Facing Direct-Sales Disrupters, Car Dealers Can Stay Relevant

CHICAGO – Franchised car dealers can “stay relevant” in a changing retail world that now includes start-up electric-vehicle makers selling their products directly to consumers, says Cars.com CEO Alex Vetter.

“The local dealership model is the preferred shopping and servicing ownership experience,” he tells WardsAuto after his keynote presentation at a media breakfast during the Chicago Auto Show.

Tesla was the first of today’s EV makers to sell cars directly to consumers. Others are following suit, such as Rivian and Lucid.

In bypassing the traditional franchised dealer system, Tesla originally faced a series of legal challenges by dealership groups invoking franchise laws.

Tesla won and lost some of those state-by-state challenges. In some states, such as Michigan, franchise laws continue to forbid factory-direct sales. 

But few people question Tesla’s overall success.

Tesla may be the exception to the rule because of its cult following centered on its products and its founder, Elon Musk.

“Not every automaker has a rocket man at its helm,” Vetter says, referring to Musk who also is involved in rocketry (and subterranean tunnel transportation).

By using a factory-direct model, an automaker risks “going through capital at a rapid speed and ultimately underwhelming consumers,” Vetter says.

chicago auto show (1)_0

Why go that route, then? “To aspire to the illusion of control,” he replies.

How do franchised dealers stay off an endangered-species list?

“Dealers need to own the last mile,” Vetter says, citing as an example same-day home deliveries.

“The dealer is closest to the customers – and creates that ownership experience that ensures you keep them with the brand over time.”

Cars.com began 25 years ago as a digital inventory listing service for dealers. It has transformed into a marketplace platform. “The majority of our business is providing software applications to the industry,” Vetter says.

Dealers who embrace a tech-first culture “are dominating and taking share from those who have not adapted or evolved,” Vetter says. “I believe dealers are central to the success of the auto industry and beneficial to a free and open marketplace.

“Dealers over the years have shown they are adaptable to changing times. That’s good news for consumers who want a fair-market deal, not a factory-mandated fixed price.”

He advocates a “hybrid model” in which dealers go “all-in with digital to let consumers do much of the automotive researching and shopping online but ultimately finish the transaction at the dealership or at home. “That’s the best option for our industry, because of its flexibility.”

Franchised dealers can play a big role in the growing EV market as automaker after automaker either introduces new electric vehicles or plans to do so.  

“We are definitely seeing more consumer interest in EVs,” Vetter says. “Roughly two-thirds of Americans surveyed indicated they were more likely to buy an EV after the Biden Admin. last year announced plans to support a nationwide EV infrastructure and proposed financial incentives to accelerate the country’s move toward EVs.”

But for automakers and dealers, there remains “a lot of work to do educating consumers on how to operate and maintain an EV,” he adds.

Forty-one percent of franchised dealerships on Cars.com list EV inventory. A Cars.com survey indicates 60% of dealerships are actively planning for EV sales, service and training.

Cars.com recently acquired Accu-Trade, software that allows dealers to buy and sell used vehicles among themselves.  

Vetter says: “It will make a huge impact for dealers as they navigate the competitive used-car market. It will give them an easier way to acquire inventory.”

In the current new- and used-car market of demand outpacing supply because of an industry microchip shortage, “dealers are continuing to sell all the inventory they can get, Vetter says.

Many dealers are selling vehicles at premium prices, some significantly above MSRP.

“I’ve heard talk of dealer price-gouging,” Vetter tells the Chicago audience. “There is no gouging. This is classic supply-and-demand.”

Consumers must look harder – and pay more – to find the vehicle they want, “but we can get to a place where supply and demand are in greater balance in 2022 as OEMs ramp production to better meet demand.

“For OEMs, we can show actual consumer demand, by make, model, trim and geography, so they can build cars tied closer to actual demand.”

Steve Finlay is a retired WardsAuto senior editor. He can be reached at [email protected].