Electric cars are killing the car dealership as we know it

Electric cars are killing the car dealership as we know it

Shoppers can expect to spend less time wandering
dealer lots in the future.
Maskot/Getty Images

After Tesla eschewed the dealership, EVs are poised to change the way we shop for cars.
Younger shoppers won’t have patience for long trips to the dealership.
Changes to the car-buying experience won’t be limited to EV buying.

Electric cars are changing the way we shop for and purchase vehicles, and dealerships are scrambling to adapt.

When Elon Musk’s Tesla started selling its cars through stores rather than dealerships a decade ago, the industry was skeptical of the move. The dealership model, in which retailers buy from automakers and sell vehicles to consumers, has been protected for nearly a century by robust franchise laws. It’s how you sold cars in America.

Tesla spent years beating back these laws, with some success. Startups like Rivian and Lucid have mimicked the model, selling without dealer networks in place after Tesla set the precedent for EV buying.

Then, car shopping in the pandemic and a prolonged chip shortage that strained inventory trained more buyers to order vehicles from the factory and wait rather than driving off the lot that day in a new set of wheels. This has led car manufacturers and dealers alike to operate on lower volumes and do more build-to-order business.

The role of the dealer is changing as a result. Thanks to the disruption caused by EVs, car shoppers of all kinds can expect to spend less time wandering dealership lots, talking with salespeople, and haggling over pricing.

“This is a movement that is going to happen within car purchasing — all car purchasing,” said Karl Brauer, executive analyst for iSeeCars. “It will be more critical to EV sales and more expected from EV customers, but will start to migrate as younger and younger buyers enter the market.”

Younger shoppers have become accustomed to buying anything they want online, and won’t have patience for long visits to brick-and-mortar stores, he said.

Dealerships are already changing

For car companies, there are pros and cons to both the direct sales and dealerships. The direct-to-consumer sales model used by startups like Tesla and Rivian create a more streamlined approach to automotive retail and gives the company more control over pricing and customer experience. 

However, without an established retail network, Tesla in particular has struggled with vehicle maintenance and repairs. Newer startups like Rivian and Lucid are discovering that the messy business of putting a car in a customer’s driveway could cost them revenue in the short term.

Companies like GM and Ford are trying to strike a balance between direct sales and the dealership model. At Ford, that has meant implementing no-haggle EV sales standards for dealerships to agree to before they can begin selling popular cars like the Mustang Mach-e and F-150 Lightning.

This approach, which requires a minimum buy-in of $500,000 from dealers, has courted some controversy. A lawsuit filed by New York dealers late last year accuses Ford of violating franchise laws with illegal pricing requirements and unlawful allocation systems. Still, two-thirds of Ford dealers have signed on for the program, according to CEO Jim Farley.

“We want to work with our dealers, but there are certain things our customers want that are non-negotiable,” Farley said at a conference in December, referring to an increasing preference among car shoppers to buy without haggling.

With the launch of the Cadillac Lyric, GM used a digital retail network that allows car shoppers to complete transactions entirely online, in the dealership, or a hybrid of both. GM rolled out the platform en masse with Cadillac and will expand to other brands as more EVs arrive, president Mark Reuss said in a recent interview.

“If you want to go see it or touch it, or drive it, you can still do that,” Reuss said. “Whether you buy it that way or not is up to you.”