The End Of The Car Dealership

in LeoFinance7 months ago (edited)

This is a subject that I was meaning to write about for a while. It is something that I think few are looking at yet it is in line with ongoing technological trends. We are seeing a lot of things taking place along these lines so it makes total sense to me.

For as long as most any of us can remember, the car dealership was a part of every town, especially small ones. Even today, in the non-urban areas, it is not uncommon to see car dealerships as the largest employer.

Of course, the days of the family owned car dealership died many moons ago. These days, in the United States, we see mega-dealerships that are multi-billion entities. They are basically "selling factories" that churn out an incredible amount of vehicles.

This all is going to come to an end. I do not thing most realize it but we are going reliving what took place 10 years ago.

The Lesson From Amazon

A decade ago, few, if any, knew about the retail apocalypse. We were proceeding along thinking that everything was status quo. There were stores which were in business for many decades that we frequented. Some of them were shopped at by many generations of families.

Little did we know that, within a few short years, a lot of them would encounter financial difficulty. Some of the most heralded retail addresses would see closures. Retail institutions like Sears and Macy's saw their worlds turned upside down.

The predator was something they did not expect. Amazon was quietly eating up market share as more sales went online. It got to the point where the retail establishments ended up becoming showrooms for Amazon. People would look at the product in a competitors store then go home and buy it online

What we need to emphasize here is the fact that this took place very quietly. That is, of course, until it was too late. Then the noise hit like a sonic boom. Many establishments found themselves sinking fast.

At this moment, the retail sector is in tatters. The physical chains are trying to fight back yet, in some ways. Amazon is trending on their turf. This powerful giant is intent on taking out most of the competition.

Getting Teslorized

I do not know if this is a word but let us call it getting Teslorized. Here is where we see an enormous amount of disruption. While most focus upon the impact upon Toyota, Ford, and General Motors, I want to concentrate on the car dealers.

This is the network through which most of the cars in the United States are sold. It is safe to presume it is like that in most countries but we will use U.S. numbers for simplicity sake.

Here is the vehicles sales for the United States:


As we can see, the industry is typically between 15M-17M cars sold. We will use the 15 million number as the basis for our calculations.

So how much impact will Tesla have?

Here is the end of 3rd quarter vehicle sales for the US.


The numbers tell us that, at this point, Tesla is merely a rounding error. Their US volume does not amount to much of the pie at all. We can see that 223K out of 11.7 million does not equate to much.

Obviously, the numbers out of China are much better. It is a larger factory, one that they are using to export to Europe and Australia. The US plant, is older, smaller, and less efficient.

Nevertheless, Amazon was not considered much of a threat a decade ago in the retail world. Thus, it is best not to overlook Tesla in this equation.

The End Of The Car Dealership

While car dealership are well established, they are not popular. People hate going to buy a car. Survey after survey tell us how much people despise the process.

With Tesla, this is removed. It has no car dealerships. Instead, all vehicles are ordered online (sound familiar). Thus, if the company can establish a large part of the market, the local dealership could be in a heap of trouble.

In fact, that is exactly what I believe is going to happen.

Tesla reaffirmed on their latest earnings call that they expect to increase their production by a minimum of 50% each year for the foreseeable future. This year, they will likely come in around 900K vehicles sold. Most are overseas so we can give them roughly 250K in the US for 2021.

There is, however, an ace in the hole. The company is within a few weeks of opening a massive factory in Austin, Tx. This is going to produce the Model Y and then, towards the end of 2022, start on the Cybertruck.

Here is where things get very interesting. Using 2023 as our year, what happens to car dealerships if Tesla is selling 1.5 million vehicles in the US? While this seems like a huge jump, many presume the ramp up time for the Model Y will mirror Shanghai. This means that they will be able to blow out at least 750K of these vehicles in 2023. Add in the Cybertruck which could spit out 400K along with expansion of Fremont and you are at the 1.5 million level.

That is roughly 1/10th of the US vehicle market. What happens when 10% of all vehicles sold are done outside the dealership network?

The reality is that any industry has a tough time losing 10% of its revenue. It does, however, get much worse.

If the company can keep scaling, either through efficiency or adding more lines, we could see this number cross 2 million in 2024. Seems outrageous at the moment yet that is the pace of scaling this company is on. For the past 5 years, the vehicle growth rate came in at a yearly 56%.

What we need to ask is whether the dealership network can sustain a 15% hit in the next half decade? We are not even taking into account the loss in service revenue which, we can presume, will take a while to filter through. Loss of new sales is an immediate hit though.

How many cars does Tesla need to sell before these dealerships find themselves in a similar position to the retail sector.

I believe they are in the process of being Teslorized. This is something that few are talking about.

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I have never really liked car dealership since it's just people earning money on top of the car's price. They add in a bunch of things that aren't so good for people either. I do think some states make it against the law for some of the manufacturers to sell cars directly. So some changes to laws are probably still required.

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Few seems to like the dealership model.

