Digitizing Dealerships? Don’t hold your breath


465573587The Internet has fundamentally changed the way we buy products—everything from music to groceries. Similarly, advances in the 3D printing are propelling a dramatic shift in the way we manufacture all this stuff. But while so many industries have faced disruption as a result of the growth of personal computing (such as the record business, the movie business, the book business, and the news industry to name a few). But despite dramatic changes in the way we buy almost anything (thanks to online retailers like Amazon and eBay), there is one industry where our buying experience has remained exactly the same: automobiles. You would think that in the next few years you should just be able to have your car 3D printed by GM, Toyota, or Ford and have it delivered by drone via Amazon Prime Air. But, for the time being at least, it looks like the old guard of the car sales industry will work incredibly hard to prevent that from happening.

Have you ever wondered why you can’t just go to any of the major car manufactures’ websites and purchase the car you want online? Well, it goes back to the early 1930s, when car manufacturers had a large amount of power over the independent dealers that they licensed to sell their cars, and so to protect dealers from what was seen as unfair business practices by manufacturers, state legislatures across the country began passing laws, so-called “franchise rules,” to protect dealers from being extorted by manufacturers. (As NPR reported last year, states made it very hard for manufacturers to rescind franchises from dealers, essentially giving a single dealer a monopoly on a particular brand of car in a geographic area. In doing so, states reversed the balance of power, giving manufactures a very limited amount of control over the people that were actually selling their cars. Fast-forward to today, and car dealerships continue to use their political influence over state legislatures and regulators to strengthen their hold on the way Americans buy cars.

Enter Tesla Motors, who in 2012 began production on their $60,000+ Model S – a completely electric vehicle that unlike most of its electric competitors was actually cool looking. The innovative company, run by Chairman and CEO Elon Musk, continues to make headlines and the Model S just last year earned top marks from Consumer Reports. But beyond their innovative technology, Musk and his team are also leading a revolution in the way their cars are sold. Unlike the major automakers, Tesla’s website actually has an “Order” button on their website. They accept Visa, MasterCard, and PayPal. The company (like Apple) has their own branded retail stores, but these are owned and operated by Tesla (not independent dealers).

This fact has not gone unnoticed by politically powerful dealership groups across the country—and the war to define the future of car buying is off and running. Battles have already been fought in Ohio, Texas, and New York, and in just the last week things have heated up in New Jersey. Last month, New Jersey’s Motor Vehicle Commission issued new rules backed by the politically influential New Jersey Coalition of Automotive Retailers that would prevent Tesla from continuing to operate their retail stores in the state (by prohibiting direct retail sales of vehicles). As a result, Tesla filed a legal challenge to the rules last week with the hopes of preserving their current business model.

So why with all these fights doesn’t Tesla just decide to sell cars the old-fashioned way? Well, in a filing this week challenging these new rules, Tesla laid out its case: “Franchise dealers have an inherent conflict of interest in selling electric vehicles, In order to do so effectively, they would need to enthusiastically tout the reasons why electric vehicles are superior to gasoline vehicles. This is not something that they are going to do since gasoline vehicles represent virtually all of their revenue”.

The question that will need to be answered in the series of legal and legislative battles that are only just starting to unfold is: Do dealerships provide such crucial service to consumers that they deserve government protection from technological innovation? If history had taught us anything, (just ask the bank tellers who lost their jobs because of ATMs or the travel agents who lost their jobs because people discovered Expedia, or the typists who lost their jobs to a Xerox machine) technology is tough thing to fight forever, and ultimately to survive business models must adapt and bow to consumers who demand the economics and convenience that technological innovation can provide. However, while the technology’s eventual victory is almost inevitable, it doesn’t mean that we’ll be routinely buying our new cars online anytime soon.

About John Wilson

John Wilson is an analytical communications professional, with a passion for sifting through data for compelling stories and insights. John started his career on Capitol Hill and chased his love of data and communications out of politics and into opinion research and public relations. John graduated Phi Beta Kappa from the George Washington University where he studied political science and statistics. Beyond work, John loves the mountains and can be found skiing or hiking in both the Sierras and the Rockies.
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