Will Buying a Car Change?

Does Gen Z really want to kick tires?

By Gary S. Vasilash

On April 14, 2021, an “Open Letter by Academics in Favor of Direct EV Sales and Service” was published, with the signatories being current or emeritus professors at U.S. universities who “specialize in economics, competition policy, market regulation, industrial organization” and other disciplines.

The primary point:

“We write to argue that any state laws still prohibiting car companies from selling their cars directly to consumers, or opening service centers for those vehicles, be amended to permit direct sales and service of electric vehicles (‘EVs’).”

There is an acknowledgement that this has largely been a case of Tesla hitting up against franchise laws. But they go on to note: “it is equally important to a new crop of American EV start-up companies including Rivian, Lordstown, Lucid, Bollinger, and others about to enter the market. It is also important to the legacy automobile companies like General Motors, Ford, and Chrysler, which should be allowed to compete with the start-ups on a level playing field.”

The academics argue the dealer franchise laws generally go back to the mid-20th century when “car dealers were mostly ‘mom and pop’ sole proprietorships. By contrast, the ‘Big Three’ auto companies were hegemonic firms that faced relatively little domestic or foreign competition.”

So, in effect, to protect the little guy, the franchise laws were put in place. This meant that OEMs couldn’t sell (or service) vehicles directly to the consumer, as it was thought that were they able to, they would be able to undercut the small proprietorships that were selling vehicles.

The letter points out that today there are massive dealership groups responsible for moving a whole lot of vehicles, not one’s next-door neighbor who operates a dealership down the street. They write: “there are at least 15-20 major manufacturer groups selling cars in the U.S.”—which account for, they say, billions of dollars in revenue. You can buy a whole lot of jerseys for the local softball team with that kind of money.

The academics put forth a number of reasons why direct sales should be permitted for EVs (one suspects that were it permissible for EVs it would be difficult to stop this happening for vehicles with other propulsion systems). One of the salient points is: “Traditional dealerships earn low profit margins on new car sales, and make it up on service. EVs have a much smaller service component since they don’t have service needs like oil changes or engine tune-ups. Traditional dealerships therefore lack much of an incentive to sell EVs.”

In addition to arguments like that, there is the simple fact that since the franchise laws were enacted there have been an array of developments that allow people to obtain goods and services that were not even imagined back then.

Like the Internet.

Which facilitates things like Amazon.

Which has created a generation of consumers who want to get things on their schedules.

Which has given rise to things like Carvana.

And on it goes.

Dave Zuchowski is the chief strategy officer at Unite Digital. The mission of Unite Digital is “To drive significant growth for our customers by creating seamless customer experiences that Unite and differentiate a manufacturer and their distribution network.” The “customers” in that sentence are “automotive, powersports, automotive groups and other franchised industries.”

Zuchowski, who is a former president and CEO of Hyundai Motor America and senior vice president of Dealer Operations at Mazda North America, has seen the business from several perspectives.

He thinks that what will be the case going forward will be more of a “hybrid” than a case where in order for someone to get a new vehicle—EV or otherwise—they will have to go to a dealership. Rather, it will be a blend of digital and personal interactions, something more seamless than obstreperous.

On this edition of “Autoline After Hours” Zuchowski provides his insights on not only the changing face of automotive retail, but overall changes that are facing various aspects of the industry. He talks with “Autoline’s” John McElroy, automotive writer Steve Findlay, and me.

And you can see it here.