Do we really need car dealerships anymore?
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This year Tesla has faced off against the National Automobile Dealers Association (NADA), a trade group that represents car retailers, over Tesla's right to sell its Model S cars through its websites and manufacturer-owned stores. Tesla calls them showrooms—a way, we presume, to circumvent existing laws regarding franchises. NADA is having none of it. It wants to protect the dealership system, and is even fighting in some states to ban Tesla from selling its own cars directly to customers. In scoring a number of court victories, Tesla has codified its right to circumvent state laws and keep a tight control over the retail experience for any potential customers of the Model S.
Visiting a car dealership is a miserable experience that probably ranks somewhere between an IRS audit and a colonoscopy on many people's activities' list. So Tesla's fight got us wondering: Is there any benefit from the current system, which grants dealers an exclusive retail monopoly on what's likely to be one of your largest purchases? Or is this just a case of the powers that be digging in to protect their interests?
Almost every auto dealer is an independent franchise, because nearly ever state requires it to be that way. It's a business model that began as a way for automakers to spread their geographic reach quickly and with minimal corporate investment—the franchise owner assumes most of the financial risk. Along the way, states enacted laws designed to prevent corporate ownership of dealers, which prevents manufacturers from providing in-house stores with advantages not available to franchisees. Texas, for instance, bans direct-to-consumer sales, while rules can vary widely in other states.
"Most of the dealers have been doing this awhile," Dan Lacy, of Lacy Ford Lincoln Mercury Subaru, told PopMech, providing a humble spin on the fourth-generation, family-owned business that his great grandfather founded 99 years ago, making Lacy's store in Catskill, N.Y., the state's oldest Ford dealership. "We have stories from my mom and dad about how their first washer/dryer came from a car trade," he says. "There are even stories that my grandfather would take chickens in on trade."
Lacy's pitch for the dealership system boils down to this: We're a local business, and local business is good for the local economy. "Not only do these dealers employ local people, but they also spend money in the community," he says. "We do a lot of fund-raisers, support little leagues, football, basketball leagues." Moreover, Lacy employees are locals who live, shop, and spend money in the community. "I think being able to employ 50 people in today's economy is important," Lacy says.
Given Tesla's famously chary behavior when it comes to outsiders, it seems possible that the company would pick transplants who know Telsa up and down, rather than locals, to run new stores. In contrast, Lacy claims that growing up, living, and working in the community means the dealer knows what his customers want and expect. "We're brought up in the area, we know the area, and know how to sell cars here," he says.