A while back I wrote an article about Tesla’s foray into direct selling: the process of selling direct to a customer without using a sales channel. This potentially makes the cars cheaper to buy and cheaper to sell because the auto maker does not have to add in a dealer margin to each car sold and it reduces the opportunity for a buyer to negotiate the pricing – it won’t stop the buyer, however the manufacturer holds the cards and won’t fold easily!
Tesla were being attacked because in the US during the 1950s, GM and Ford tried this and some dealers persuaded their State Governments to enact laws that forced all cars to go through a dealer – OK for the dealers but not good for the auto maker or the consumer. It are these 60 year old laws that are getting in the way of a good business model.
Some manufacturers have taken a look at the way Tesla has set up its direct sales systems with service outlets in each State and have started to replicate the ideas in other less restrictive economies. Some of the mid-luxury European brands are setting up pure web sales for specific models, rather like Ducati did some 16 years ago with the MH900e model that could only be purchased online when new. For now though, the European manufacturers still require the consumer to finish the sale off with a dealer despite hooking them online.
Other manufacturers are following in consumer technology footsteps by having non-sales assistants help customers understand the features of a particular model with no selling allowed. This is to encourage the consumer to sell themselves on the car. With more connections between the two industries, it seems logical that the method of selling would also change.
Are dealers still relevant?
There are many websites in every country that enables a buyer to view 100s of cars from dealers across their home region. This could be good and bad: it reduces the effort needed to sell a car but could increase the negotiation and discounts required to make the sale. Dealers also act as service centres to fix cars, keep them roadworthy and to perform warranty recalls etc. Most dealers now make most of their profits on the after-market products they sell as the margins on a new car are very slim.
Even in China there is a problem with too many dealers, not enough margin and not enough skill to upsell the consumer with lots of highly profitable after-market goodies. Independent service centres are thriving because consumers want to pay cheaper prices for knock-off components rather than the original fit versions from the manufacturer.
From a manufacturers point of view, cutting out the middle man is the best option because they can reduce their marketing and other costs and could even improve their production numbers matching what is selling now rather than what could sell in the future. This would mean faster production and delivery times needed to meet immediate demand. Dealers clearly don’t want to be dumped and to make their money being the middle man.
So is there any common ground here?
I think there could be: with a definition of a new business model. In reality, the manufacturers need dealers because most consumers do not live near their factories, so there needs to be a centre where the cars are delivered to, which could be the service centre for a brand or two. In addition, dealers can expose more consumers to the physical product so perhaps the overall sale is done by the factory online with the service centre providing test drives and other services for the manufacturer.
The dealer now becomes a service centre only, receiving a finders fee for every car delivered through them. This would reduce the cost of holding an inventory which in turn reduces their operating costs. In return, the manufacturer has to use the data collected through the consumer buying habits and turn this into new vehicles much quicker than today. The dealer (service centre) could also earn commissions for selling insurance, fuel, tyres and other products – rather like the good old days when you bought everything from the one dealer.
My idea for an inner city service centre would include a car park (with charging points) that is also a source of short and long term rentals, allows the car park users to bring in their car to be serviced whilst they are at work and has an after-market store attached to it with a cafe – basically a full service centre offering multiple ways of connection to the consumer.
Car Ownership Trends
The other issue that is guaranteed to get in the way of any redefinition of a dealer network is the whole desire for ownership. Car sharing is on the rise, the media is very excited about autonomous cars (that drive themselves) and younger people are shunning new cars in favour of older, cheaper ones or simply no car at all. I also believe that some manufacturers are now selling too many models and a reduction in them would actually benefit the industry, even though most vehicles from a single manufacturer use the same components. The cost of marketing so many different vehicles could be reduced as could the design and engineering costs.
A new business model is clearly needed to ensure that the manufacturers and dealer networks remain in sync and that all parties earn enough to make it work whilst keeping consumers happy.