You’d have to be living a pretty insular life not to be aware of the changes in the way automobiles are being sold. The business model of manufacturer-to-dealer-to-customer has changed only slightly since it was established early in the 20th century, and as we know, it’s a model that has been copied by motorcycle manufacturers.
The internet has changed the way cars, motorcycles and related accessories are marketed and sold.Last year, General Motors began experimenting with an online sales program called Shop-Click-Drive that enables a consumer to buy a car or truck without ever going into a dealership. The test program involved 100 dealers in Michigan who, according to an article in Time magazine, collectively sold 900 vehicles. The program went national in 2014, and a recent news release by GM claims 1,600 cars have been sold in more than a third of GM’s 4,300 participating dealers in 47 states via the program.
Vehicle selection, test ride, trade-in value estimation, pricing, financing and delivery all can be accomplished without the buyer calling on a dealer. In the case of a test drive and delivery, the dealership will, at some additional cost, deliver the car to your doorstep and pick up your trade-in.
The Game Changer
Like the motorcycle OEs’ direct accessory sales program, the dealer in the GM scenario makes a smaller profit but (according to GM project management) should make up in volume what’s lost in margin.
It’s not a bad program, and it may work for the motorcycle business.
Tesla Motors’ business model, however, is a real game changer for automotive retailers. The brand has attracted a lot of attention over the past few years, first with an expensive all-electric, two-seat sports car followed by a somewhat less expensive four-door sedan. The most remarkable thing about Teslas in a world of emerging hybrid and electric cars has been the fact that they can get up to 175 miles on a charge and be recharged quickly enough to make them a practical alternative to a gasoline-powered vehicle.
In the meantime, Tesla is radically reshaping the way vehicles are sold. It doesn’t have privately owned dealerships. All “galleries,” service centers and dealerships are company-owned. Vehicles are sold by the factory direct to consumers, leaving independent dealers out of the equation.
The situation has come to a head as Tesla has expanded into states such as Texas and Arizona, where the notion of an OE-owned dealership violates existing franchise laws. Dealer associations in 14 states are legally challenging Tesla’s business model and have been successful in a number of efforts.
On the other hand, Tesla has found friendlier sales environments in Virginia, Massachusetts, California and Colorado.
Tesla has built its galleries, where one can view the cars, in high foot traffic areas like shopping centers. Their front-line staff isn’t made up of sales people but, rather, “product specialists” who are paid a salary, not a commission. They do not “sell” vehicles; they only educate buyers with regard to the costs and benefits of owning a Tesla, or as Elon Musk, Tesla’s CEO and chief product architect says, “other electric cars.” Buyers also can design a car online, or visit a Tesla gallery to spec and arrange financing for the car of their choice.
Musk makes some interesting points defending Tesla’s retail marketing plan. “Franchise laws were enacted to prevent a manufacturer from unfairly opening stores in direct competition with an existing dealer franchisee,” he has said.
Musk claims that since Tesla has no independent dealers in any country in which their vehicles are sold, no existing dealers are hurt by the company’s marketing practices. He further maintains that the vehicles, gas and electric, are fundamentally different, and the typical multiline dealer would have to deal, perhaps unfairly, with the question of electric vs. gas.
'Shop-Click-Ride' is near
The aforementioned GM business model, Shop-Click-Drive, is almost here for the motorcycle industry, given the OEs’ current programs with clothing and accessories. Whether it’s a good or bad deal can be argued. The customer may find this sales model easier to use. The dealer doesn’t pay a commission to a salesperson. I doubt that many buyers will insist on having their bikes delivered, though I bet most would prefer a test ride near their home, but that may be academic given many brands’ reluctance to offer them.
The question in my mind is how soon -- or if -- an OE will try to replicate Tesla’s business model in the motorcycle business. And who will it be? The cost for an existing brand such as Harley-Davidson or Honda would be prohibitive. They’d have to buy out existing dealerships, and dealers who refused to sell would create a conflict of interest in direct violation of franchise laws in many states.
My guess is that if it happens at all, it will be someone, like Tesla, new to the market with new technology. But in reality, there simply isn’t enough sales volume in our industry for a single-line startup to be viable. What do you think?