Can Legacy Automakers Compete with Tesla’s Retail Model?
Fast Company recently released an article highlighting Tesla’s divorce from conventional sales models. You’ve probably heard – the company has foregone traditional dealerships in lieu of a more direct route. Unlike other car companies, Tesla sells its cars directly to buyers online, without the aid of franchised dealerships. A modern way of transacting that 75% of consumers would consider.*
Not without controversy however, Tesla’s revolutionary retail model has ruffled a few feathers. Specifically, in the U.S. where the concept of “direct-to-consumer auto sales” is illegal in many states. In retort, Tesla has opened a few showrooms where consumers can buy in-store.
Nevertheless, the idea behind Tesla’s setup is smart. Cutting out the middle man doesn’t just increase profit margins, it provides the company direct access to its customers, and in turn a more personalized & convenient brand experience. All of which begs the question. Can existing car manufacturers, with thousands of middlemen around the globe, stay competitive in a growingly connected world?
Here we compare Tesla to legacy automakers in 3 core components of business: business model, tech/data, & workforce.
The traditional auto business model is more silo’d than one would think. Even dealerships under a single brand are not connected to each other, or even fully connected to the manufacturer.
The setup looks like this:
- Car manufacturers build cars
- Car manufacturers sell cars to privately-owned country importers
- Importers onsell cars to retail dealerships
Within a single automotive brand, you may have hundreds of owners, operating systems, and user interfaces (Apps, dealer websites, etc.) across the country.
Imagine the dysfunction, lack of synchronicity, and lack of transparency this creates across the retail network.
In contrast, Tesla fully owns and operates their showrooms & service stations. The company you interact with online is the same company you meet in-store. This allows Tesla to have a much more direct relationship with the end consumer.
By entering into the relationship, Tesla is better able to identify its customers. This affords a more targeted marketing campaign and fosters a more personal sales experience for the customer.
Data & Technology
One critical advantage Tesla has over its competitors is its access to data.
Every Tesla Model S connects wirelessly and sends data about the car’s performance back to Tesla. Tesla then uses this vast amount of data to do several things: immediately provide maintenance as issues arise, determine future upgrades of car hardware, and keep a close watch on consumer driving patterns & behavior.
All data the company retrieves – driving trends, geographic data, customer feedback – is utilized to provide significant value back to its customers. Because Tesla owns the entire value chain, it’s able to automate services that would be manual or impossible otherwise.
“We like the idea of owning the entire process. It creates an information loop from our customers straight into manufacturing and vehicle design,” says Tesla’s vice president of North American sales.
In contrast, legacy companies are blind to this real-time data utilization. While vehicle-generated data can be shared with manufacturers, their dealerships (operating on separate systems) maintain the relationship with customers. Currently, there is very little connectivity between vehicles and the country-wide network of dealers. Holistic data combinations prevent services such as automated maintenance or predictive marketing within the current infrastructure.
If you walk into any of the 200 Tesla stores world-wide, you won’t find a pushy sales team. In fact, you won’t find a sales team at all. Tesla employees are instructed to take on a more “product specialist” role, providing guidance on new technology, safety concerns and car configurations. In-store experiences are informative, transparent, and enjoyable.
However, while Tesla employees have interactive displays and commission-less pay structures, traditional car salesmen work from paper-based processes & two-week old pricing data. The auto industry is notorious for its archaic & faulty systems – leaving sales teams with delayed, inaccessible, or inaccurate vehicle information. Sales funnel management is usually non-existent and calculations are many times still done in Excel. Digital communication with customers is on a dealership-by-dealership basis.
This lack of functionality leads to a poor workforce experience and prevents sales consultants from taking on the advisory “expert” role that consumers are looking for.
One thing we can all take away from Elon Musk’s company is the importance of keeping up with technology. Recognizing that your software is one of the most powerful tools that you possess. And as aureso Co-founder Timothy Rushforth points out, ‘17,000 dealerships will not go quietly into the night… they need new technology to be competitive.’
Instead of cutting out the middle men (dealerships), aureso is designed to unify them. Our software allows manufacturers, importers & dealers to work within a single operating platform – eliminating the disparity between online, offline, and store-to-store. We integrate data sources to develop one centralized database; where sales processes meld, communications are transparent, and customers receive a much more consistent experience.
Furthermore, a uniform platform provides car manufacturers a direct tie to customers; a crucial step going forward to implement future strategies, i.e. online car sales, autonomous driving.
aureso believes by investing in more connected, advanced technology, manufacturers & dealerships are able to provide a competitive performance and customer experience. Legacy companies have manpower, store fronts, & mass data on their side. Now is the time to plan how to utilize these resources going forward.