Change is coming to the way you buy…a new car
Lesson summary
Hi there, I’m Jeff and this is Plain English Lesson number 353. JR is the producer and he has posted the full lesson at PlainEnglish.com/353. We talked in Lesson 311 about how buying a used car was so difficult, and in Lesson 313, about the companies looking to improve the used-car buying experience.
Coming up today, another car lesson: Volvo announced that by 2030, it would be selling only electric cars, and that it would make all its dealerships company-owned, doing away with the traditional dealership model. The two announcements may seem unrelated: how is selling electric cars related to the way sales take place? They seem like two different things. But they go hand-in-hand, as we’ll see today. The expression is “stay on top of” and JR has a song of the week.
Volvo, electric cars, and the future of the car dealership
Swedish carmaker Volvo announced its entire fleet would be electric by the year 2030 and it would sell all of its cars online. That represents a tectonic shift in the way carmakers sell cars to consumers, and it’s being attributed to the “Tesla effect.” Tesla, of course, is the maker of luxury electric cars. Elon Musk’s company has eschewed the dealership model entirely, selling its cars online and in its own stores directly to consumers.
Volvo’s vision for the future is that it will sell cars online, but maintain a smaller network of retail locations that serve as showrooms, very similar to how Tesla operates today. These dealerships of the future won’t have large parking lots full of inventory; instead, they’ll have a small number of each model for consumers to look at and drive themselves. The car a consumer buys will come from the factory or from a regional inventory. Best of all, the actual transaction will be done online and directly with Volvo: no price haggling or dirty tricks at the dealership. This will be a boon for consumers, but it also promises to upend the dealership model that has served the new car industry almost since its inception.
Electric vehicles were always going to shake up car dealerships’ business models. Here’s why: dealerships make just a little money on the sale of a new car, but they hope to profit by selling expensive service after the sale. That’s a problem with electric cars.
A typical electric car has far fewer moving parts, and requires far less maintenance, than an internal combustion engine. Routine maintenance that we take for granted today will not be necessary. Oil changes will be a thing of the past; so will changing the oil filter. Electric cars don’t have the complicated belts and chains of older engines. You’ll never have to replace a spark plug in your future electric car. Even brakes will need less service: electric cars use regenerative braking, capturing heat and energy from the braking process and extending the life of the traditional brakes that are installed.
Most new-car buyers in the US keep their cars for five years. If all those new cars go electric, then dealerships stand to lose an average of $1,300 per vehicle over a typical five-year vehicle life.
So dealership model will have to change; and it’s time. The new car buying industry is stuck in the past. You may think you buy a new car from Ford, Volkswagen, Toyota, or Volvo. But you really buy it from the dealership, and the dealership buys it from the manufacturer. For almost a century, this system worked for almost all parties involved. Carmakers liked this system because they could sell cars to dealerships: they only had to keep a thousands of dealerships happy instead of millions of consumers happy.
Dealerships liked it because they could sell cars to consumers and then make their money on expensive service after the sale. What’s more , most franchise agreements gave each dealership an exclusive territory, so they didn’t have to compete against anyone else selling the same vehicles in the same area.
As hard as it is to believe today, this did even serve consumers…in the past. In the early days of car ownership, consumers went to a dealership to learn about new models and even to learn about car ownership itself. Today, though, all that information is online. And a recent survey said only 15 percent of consumers trusted a car dealer to share honest information about new vehicles. The only surprising thing about that statistic is that it’s so high.
Recognizing this market failure, Volvo is seeking to take greater control over its brand and to forge a direct relationship with drivers of Volvo cars. Think of it as an extension of the direct-to-consumer trend we talked about in Lesson 237 . In this new model, Volvo will have more control over the in-person experience and can respond more quickly to customers’ needs. A more sophisticated car with sensors can alert the consumer—and the carmaker—to potential problems. This may allow consumers to stay on top of maintenance and to make repairs before they cause a breakdown, which is how the aviation industry works.
But, as ever, there are some risks to consumers. Electric cars may be less complicated mechanically, but all those additional sensors and electronics can feed information back to the carmaker. It’s not hard to imagine a carmaker using that data to increase their own sales or develop their own self-driving technology. It’s also not hard to imagine carmakers merging with one another, as they all scramble to amass greater amounts of consumer driving data.
Not a moment too soon
Not a moment too soon, as far as I’m concerned. I bought a new car in 2016 and it was like being transported back to the 1980s. The kid—and he was a kid—who did the paperwork filled in a piece of paper with a pen. Then he walked it over to someone who entered it into a computer. One computer for the whole dealership. They brought me back a printout from a dot matrix printer. It was like going to a history museum. This is how we used to buy things, kids!
I joke, but overall, I had a good experience. I knew exactly what model I wanted, what features. I sent that list to probably ten Mazda dealerships in the Chicago area and chose the dealership that had the best price and was most pleasant to deal with.
They didn’t have the exact model and color I wanted, so they sent someone to another dealership in another state to pick it up. So I must admit, although it was like being transported back in time, it was a pleasant experience—but only because I was armed with good information from the internet. Without price comparison shopping and online research, it would have been a much different story.
At the end of Lesson 313, I said I wished someone would come in and disrupt the new-car buying experience. At the time, I did know that Tesla was doing things differently, but I always figured they would be the exception. I was waiting for a traditional carmaker to step in and do it. And it looks like Volvo is doing it. So there’s really only one conclusion we can draw from all this: people very very high up in Volvo must be listening to Plain English!
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