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Tesla isn’t the Big Bad Wolf. Nor is Beepi or Carvana. At the end of the day, they’re essentially a dealer group with a simplified buying process (maybe). And in the case of Tesla, enjoy $3-5 billion in deposits for the Model 3 scheduled ostensibly for production next year.
Now, I understand the implications of dealer franchise protection concerns, but let’s look at how much these Uber-style industry transformers may actually change how people buy cars and how dealers sell them. For starters, one of the supposed ‘breakthroughs’ is the ability to buy it now. This came up in discussion at lunch at NADA and several of us agreed that we’d had a ‘buy-it-now’ button for a decade or more on our eBay auctions and classified listings that was rarely used, even with extremely detailed description available to the buyer and epic conflict resolution protection from eBay.
So what’s up with Tesla?
I personally think it’s fantastic for the industry to be pushed by innovation and new concepts. I think new technology forces businesses to adapt or die, and certainly look forward to working while my car drives me around. As an entrepreneur, I am ever-smitten with Elon Musk and his ability to beat the odds and naysayers. Not since Bill Gates introduced Windows 1 has a company made such a huge commitment to a product launch with such improbable odds of actually delivering it, though, as with the Model 3. And this comes from Forbes magazine, not me. The reality is that Tesla struggled this year to build a mere 2,500 of their Model X SUVs in the first quarter of 2016, and has nowhere near the capacity in their existing facilities to come close to building upwards of 100,000 Model 3 vehicles per year without billions in capital and at least a few of years of ramp-up. And as the image above shows, the Model S isn't winning any reliability battles.
Forget the deposits. They’re not funding operating capital with them. But a factory in a third-world country costs $1.5 billion or more, and in case nobody noticed, Tesla has been LOSING hundreds of millions consistently. Musk wants to make Teslas in California. How much will that really cost in his old Toyota / GM facility? Additionally, even the biggest global manufacturers take as many as five years to launch a high-production factory. Industry experts only speculate the cause and effect of two senior officers recent departures, but none of it is optimistic.
How about the Tesla Model 3 pre-orders?
I had a front-row seat when the Hummer H2 had more than a year of pre-orders. It was fun, though it still took ‘selling’ to convince them to wait instead of jumping in an Escalade or Navigator, and the pre-owned manager many times stole the trades when the car arrived or offered very conservative pre-trade purchase offers. That was for a $55,000 vehicle a dozen years ago. Most of those buyers were pretty flush with money.
The Model 3 buyers will include a pile of early adopters who can write a check, but many will have normal trades that are in a negative equity situation and some will be ‘get-me-dones’ on a certain level, with self-employment or iffy credit ‘stories’. That’s a lot harder to deal with online, and it doesn’t appear the service centers are currently equipped to handle it. So it will be a cluster or they’re headed back to a typical dealer model, especially when it comes to liquidating used vehicles-if they take any in. Are they ALL going to the auction? That’s a hefty potential logistical risk and challenge. What are the success odds if they don’t take trades? Pretty slim
And what of the cars in stock once the demand subsides? They bear all the challenge of liquidating aged and even off-lease units and will need real salespeople at some point to actually SELL these cars I suspect. Heaven forbid there is a major recall. It would be unfortunate to find out if the darlings of Washington, D.C. and Silicon Valley are too big to fail.
Their current website is hardly a cutting-edge e-commerce platform. The finance tools are very limiting, though you can order a Model S produced with a $2,500 deposit. There is no accommodation for trade-in appraisal or purchase, and their “Delivery Experience Specialist” will assist with delivery if you’re more than 160 miles away from the service center. That’s a hell of an Uber bill to pick it up from 100 miles away. . .
Will Beepi change the world?
Actually, Beepi’s website is pretty slick, and dealers who find a website partner with such a user-friendly e-Commerce interface, then BACK IT UP with a smooth transition to the showroom or delivery, will quickly rise above the competitor pack. But is Beepi going to put dealers out of business any time soon? Probably not, though the virtual broker concept is intriguing.
