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

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

But the strategy, which was endorsed by Elon Musk, Tesla’s chief executive, and combines direct sales with a limited number of stores and service centers, appears to be proving 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 new electric car makers like Rivian and Lucid Motors, could eventually have major ramifications for the auto industry. Most car manufacturers and auto dealers are making rich profits right now because the shortage of new cars has driven up prices for both new and used cars. However, car companies and dealers may have to eventually adopt some of the changes Tesla has introduced to win over buyers who are used to buying cars online.

People who have 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 the same way.

“Easiest major purchase of my life, insanely easy,” said Rachel Ryan, who lives near Los Angeles, about her 2021 purchase of a Tesla Model Y. “I bought it while my husband was at work,” she added. “When he came home, I told him he wasn’t going to drive my minivan again.”

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 email and they’re answered within minutes.”

Online shopping is a must for people looking to buy an electric car made by Tesla, Rivian or Lucid, whose customers can only buy online and directly from the manufacturer. But buying cars online appeals to a large portion of all car buyers, even those who buy combustion-engine cars through dealerships, said Michelle Krebs, an executive analyst for 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 else – focused on the product, product features and a test drive.”

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

American automakers have also signaled 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 higher than Tesla’s. Mr. Farley said Ford wanted to sell electric cars only online at non-negotiable prices without keeping a large inventory of cars at dealers.

He added that vendors will remain important, but will have to become more “specialized.” He compared what’s happening in the auto industry to the retail business, where Amazon’s growth 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,” Mr. Farley said. “The target could have gone away, but they didn’t. They got into an e-commerce platform and then use their physical store to add groceries and make returns much easier than Amazon.

Big-name automakers are unlikely to drop dealerships for another reason: State laws often require them to sell cars through franchised dealers and can make it difficult or impossible for automakers to deal directly with customers. .

Tesla has lobbied state lawmakers to change laws governing car sales and has gotten lawmakers in many states to allow the company and other automakers that have 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 regulations that favor the sellers. 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 by franchised dealers.

The National Automobile Dealers Association, which represents dealers, has long opposed direct car sales and has urged lawmakers to require Tesla to use dealers, 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.

“Franchise dealers are absolutely essential to the widespread adoption of EVs in the US,” said Jared Allen, a spokesman for NADA, in an email. And as more legacy automakers enter the EV market, “effectively selling to these mass-market customers requires leveraging — not rejecting — the existing franchise dealer network,” he added.

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

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

The automaker operates about 160 service centers in the United States, far fewer than most established companies — Chevrolet, for example, has more than 3,000 dealerships nationwide. Tesla promises to send a technician to customers’ homes for minor repairs, but larger problems must be solved 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 has released videos documenting how difficult it has been to fix a number of problems because he lives a few hours from a Tesla service center.

In an October 2019 video, he was scathing about problems with his Model X sports utility vehicle, which included a hole in a dashboard and a dent in the weatherstripping of a door. “I’m not excited to make this video. I’ve been dreading it hoping something positive would happen,” he said. “Unfortunately after five weeks of owning the Model X, the Tesla 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 distance hasn’t been an issue. This may be because electric cars tend to require less maintenance than combustion engine vehicles.

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

“It was my first experience of buying cars online – it was a bit of a surprise and mostly pleasant,” Mr McGuire said. “Some people may want a lot more hand-holding.”

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 new electric car companies, such as Rivian and Lucid, have even fewer showrooms and service centers than Tesla. Rivian has 19 in the United States, and Lucid has just 10, with seven more slated to open this year. That hasn’t stopped 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 major mechanical work might be a hassle, Lucid goes so far as to promise free shipping to its nearest service center for cars in need of major repairs.

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