That is another reason why I think Tesla is going to be tough to catch. The price of an automobile from a legacy manufacturer costs the markup the dealership puts on. Tesla does not have the issue with a dealership having to make a profit.

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Whether we like it or not we are in a technological era and anyone who's not ready to adapt get left behind, because these days most people live online on their phones, and if your business can't upgrade to the online space, then your business will be in great danger.

As Amazon took over, so will Tesla do. Thanks sharing, great post 👍🏼.

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We have been in this technological era for over 20 years.
and over 10 years into the mobile area.

There is no separation between online space and non-online space anymore.


The issue with car dealerships are they are protected by laws in the states.
That say manufactures can not sell directly to consumers.

Until these laws change car dealerships are a protected industry.

Many times people have tried to change these laws but the Car Dealerships as a group donate large amount of money to political campaigns in each state.

I wish this would change but if nothing changed after the government bail outs of the auto industry I don't see this changing anytime soon.

As far as the sales projections for Tesla they are limited by 2 issues.
1: the car dealership issue above. There is many states you can not buy a Tesla in
2: the USA power grid. The current US power grid can not handle that large of a growth of electric cars. This is a large issue no one is talking about.
If 5% of the Auto Fleet becomes Electric the whole country will have rolling blackouts.

When it comes to this large of change of technology there are always underlying issues that get over looked.

You are correct. Of course, there are something like 280 million cars on the roads in the US so it will take some time even to get to the 5% mark.

The reality of the situation, in the US and elsewhere, is so much more energy is going to be required globally that the idea of non-fossil fuels is going to hamstring most countries.

We will see the insanity end sooner rather than later. Putin is going to absolutely gouge every Western European country this Winter over gas. He has it and they need it.

People are going to learn the hard way what life is like without these type of fuel sources.

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There are about 10 states that is true. One of them, ironically, is Texas, where Tesla is building their largest factory. The legislature doesnt meet for another two years (it is part time in that state) so all Teslas made in Texas will have to be transported out of state to be sold to Texans.

I am going to guess that the next time the legislature meets, there will be a different turn out.

Tesla is going to overturn these laws as their cars start to penetrate those states. So I guess in 5 years, all those laws are gone as many car dealerships close down.

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I hope so, but I don't see it happening that quick.
At least in Colorado it is not on the Horizon and we are about to tax electric cars by the mile driven at a high rate.

If Tesla is pumping out 6-7 million cars in 5 years, I see half of them coming out of their US factories. If that is the case, it could end up really harming some of those states with the laws protecting dealers. As those cars get in the hands of owners, it strengthens that position while also weakening the dealerships.

Just follow the flow of money. The less for the dealerships, the worse their situation.

Of course, this does lead back to the grid problem you just mentioned. Some states like Florida will do well. Others like those in the Northeast will struggle.

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The compounding effect of COVID is also supporting this, I've put in a purchase for a new car which typically I would have had in a few days weeks even. Now there is a 12 month delay in manufacturing and delivery. Absolutely ridiculous, in the interim I just have to wait!

Supply chains are screwed up all over the world. With cars, the chip shortages are killing them.

It could be another year or two before we see things settle down. This means it could be nasty for a while.

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Ford could get all the F-150's on the road if they wanted to. The only chip they are missing is to help with MPG.
Without the chip they would miss 1 - 1.5 MPG per vehicle.

The issue is the US Gov Regulation on MPG for the Fleet.
If the Gov would waive that rule for these model years, we could get all the new cars already built and sitting idle waiting on chips into the supply chain and take pressure off of the used car market that affects mostly lower income citizens.

They Gov is making things worse.

They Gov is making things worse.

That is what government excels at.

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I'm in need of a new car and I really wish, I could just order it! lol, but also I am leery of ordering a car.

I don't want a Tesla, but I do have to agree, no matter what, the life of auto dealerships is ending.

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If i had the means, I'd also be ordering online. But well, I'm almost there. No one wants to go through physical stress anymore. This is what technology has done, but who's complaining? That's right. No one! Except the rigid business men. Thanks for sharing.

Well if you owned a car dealership and had millions into it, you wouldnt exactly be throwing away the business model either.

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I don't understand. Does that mean the men are hesitant because that structure is all they've ever know or that movie your assets online wouldn't be easy?

Good points!
Tesla, the next Amazon?!

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Tesla, the next Amazon?!

In my opinion @cryptowendyo, yes it is. The net income is rising at an exponential rate, just like Amazon enjoyed. Once they start hitting for technology companies, they just keep going. That allows for massive expansion elsewhere.

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I like your thought processes on Tesla.

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At this moment, the retail sector is in taters.

I know you meant:

irregularly torn pieces of cloth, paper, or other material.
"he was forced to wear rags and tatters a beggar would scorn"


I still lol'd at this more than I can justify.

plural noun: taters
a potato.
"a dish of boiled taters"

Definitions from Oxford Languages

Thank you?


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This no doubt will happen but not everyone will want a Tesla obviously. The other car manufacturers will offer something else to compete or they are finished. Battery technology is going to be the key factor behind all of this.

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