The horror of nearly every American who owns a car is the day that they realize that they have to go and buy a new one. The typical car buying experience can range from good to terrible and it often depends on the dealership that you attend. The dealership my family typically goes to buy cars generally is fast, efficient, and doesn’t make too much of a fuss. In fact, the typical car buying experience took only a few hours and the whole negotiation period was done in a day. However, this type of in and out car buying experience is not typical. An excellent article by Edmunds.com highlights the follies of the dealership setup.
However, the car buying experience appears that it might change. Tesla, like many technology and innovation driven companies, has been a disruptive force in the car market. Tesla doesn’t sell its cars through dealership, but they instead sell their cars direct to the customers. The best way to think about this is to approach it in an Apple philosophy. Apple sells its products direct to consumers while other computer companies (HP, Dell, Acer, etc) are now relying on major retailers to push their products. Unlike Apple, Tesla’s new (if not necessarily novel) car buying experience is most likely going to allow most people to save on dealership costs.
The direct sales approach to car buying could benefit most car buyers, as suggested by a Justice Department study. This is because each sale would become made to order. In fact, by making each car sale made to order, principles of just-in-time manufacturing can be implemented to anticipate car sales, reduce inventory of cars, and create an manufacturing situation where there is very little waste and extra inventory. Furthermore, the massive car lots of dealership can be utilize for other developments (especially considering dealerships tend to be on prime commercial land). Furthermore, enough people are sick of the traditional dealership experience to be willing to buy a car in a similar style to shopping on Amazon even if the prices are the same.
However, this change to the car buying experience will not happen overnight and, in some state like Texas, it will not happen at all. This is because each dealership is a local institution. Despite all of the animosity towards the typical dealership experience, they are a linchpin in the local economy and the community. Dealerships provide jobs and they support local efforts, including local causes, schools, and youth athletics. As a result, Tesla’s attempt to bring direct car sales to most of America has been fought in courtrooms and statehouses as the National Automobile Dealers Association have tried to block Tesla’s approach.
Both sides have their points and, regardless of how much Americans would prefer direct car sales, allowing all car makers to do direct sales would, in all likelihood, eliminate a few hundred thousand jobs and destroy thousands of family owned dealerships. However, direct sales would like lower costs for Americans, allow car manufacturers to sell cars year round, and reduce excess inventory. For good and bad, Tesla’s direct sales approach may be inevitable, but, like many disruptive innovations, it might end up leaving a significant number of Americans on the losing side.
This article was first published on http://moneyprime.com.