Tesla's Direct Sales Model Is The Way Of The Future: Here's Why
The traditional dealership model may hinder legacy automakers' EV sales.
Car dealerships are a vestige of the 20th century which—like many outmoded and counterproductive industries—is being kept alive by political machinations. Tesla never wanted anything to do with the dealership model, and neither do any of the 21st-century auto startups. One suspects that many legacy automakers would also like to dispense with it if they could.
Dealerships add an additional layer of cost and inconvenience to the car-buying process (what Tom Friedman calls “friction”), in order to provide services that were once important, but are no longer needed in the internet age. And while many auto salespeople are surely dedicated and skilled workers, because of their commission-based compensation structure, over the decades the smarmy, high-pressure car salesman (in a cheap suit) has become a stock character in popular culture—mistrusted and unloved.
Now another reason has emerged to hate on the poor, misunderstood dealerships—they’re taking advantage of the ongoing supply crunch to jack up prices.
As fate would have it, the recent surge in demand for electric vehicles has coincided with the pandemic-induced supply-chain disruptions that are causing shortages of many products. At the same time, legacy automakers have, as always, chosen to produce their EVs only in limited numbers. The result is that supply is lagging far behind demand—if you want to buy a new EV, be prepared to put your name on a waiting list. Tesla has been dealing with this problem (or opportunity) for most of its existence, but now buyers are reporting that long waits are the norm for several current and upcoming models (electric and gas).
One of the hottest EVs in the pipeline is the Ford F-150 Lightning—Ford claims to have over 200,000 reservations for the electric pickup truck, and it’s currently planning to build only 15,000 units in 2022. The automaker says it has already increased planned production numbers twice, but at this rate, a car buyer who wants some Lightning could be looking at a wait of two years or more. Several Ford dealerships have been asking reservation-holders to pony up huge markups in order to convert their reservations to firm orders. One reportedly tacked on 30 grand.
A group of posters in the ElectricVehicles subreddit has created a handy spreadsheet to document dealership markups for various EV models around the country.
The Hyundai Ioniq 5 and VW ID.4 are red-hot too, and some (not all) of their dealers are also taking advantage of the situation to demand premiums of up to $10,000 over MSRP. It’s not just EVs that are getting marked up—cars of all kinds are in short supply, and some dealers are reportedly slapping on “market adjustment fees” or “administration fees” across the board. Another little trick is insisting that the buyer pony up for unwanted add-ons like a “dealer protection package.” (What do the dealers need to be protected from, exactly?)
Of course, supply and demand is the law of the land—when things get scarce, they get expensive—so who can really blame the dealerships? These are new, upscale cars we’re talking about, not loaves of bread. But the situation does make one wonder whether consumers might get a better shake if they could deal directly with automakers.
Of course, Tesla isn’t exactly the white knight in this fable—facing high demand and constrained supply, it’s been raising prices for its new models for months, long before the current supply crunch developed (Tesla always seems to be a step or two ahead of the legacy automakers). However, at least the prices are there in black and white on the website, so there’s less leeway for sales shenanigans. (On the other hand, we have heard from buyers who claim that Tesla doesn’t always live up to its claims of price transparency.)
The best story we’ve heard (via InsideEVs) concerns someone who had placed an order for a Mercedes-Benz EQS 580, which has a starting MSRP of $119,110. The dealership insisted on a $50,000 markup before it would confirm the order. The would-be buyer complained to Mercedes-Benz USA, only to be told that “pricing is completely up to the dealer.”
“Infer what you will about the dealer model protecting consumers,” wrote the erstwhile Mercedes fan. Did he swallow his irritation and hand over the extra 50 grand? Or abandon his plan to buy a new car? No, readers—he bought himself a Lucid Air instead.