What's the point of car dealerships anymore?

Buyers can now do their own research and find financing and repair services elsewhere. Why can't we buy directly from the manufacturer?

By Kim Peterson Jun 10, 2013 7:13AM
Image: Car salesman showing couple new silver hatchback in car showroom © Juice Images, Cultura, Getty ImagesUpdated June 11, 6:15 p.m. ET

Tesla Motors
(TSLA) is the hottest thing in the auto industry right now, and when CEO Elon Musk talks, people listen.

These days, Musk is talking about how much he hates car dealerships. He would much rather sell his Model S electric sedan directly to consumers instead of through a middleman, and he's making that very clear.

"The auto dealers association is definitely creating some problems for us, making it harder to get things done," he said during Tesla's annual shareholder meeting Tuesday, according to Reuters.

Tesla wants to have 50 of its own stores by year's end, up from 34 in the first quarter, Reuters reports. And after the Model S got a near-perfect score from Consumer Reports, buyers are anxious to see what all the fuss is about.

So, could Tesla avoid the dealership completely? The company will likely run into trouble legally because most states ban automakers from selling directly to consumers. A bill to overturn that in Texas didn't get to the floor for a vote this year. The lawmaker who proposed it said "the dealers are a pretty strong lobby group," Reuters reports.

The National Automobile Dealers Association said in a statement that states require dealers to invest in brick-and-mortar facilities, and that all automakers should be required to play by the same rules. "Tesla has the same right to petition state legislatures as everybody else," the group said.

Other states are having their own fits about direct sales by Tesla. North Carolina lawmakers are pushing a bill to keep dealerships in the loop, saying it would prevent unfair competition from the manufacturers. But as Slate points out, it's just fine for Apple (AAPL) to sell computers online in North Carolina or at its own Apple stores.

Why can't we buy cars directly from the manufacturer? The dealership model made a lot of sense decades ago, when automakers didn't want to make big investments in real estate, showrooms and distribution. But the Internet has made dealerships less relevant -- consumers can do all of their own research on price, availability and discounts. As a result, interacting with the dealership is for many the worst part about buying a new car.

You don't need a dealership for financing anymore. You don't need a dealership for repair. Shouldn't we just be able to go to the Ford (F) website and save money by ordering up a custom car for delivery?

The auto dealers' association countered that no other retail product has to be titled, license and safety inspected like a car. "The notion of buying a car directly from the manufacturer for less is a myth," the association said. If Ford sold cars in its own stores, what incentive is there to sell a Focus for less than Ford's suggested retail price?

A 2009 study by Gerald Bodisch, an economist with the Justice Department, found that consumers would indeed save money by buying directly from a manufacturer. The study referenced the Chevrolet Celta, which buyers in Brazil have been ordering online since 2000. The Celta has been a hit, and General Motors (GM) said it benefits from reduced production time, lower inventory levels and a more efficient distribution and sales model, according to the study.

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Jun 10, 2013 1:42PM
Where are you going for your test drive or are you ready to drop $30K plus on faith.  And where are you taking for service as I doubt the small garages, tire stores, PEP boys etc are going to want to spend the thousands for special tools, training and facilities to handle warranty repairs.  If your car breaks down or sputters, are you willing to park it and wait for the factory to fly in a technician to diagnose, order and repair.  You love paying full price for a $500-900 iPad, but a Chevy, Toyota, Kia or Dodge at sticker price and no 0% for 60 months or rebates as they have cease overstocking inventories.  And when you can't talk with a service manager or sales manager face to face, just someone in India, how will you rate the current dealer system then.
Jun 10, 2013 12:50PM
Companies should be able to sell cars directly to consumers.  Some will want to buy that way, some won't.  But, we should have that choice and it's restraint of the Free Market to stop it.
Jun 10, 2013 10:03AM
Get rid of the suits and save money, sounds good to me!  How about making individual options available instead of stupid packages like ala carte!
Jun 10, 2013 11:41AM
Not only do the dealers own the cars on their lots (inventory for customers to select from), stock replacement parts for the vehicles repairs, staff trained/qualified technicians to perform repairs (warranty and other maintenance), most have collision centers schooled in proper repair procedures.  In addition they employ dozens if not hundreds of middle to high skilled, well paying personnel.  Oh, they also facilitate financing and possess knowledge of the actual product!
Jun 10, 2013 12:17PM
Would you buy a $50000 car without  a test drive?  What if you don't like the feel of the seat?  If things continue to go the way of the internet there will be no more stores to see, touch, or feel the items we consume.  I sell appliances  at a local dealer.  I can not tell you how many people are clueless and confused about appliances after researching off the internet.  People also come to our store for planning and input from a real person.  Some don't buy from us and go to internet stores. I don't like it because I get commission on what I sell and if they buy elsewhere I just sold them my time and got no reward.  Everyone needs to ditch internet sales and buy local. Give local dealers a chance to earn a living.  That is the point of dealerships!
Jun 10, 2013 3:23PM

Why do we need grocery stores, let's just all grow our own food! Why do we need retail, we can just buy fabric and make our own clothes. Why do we need construction workers, we can just buy all the material and plans and build our own house.


