Tesla has never been a company to stick with conventional wisdom. Though some of the mainstream manufacturers have tried, Tesla is the first in recent history to make fully electric cars not only feasible, but desirable. Technology isn’t the only area where Tesla is innovating, either. Their business model of Tesla stores, rather than franchised dealers, threatens to turn the traditional dealer system on its head. But four states – most notably Michigan, whose economy is driven to a great extent by the traditional automotive industry – have made it illegal for manufacturers to have their own stores, preserving the franchise network as it’s existed for the past 100 years. Tesla, in return, is taking Michigan to federal court to fight for their right to
party open stores in Michigan.
What’s the big deal? Only four states have banned the stores. Though other states have put limits on how many stores Tesla can operate, twenty-three states plus DC permit the practice. So why fight an uphill battle to do business in Michigan, a long standing stronghold of the Big Three?
Think about the precedent this could set. If the federal government says that Michigan must allow Tesla to have stores, that can easily be interpreted to mean that all states must allow all auto manufacturers to sell directly to customers, bypassing the entire dealer franchise network. If Tesla wins, there’s no reason why a factory owned Chevy or Honda store couldn’t open. A Tesla victory could bust through the existing dealer system like the Kool-Aid man.
I don’t know anybody who enjoys going to the dealer to buy a new car, regardless of the brand. Some off-brands, like Saturn and Scion, have tried to distance themselves from that business model by offering no-haggle pricing and a pleasant dealership experience. Look where those brands are today. Without intending to, Monty Python demonstrated what a typical dealership experience is like.
[brid video=”65457″ player=”4063″ title=”The Haggle Monty Python’ Life Of Brian”]
Imagine a system where having a factory owned store like Tesla wasn’t the exception, but the norm. Everyone would do it. I’d go to the Subaru store to check out a WRX, the Ford store to see a Focus ST, and the Volkswagen store to examine a GTI. They’d still have sales people to provide information, arrange test drives, and help arrange the transaction. But there would be a centralized system for each brand to work with. None of this wibbley-wobbly funny money stuff – the car is the price it is, your trade-in is the price it is, extended warranties are the price they are, and that’s that. No hidden fees, no dealer markups, and no hassle. It would be like going to Best Buy to get a TV, or Sears to buy a refrigerator, or any other store in any other industry to buy any other big ticket item.
Or if, like me, you don’t like dealing with people when buying stuff, you could order your car online, Amazon style. Just build and price your preferred make and model as you do now, and on the summary page there’s a button allowing you to actually buy the car you’ve virtually built. The magic of the internet (and the factory inventory system) will either find a car already for sale that matches your specifications, or give you the option to have your car custom built. Financing, delivery, and everything else could be arranged online.
There’s no substitute for actually looking at and test driving a car for yourself. I’m not suggesting that we should all go buy our cars online, sight unseen. There will always be a place for brick-and-mortar storefronts. Some people do prefer dealing with a live human being, and they could certainly make their transaction there. But for others who already spend way too much time playing with online configurators, this may be the way to go. Though you might want to turn off 1-Click ordering so you don’t come home to an unexpected Challenger in your driveway.
Who loses in this deal? The entire franchise system. So of course they’re fighting tooth and nail against it. They’ve spent a ton of money
bribing lobbying politicians to make laws prohibiting auto manufacturers from selling directly to customers, basically to legislate their own job security. Why? Because if the dealer franchise system wasn’t mandated by law, it would collapse as customers found better ways to buy cars, and they’d soon find themselves out of a job.
I’m talking mainly about the true middlemen, the management of the dealer franchise system. Individual dealers could certainly turn themselves into factory owned stores, so the people who work directly with customers and their cars would keep their jobs. But the manufacturers would also have better control over the sales process. In the same way that McDonald’s became a worldwide empire by ensuring that the Big Mac you buy in Hong Kong is the same Big Mac you buy in Wichita, manufacturers could ensure that their own standards are met consistently across the board, just like every other industry’s stores. Sure, some could choose to allow or encourage similar business practices to what we have today. But customers could then choose to take their business somewhere else, and buy from a store engaging in more friendly and fair business practices than the one stuck in the old ways because that’s how it’s always been done.
This wouldn’t be an overnight change, for sure. In discussing this on Jalopnik, commenter As Du Volant said that, as someone who works in marketing for a dealer group, they’re already set up to sell a car entirely online as I’ve described, complete with delivery. “We average about 600-700 sales per month,” he says. “On average only 1-2 of them is a purchase fully completed online. And this isn’t buried in some obscure spot either – we hype the hell out of it in our TV ads, online ads, social media posts, and in many places on our website.” Like I’ve said, even I wouldn’t want to buy a car without driving at least a similar one first, which means taking some of that interaction out of the cyberspace and into meatspace. I think nearly every anti-social car buyer would agree with me on that.
But the online purchase system wouldn’t be the only way to go. You could take care of it all at the
dealer store just like you used to, but without all the hassle. In fact, there’s an excellent chance that the sales rep would be using the same online system as you to find and order your car for you. They’d just be doing the heavy lifting of mouse clicks and keyboard presses for you, as well as arranging test drives and answering all your questions.
If Tesla gets their way in Michigan, it could make all this possible in the rest of the US as well. It won’t be a fast change. The dealers will fight it to the bitter end. The manufacturers and dealer franchises may decide not to change at all, because it would mean too much expense and overhead for the big manufacturers to run their own stores. But the fact that this would even be possible could open the door to some interesting possibilities. And that’s why Tesla’s efforts to open stores in Michigan are important.