Automakers Doing Away With Traditional Car Dealerships?

As automakers continue to push the transition to electric vehicles, many are considering how to fit traditional car dealerships into the equation and are considering foregoing that model in favor of a direct-to-consumer selling strategy.

By Ryan Clancy | Updated

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As car manufacturing companies transition from gas-powered cars to electric vehicles, automotive dealers must rethink their business model to keep up with the ever-changing automotive industry. 

Some automotive brands ask the dealerships to just stock electric vehicles, while others offer various “EV certification” levels. Many car dealerships are not knowledgeable about this transition, so they are still trying to figure out the best way to do it. 

Everything depends on how popular electric vehicles are, where the dealership is located and if there is a constant stream of EV sales. In many states, automotive manufacturers cannot sell directly to customers. They are legally required to go through a franchised dealership, which makes their relationship with car dealerships a complex one. 

Both automotive brands and vehicle dealerships try to maximize their profits, but they also rely heavily on each other to make a profit. Automotive manufacturers rely on dealerships to sell their merchandise, while car dealerships rely on automotive manufacturers to give them something to sell. But how they will transition to electric vehicles together is a hot topic at the moment.

Adding electric vehicles to dealerships is more complex than initially thought, as there must be extensive employee training and investments in infrastructure and store amenities such as EV charging points. These upgrades could cost thousands or even millions. 

Since the pandemic, the sales process for car dealerships has changed, as a lot of their sales are now completed entirely online. Tesla, always the front runner in any electric, was the first EV brand to embrace the online sales process, with many other brands following suit. Many automotive brands now offer a hybrid service for customers to buy their vehicles, either fully in-store, entirely online or both. 

In the future, the physical automotive dealership may just process maintenance services like car service and valeting, but all purchases will be completed online. By moving the sales process online, automotive manufacturers believe it will give customers a more streamlined, comprehensive service than physical shops will. 

Brands like Honda are moving 100 percent of their electric vehicle sales online, with its gas-power vehicle sales soon to follow. They will use their physical stores to process the orders and organize the shipment of their merchandise. Tesla’s chief IT and digital manager believes a hybrid business model will be the most successful going forward. 

Some automotive brands are receiving major problems from their car dealerships, as they are not happy about the considerable investment they now have to make into their dealerships to keep up with the changing industry. Ford is being sued by some of its dealerships for asking them to spend up to $1 million on electric vehicle infrastructure and upgrades. 

There is no doubt that the automotive industry is in a period of change as electric vehicles begin to take over the market. Also, every year, technology is becoming more and more prominent in our everyday lives. So as the two of these collide, it may feel like automotive dealerships are being asked to change from all angles, but if they refuse, they may be cut out of the automotive chain altogether.