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

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

But the strategy, which was adopted by Tesla CEO Elon Musk and combines direct sales with a limited number of stores and service centers, seems to be proving the naysayers 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 copied by other young electric carmakers like Rivian and Lucid Motors, could eventually have major ramifications for the auto industry. Most automakers and car dealers are making huge profits right now because the shortage of new cars has pushed up the prices of both new and used cars. Still, car companies and dealers may eventually have to adopt some of the changes Tesla has introduced to win over shoppers who have grown accustomed to buying cars online.

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

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

Mrs. Ryan said the only service issue she had was a tire punctured by a nail. “Tesla came to my house to fix it,” she said. “Any questions I have, I just send an email and they’re on it in minutes.”

Buying online is a must for people looking to purchase an electric car made by Tesla, Rivian, or Lucid, whose customers can only buy online and directly from the manufacturer. But buying cars online attracts a large proportion of all car buyers, even those who buy cars with combustion engines through dealerships, said Michelle Krebs, 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,” said Ms. Krebs. “They just wanted the dealer experience to be something more: focused on the product, product features, and a test drive.”

She said some dealerships had started to digitize part or all of the buying process in the early days of the coronavirus pandemic, when showrooms closed like other retail businesses. In Europe, some automakers have gone even further. Daimler, Volkswagen and Volvo are selling cars directly to consumers or have announced plans to do so.

US 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 advertising and distribution costs per car were about $2,000 higher than Tesla’s. 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 still be important, but would have to become more “specialized.” He compared what is happening in the auto industry to the retail business, where the rise of Amazon has forced established 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,” Farley said. “Target could have left, but they didn’t. They set up on an eCommerce platform and then used their physical store to add groceries and make returns much easier than Amazon.”

Established automakers are unlikely to phase out dealerships for another reason: State laws often require them to sell cars through franchised dealerships and can make it difficult or impossible for automakers to deal directly with customers.

Tesla has lobbied state lawmakers to change the laws governing car sales and has gotten 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 like Texas, where Tesla now has its headquarters and a factory, the company has had trouble persuading lawmakers to change laws and rules that favor dealers. For example, Texas offers a $2,500 rebate to people who buy electric vehicles, but Tesla buyers aren’t eligible because those cars aren’t sold at franchised dealerships.

The National Association of Automobile Dealers, which represents dealers, 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 local economies. They have also said that Tesla’s approach is far less convenient for car buyers and owners.

“We are the face of the automaker in every small town in America,” Bill Fox, the association’s past president, told AutoGuide.com in 2015.

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

It’s not just dealers who have criticized Tesla. Some Tesla owners complain that repairing or fixing problems with their cars can be a test.

The automaker operates about 160 service centers in the United States, which is far fewer than more established companies: Chevrolet, for example, has more than 3,000 dealerships across the country. Tesla agrees to send a technician to customers’ homes for minor repairs, but major problems must be dealt with by mechanics at service centers.

James Klafehn from Ithaca, NY, has a YouTube channel that focuses on electric vehicles and related topics. He purchased a Tesla in 2019 and has posted videos documenting how difficult it has been to resolve a variety of issues because he lives several hours from a Tesla service center.

In a video from October 2019, he was scathing about problems with his Model X sport utility vehicle, including a hole in a panel and a dent in a door weather stripping. “I’m not excited to make this video. I’ve been dreading it hoping something positive will happen,” he said. “Unfortunately, after five weeks of Model X ownership, Tesla’s service experience has been 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 a problem. That may be because electric cars tend to require less maintenance than vehicles with combustion engines.

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

“It was my first online car shopping experience; it was kind of surprising and mostly nice,” McGuire said. “Some people might want to hold hands a lot more.”

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

Other young electric car companies, such as Rivian and Lucid, have even fewer showrooms and service centers than Tesla. Rivian has 19 in the US and Lucid has just 10, with seven more scheduled to open this year. That hasn’t deterred tens of thousands of people from reserving 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 done at service centers. To allay buyers’ fears that major mechanical work could be a hassle, Lucid even goes so far as to promise free transportation to their nearest service center for cars that need major repairs.

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