How Rapidly the Robots Will Rise

“For car buyers, an end to the days of dickering?” reads the headline across the center of the front page of the Washington Post this morning. No, it’s not an article about new tools to make car buying easier. It’s a story about electric vehicle maker, Tesla Motor’s impact on car retailing.

The article details the state by state battles Tesla continues to fight for the right to open showrooms and actually show, tell and sell Tesla vehicles. The article notes that more than 20 U.S. states allow sales of Tesla vehicles from company showrooms, but highlights the growing interest across the country in promoting the sales of electric vehicles generally from any car maker including Tesla.

The article arrives as I am reading Martin Ford’s “Rise of the Robots” which details the forces disrupting service (among other) industries such as retail – as industry after industry faces the kiosk-ification of product sales (think Redbox). Decades ago I was an editor at Computer Retail Week which was part of CMP (now United Media) which owned Computer Reseller News.

A once-mighty and weighty publication, Computer Reseller News effectively chronicled the rise and fall of computer (value-added) reselling. I still remember the special reports and editorials pointing out the flawed model that Dell, the Tesla Motors of the computer industry, was hopelessly pursuing vis-a-vis Compaq. (Compaq?)

Computer Retail Week faded along with the likes of Computer City, CompUSA, Incredible Universe, Circuit City and many smaller regional computer superstore chains (notably Micro Center and Fry’s continue to survive and thrive). Blockbuster is the most frequently cited poster child of retail consolidation and decline today, but regional and national chains serving a range of consumer needs continue to decline in the face of direct sales. Been to Borders lately for a book?

But reselling cars is a different proposition, you might say. Consumers want to touch and feel the product. That’s why dealers have massive lots with loads of inventory.

If you want a flavor of the future, visit Europe where most dealers carry little inventory and as much as 50% of car purchases are built to order. In the U.S. consumers still like to kick the tires… for now.
The National Automobile Dealer Association touts the broad social, political and economic impact of dealers. According to 2015 statistics from NADA:

• There are 16,545 franchised new car dealers in the U.S.
• Dealers account for 2,305,159 jobs – including 1,088,001 direct and 1,217,158 induced and indirect jobs
• An average of 67 employees per dealership
• $63B payroll – $52,144 average annual earnings – $20.3B state and Federal income taxes paid
• $862.7B total retail sales – 17.9% share of state sales

The impact of dealers is more than economic. Dealers influence local politics, interact with most banks to conduct their business, and are active in their communities. Is Tesla sponsoring any local charity events or softball teams?

The case for dealers is strong, but when faced with the rise of the robots in the form of direct sales it’s important to remember that sympathy for dealers has its limits. Everyone has a story reflecting unpleasant interactions with dealers. My Toyota dealer recently tried to get me to replace a left control arm ($2,000+) that my independent repair shop told me was not necessary. My son’s Ford dealer swapped two cars out from under him AFTER all the paperwork was signed before he finally drove away a “happy” customer in his new Fiesta.

There’s a reason they’re called “stealers.”

If Tesla’s popping of the franchise dealer bubble were to open the flood gates for direct vehicle sales few consumers would be shedding tears. But the legal line in the sand stands and Michigan Tesla buyers, like those in other states that do not allow Tesla stores, will have to turn to Ohio or Illinois if they want to buy a Tesla.

The key issue is that electric vehicles like the Tesla Model S require little or no service which is a core consumer value proposition for dealers. Also, the structure of the industry has hardened such that new car makers lack the DNA to deal directly with consumers. For car makers, selling cars is a B2B proposition. Car makers sell do dealers.

But the B2B bubble is quivering on an entirely separate front. While the Washington Post article is focused on the new sales model enabled by the introduction of EVs, the growing role of car sharing and driverless vehicles is also emerging as a dealerless vehicle-oriented value proposition. Why buy a car, if I can borrow one?

Dealers have ample reason to be concerned. NADA lobbyists are surely mobilizing not only to fight the opening of Tesla stores, but to preserve a role for dealers in the emerging world of driverless cars. Lobbying alone cannot overcome a lack of creativity.

It’s time for dealers to turn in the direction of the skid. Dealers need to confront the structural weaknesses in their existing sales and service model, own up to their unfriendly consumer-facing processes and rework their operations to tackle the changing transportation landscape that is emerging faster than they realize.

Visit any dealer on any given day and watch the sales process unfold. Watch the delaying tactics, the wearing down of the customer(s), the dissemination of misinformation and disinformation. If new car dealers want consumer support and sympathy for their good works in the community they need to change their ways in the showroom and the shop. Otherwise, the robots will rise earlier than we think and we’ll all be buying or borrowing our next car with the press of a button on an app.

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