarkston, Michigan, for a test drive at a store Tesla and then picked up his car from a Tesla service center in Columbus, Ohio.

“It was my first experience buying a car online – it was a bit of a surprise and mostly a pleasant one,” Mr McGuire said. “Some people might want a lot more grip.”

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

Other electric car startups, like 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 expected to open this year. That hasn’t deterred tens of thousands of people from booking cars made by the two companies.

Like Tesla, both automakers offer to send technicians to customers’ homes for minor repairs and say major repairs will be handled at service centers. To allay buyers’ fears that more extensive mechanical work might be an issue, Lucid goes so far as to promise free transportation to its nearest service center for cars in need of major repairs.

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