Is There Still Life in the American Car Dealership?

Will they make it through the 21st century?

byKevin Tagoe|
Is There Still Life in the American Car Dealership?

The concept of a car dealership has remained remarkably constant since the very first one, a retailer of General Motors cars, opened its doors in 1898. Dealerships fundamentally strive to move new cars off their lots for more than the invoice price, essentially the price the car was purchased for from the manufacturer. To help the dealers out, holdbacks – roughly two to three percent of the vehicle’s price – are paid upfront and returned to the dealers after the car is sold as quarterly rebates. Used cars are totally different beasts. Dealerships generally start with a trade-in, or a used car whose value pays off some of the value of the desired car on the lot. Because they are generally bought at wholesale prices, trade-ins can be used to turn a strong profit. Unfortunately for both dealers and buyers, the sale of used cars can be complicated by many factors, including supply and demand and the not always complete ownership history of the car.

The issue with this system is that it can create an environment of distrust between vendors and buyers. Specifically, dealerships may benefit from withholding information about a car or outright lying to push inventory under circumstances that play to their benefit. While savvy buyers may be able to avoid crooked dealerships, there are no guarantees. There are attempts to work the basic model to everyone’s benefit, most notably, Tesla’s buying model.

The Tesla Motors purchasing model focuses around two enironments: retail spaces called galleries, and the Tesla factory. A potential buyer goes to a gallery to find out more about Tesla cars. If the buyer is interested in purchasing one, then the buyer is directed towards a purchasing kiosk. Here, a direct order is made to the Tesla factory. Unfortunately, Tesla’s model has met substantial resistance from conventional dealerships.

Regardless of what happens to the dealership, there will always be room for improvement and advancement.