Are the Days of Car Dealerships Coming to an End?

Over the last few years, car makers have had to tighten belts as supply chain issues lengthen already long new-car queues. The semiconductor shortage is into its 3^rd year, and although many car makers say it is coming to an end, the majority of the semiconductors come from Taiwan. There are tensions in the area, a war in the Ukraine, and the lasting effects of Covid, all coming together in a perfect storm.

While Australian vehicle sales were up 300 units last month (on the same month last year), the market is down 29,310 units overall, on this time last year.

Most car manufacturers have delayed model launches, or have had long delivery times, and delays on parts for repairs. Dealers have been cashing in by registering cars and selling them as 2^nd hand. One reader was quoted $95,000 for a Kia Carnival Platinum, a $24,000 premium, while another reader paid $46,000 for a ($26,000) Suzuki Jimny.

There will always be forecourts full of 2^nd hand cars, sold by fast-talking, gold-toothed, salesman. So, you might think new cars might be a different kettle of fish altogether. But, consider this: Mercedes Benz, Honda, Polestar, and Tesla, use an agency style sales model. In Tesla and Polestar’s cases, the car is ordered online, and delivered via a service department.

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Nothing changes, except that the buyer knows what they’re paying and the deal is the same for all.

Most brands have placed firm commitment in the investment their dealer network has made, but times are changing. If sales are down, profits head south as well. That is when dealers cash in on the delays.

The practice angers buyers, but there is little that manufacturers can do, or is there? Tesla tightly control their sales, with the laser-focus grip of a kid on candy. A buyer recently reported that Tesla had cancelled his remaining 3 (Model 3) orders, and banned him from ever buying another new tesla. His crime? Selling his new Model 3 on for more than what he paid for it.

Furthermore, dealers make most of their profit from servicing. Electric vehicles have far less to service. Volvo and Polestar have already given a date of an electrified model line up by 2025, with a fully electric range by 2030. In fact, Polestar is already 100% electric. Genesis/Hyundai/Kia will also be electric within 20 years. So, what will dealers service? They’ll rotate the tyres and fix broken parts, and that’s it. Electric motors have one moving part, and the battery packs could be easily replaced by any service centre with the right apparatus.

Tesla closed its sales centres, and while it is the first to do so, it is not unreasonable to think other brands will follow.

New, privately imported Chinese brand, BYD, will sell online, and service at authorised centres, bypassing dealers altogether.

We’ve shown that auto makers can move on profiteering if they want to, but it is currently a seller’s market. If dealers find themselves out of a job, they can look back on this practice and ask themselves if their own business model prompted their inevitable demise.

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