Tesla is really upending the automobile industry. We all know the impact it is having on other manufacturers, pushing them into electric vehicle (EV) production.
It is not really a surprise considering the fact this is an industry that has not changed much in over 100 years. In this technological era, the industries that are primed for disruption are those that reflect what they were like decades ago.
We already discussed how 3D printing could disrupt the residential construction industry. This is another that has not changed a great deal in over a century.
The way technology is advancing means that within the next 10-15 years, we will see them completely upended.
In other words, what we see will be as different as Netflix was to Blockbuster. One was analog while the other digital.
The automobile industry is going to get a good dose of digitization.
Elimination Of The Dealership
We all know the car dealership is a central part of this industry. Enter most towns and you will find a street where many of the dealerships are. These are usually one of the larger employers in town. All the major manufacturers use them.
It is a model that also dates back more than 100 years.
That is changing due to Tesla. There are no dealership associated with that company. It does own some centers where people can look at the vehicles. However, all purchases much take place online and the price is static. What is on the website is the price.
Here we see a stark difference. Not only does the dealership model make the manufacturers less competitive, since they need to make a profit also, it is, overall, an awful experience for most. How many people enjoy the car buying experience? The reality is very few.
Tesla and other newer EV companies are simply going direct. They have people purchasing online, eliminating this distasteful practice. While Tesla is growing, they still are a relatively small manufacturer globally. This means the existing model is weathering the storm.
Or is it?
What happens if one of the bigger companies decided to pull the plug?
This is exactly what could be starting. It is likely we are about to watch the beginning of the downfall of the automobile dealership.
Jim Farley Says No More
Online car sales will get a boost if Jim Farley has his way. He believes the future of the industry is online sales with dealerships becoming quality service centers. It is not clear if the dealerships believe this but that is his view.
Who is Jim Farley? If you are not familiar with this industry, then you might be unaware that he is the CEO of Ford. Now, instead of just Tesla and a few start up EVs using the Internet, one of the biggest names in the industry is talking about the same thing.
Crucially, Farley framed this move as a goal rather than a definitive plan. His words, reported by the Detroit Free Press: “We’ve got to go to non-negotiated price. We’ve got to go to 100% online. There’s no inventory ... 100% remote pickup and delivery.”
Certainly he is doing a bit of hedging here. Also, he mentioned the EVs, which account for miniscule percentage of Ford's overall sales.
However, the key point here is that he is putting this out there. And if it is being discussed with the cozy wall of Ford, how many other manufacturers are having the same conversations?
Here is where we see a line being drawn in the sand. While there are legal ramifications in some states, a situation Tesla ran into on numerous occasions, if the entire industry starts to put pressure on legislatures, things will change quickly.
This is a situation that is worth watching. It is vital to keep in mind that each time Tesla sells another vehicle, that is another sale removed from the dealership network. Over time, this could mean a significant hit if the company keeps growing at a similar pace.
Of course, this shift will be aided if the likes of Ford make a similar move.
Will car dealerships end up being as useful as a Blockbuster store? Only time will tell but it does look like they are not needed, at least for the purchases.
What are your thoughts?
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