Really? This is why the US is in decline, a bunch of idiots who can tweet and text but don't know the first thing about anything that matters.  

Jun 10, 2013 12:35PM
I don't understand why everyone that is commenting thinks that if vehicle manufacturers opened their own stores that they wouldn't hire the same type of people that are at current dealerships. Does everyone really think they would just have a guy at a desk that hands you the keys and tells you to figure it out? That would be insane.

As far as financing banks are very competitive. I just bought a new car and I was offered 1.89% on 60/months from my bank with $0 down. The best the dealership could get was 1.99%.
Jun 10, 2013 10:10AM
The internet killed the US Post office now they want to kill car dealerships .. More jobs gone.. LOL Next...
Jun 10, 2013 10:35AM
Native....so you'd love it if a cigar smoking guy with a car hauler pulled up to your door and dropped off a brand new pickup...huh? Who is going to prep it? Dealers do that. Who is going to check for damage? Dealers do that. Are you going to go to your local bank for financing? Be prepared to pay up to 20% down. Where exactly are you planning on taking it for warrany repairs? Dealers do that. Most dealerships today sell at invoice price. The factories can ask sticker price and without the ability to see, touch and test drive, what do you plan to do? Buy it on faith?
Jun 10, 2013 1:59PM
Want to ruin the economy?  Just eliminate the dealerships.  They not only employ thousands, but the nearby businesses flourish (restaurants, gas stations, etc.).  Besides that, the factory people do not know how to deal with the public-they have already shown us that by the many stupid decisions they have made.
Jun 10, 2013 1:01PM

Getting rid of the dealership makes no sense. Would you buy a house online without checking it out in person? How in the world would you test drive the car to make sure it's the one for you? Once you buy the car and find out that day you didn't like it afterall, you are stuck.

Jun 10, 2013 1:58PM
We will always need dealerships. Where will you trade your car in? Where will you buy used cars? Want us to go private party on all of that so people can buy new online? Or go to the even MORE scummy used car dealers? Thats an absolutely terrible idea, for buyer and seller. And I would prefer a dealer for repairs to my new vehicle. Used is different, find a good mechanic, but my new car with 5000 miles on it, I want to know its done right with a warranty behind the work.
Jun 10, 2013 1:26PM
I like the idea of doing business directly, however when it comes to service and warranty work I like knowing that there are good dealerships to work with as well as the trained technicians they employ that give me a confident feeling about the purchase of a new auto.
Jun 10, 2013 10:41AM
why is it so many businesses want to get rid of potential customers? if everyone did that we's all be sittin around starting at 1 another ,,,lol  the suits can't see past there own jobs
Jun 10, 2013 2:14PM
One of the worst experiences in life is buying a car at a dealership. They try to jack up the final amount paid at every level from the asking price to bait and switch techniques to financing and more. No one is saying we should outlaw dealerships but let the market place determine their future. Laws making it illegal for manufactures to sell cars directly to the public like Apple does with computers represent the type of government intrusion on capitalism that the Republicans seem to always claim they're fighting against. Besides, there will always be a need for dealerships to sell used cars.

Jun 10, 2013 2:19PM
Tesla won't be in business long enough for this to matter.....
Jun 10, 2013 2:17PM

I know, lets have the government provide us all a car.  When it breaks down we will return and get another one..Just like food stamps and cell phone rent vouchers free health care.  just saying

Jun 10, 2013 3:07PM
How many Dealerships/Employees lost there businesses and jobs do to the Obama Administration becoming Government Motors with GM & Chrysler. Want some more of that, or am I forgetting that Tesla received lots of tax payers dollars???????????
Jun 10, 2013 3:30PM
How did it get codified into law that auto manufacturers cannot sell directly to consumers? If we need dealerships so much and they add so much value, they wouldn't need a law to keep them in business. If dealerships make most of their money from the service department, they can continue to do so. I've rarely been given a discount at the dealer for having my car serviced where I bought it - they charge me the same amount they charge someone who bought it somewhere else.
Jun 10, 2013 4:18PM

A friend of mine was interested in a Tesla until he had to drive to CARMAX to 'sell' his trade (thank God for car dealerships). Then he had to Pay sticker (God bless the saleman who has to check with his manager to try to save you some money or every car would be sticker). Then he had to wait 4 mos to get it. Who is going to wash it and detail it for you? Who will do the licence, title and plates? Financing? Ha ha ha, you can write a check for 85,000.00. Sure sounds like a good plan to me. Plus where the he!! do I take it for service? To the mall where some kid in a Polo shirt will apologize to me and ask me to take it to a Firestone service center? The way I see it, dealers provide an invaluable service for next to no margin at all. I guess we dont need groceries stores either. Just have each manufacturer send us our food via the internet. No coupons, no discounts. pay what they tell you to pay.

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