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Tesla Won't Kill Car Dealerships, Car Dealers Will

Manufacturers will end up selling their own cars because no one likes a middleman.

Ruaridh Stewart/ZUMA Press/Corbis


Americans hate car salesmen. That’s why the public isn’t picketing on their behalf in the wake of Monday’s decisions by New York Governor Mario Cuomo and the New Jersey Assembly to push legislation allowing Tesla, the Palo Alto-based manufacturer of sexy electric-powered conversation pieces, to sell cars directly to consumers. Dealers, concerned that manufacturers can undercut sticker prices, are now lobbying the Garden State Senate to keep Elon Musk's hypothetical stores shuttered. They might succeed in the near term, but when they ultimately fail – and fail they will – it will have nothing to do with Tesla.

Tesla never represented a potential profit for the swells on the NJ Route 1 because the company’s cars – with their small, hard-to-reach engines and software that automatically alerts the company to engineering hiccups – require very little maintenance, which is generally the biggest revenue driver for dealerships. Financing is the other dealership department in the black, and Tesla has a different approach there as well. Because the brand sells tech that becomes obsolete rather than non-functional, Tesla amends its financing plans with the guarantee that cars can be resold to the manufacturer for at least 50 percent of their initial value. Dealers can’t do that. The simple fact is that Tesla isn’t in the combustion engine business, it’s in the killer app business.

Whether or not the company is following the road toward a carbon-neutral, consumer-friendly future or bankruptcy, Tesla is making moves that the big Detroit firms cannot and will not attempt. Teaching an old dog new tricks is hard. Teaching an old dog to become a dolphin is impossible. The threat to the car sales status quo isn’t the company itself, but what it embodies: consumers’ increasing comfort with complication and desire for transparency. We’re all walking around with phones considerably more complicated than automobiles. We buy them online or from polo-shirted undergrads. We also shop for cars online, which gives salesmen, who work on commissions for bosses with low-budget commercials and big-budget bank accounts, the existential jitters.

Consumers no longer value the hands-on experience. Men in custom-fit shirts from Twillory.com, Bonobos.com slacks, and WarbyParker.com glasses don’t feel the need to scuff up their brogues from Zappos kicking tires. In Brazil, GM has been selling its most popular models online for over a decade. In Sweden, Volvo has attracted American consumers by offering free trans-atlantic trips to the Gothenburg factory to meet their future vehicles before they roll into a cargo hold. These are better consumer experiences because they’re about the car, not the price. Dealerships, which sell services, not goods, can’t compete with that.

All that said, car dealerships aren’t going to go softly into that good night. The industry employs over a million Americans and has some serious lobbying torque. What is more likely is that the lots and cubicles will slowly empty out. The model will fail because the internet abhors an information imbalance and modern consumers shop on the internet. Salesmen don’t have to worry about Tesla; they’ve got nothing to fear but themselves.

 

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