I didn’t price a bunch of cars for comparison, but when I picked an entry-priced Camry a few years old, it was actually priced mid-pack according to what was on Autotrader.com, though none of the cars online were close to Beepi’s “Hardball Used Car Salesman Listing Price” on their little meter graphic. And though dealers may have a delivery fee ranging between $250 and $1,000, the Beepi delivery added $999 even though I’m supposedly local. Their 3-month / 3k mile warranty is strong, and a 10-day return policy is a game-changer, but not if you have to pay shipping one or both ways. And there are online reviews that describe getting a Beepi repair experience as much worse than a second-rate third-party warranty company.
On a plus note, Beepi also has used car lease options. This seems great for a consumer since the estimated prices appeared similar to financing, but I fear they will be a bit in the tank in three years, especially on cars. It will be interesting to keep an eye on both their leasing program, as well as Toyota’s. They let you pay for the car with up to five credit or debit cards, which is interesting. Even more of an eyebrow raiser is paying with Bitcoin. There appears to be a potential money-laundering risk there, but that’s between them and the FBI.
CarMax doesn’t offer home delivery, but they’ve been pretty user-friendly when it comes to selling cars in cyberspace with quality units and no negotiation. And when AutoNation launched, it was with massive fanfare that they were going to revolutionize the market with one-price structures and a user-friendly experience. They are on their second (third?) online purchase platform in nine years, but so far doesn’t seem to have moved the needle much, and it may be improbable that it will as long as it requires full contact information just to start this ‘great experience’. However, they are certainly poised to rival Beepi and Carvana if the concept takes off and they get a bit flexible.
General Motors’ Shop Click Drive experience apparently took thousands of programmers to create. But the one vehicle I shopped and clicked at my local Chevy dealer, the dealer website price of $3,000 off MSRP all of a sudden jumped by two grand! Sort of ruined my DRIVE!
Apparently one incentive missing was the American Farm Bureau Member $500 discount – not a real big likelihood in metro Tampa. Then the roadblock became a requirement to provide full contact and purchase info before I could get additional pricing options from the factory. I hope the rumors of that program demise are false, but that transition was anything but smooth.
Is Carvana the car buyers ‘nirvana’?
As industry pundits promote full transparency for buyers, Carvana is similar to AutoNation Express, in that it pretty much requires all your info before they’ll start working an online deal with you. If you want anything other than a clunky payment calculator, you have to provide full disclosure before you can find out about fees, delivery charges, or any other specifics. They don’t sell cars that have been in an accident, which certainly limits inventory, but is also a bit of security for a buyer, and the 100 day / 4k mile certification definitely gives buyers confidence.
These two industry trend-setters are just a couple of the dozen or so companies that operate in the ‘peer-to-peer’ space, and only Beepi seems to actually have a dealer license, so at the end of the day, it’s really ‘caveat-emptor’ or buyer beware, because shoppers are giving up much of the consumer protection they assume is in place. Online reviews of Beepi and Carvana should allay any fears car dealers have of these tech companies redefining the industry, as both companies have substantial negative reviews about everything from payment arrangements, to vehicle prep, to wasted time having cars appraised that would never get purchased any way.
Does that mean traditional dealers should sit on their stump and ignore the new trends in buyer preferences? Not at all! Some changes are more critical than others, but here is a sample of transitions dealers can use to make the purchase more user-friendly for buyers:
Peer-to-peer buying services may not fully revolutionize the industry, but they certainly show car buyers that the processes COULD be better. A boatload of car buyers (perhaps a truckload) love the CarMax experience, and they are probably the closest to implementing a fully-online car-buying experience if I were to bet. AutoNation continues to push their processes into cyberspace, as well, and it could only be a matter of time before they hit it out of the park.
At the end of the day, it’s still about a shopper, a vehicle, and a dealership representative. The dealers who connect best online and smoothly transition into delivery – showroom or off-site – are the ones who will lead the industry.
Tom LaPointe CarChat24 Marketing Consultant
www.carchat24.com/ 24/7 Interactive Automotive Dealer Website LIVE CHAT Solutions Managed Chat, Backup Chat Support, and chat software options 727-638-0195
A U.S. Marine Corps veteran, Tom has an MBA in Marketing and is an automotive writer and author with nearly 20 years experience in virtually every aspect of the retail auto industry. He has been involved with the internet from the beginning, building websites at Johns Hopkins University in the 90's, and has been a performance leader in nearly every dealer role, from sales and service, to BDC / internet sales and viral marketing.