Car Dealers Beware. Why Protecting the Franchise System is the Least of Your Worries.

Much has been written about Tesla's challenge to dealer franchise laws. Most automakers don't think that Tesla's model is sustainable at high volumes. And while time will tell who is right, automakers and dealers might be missing the bigger disruptions that are about to rock the foundations of the dealership business model.

On the new car side, dealer profitability has traditionally been generated from the three fundamental components of most new car purchases: selling price, trade in allowance, and finance and insurance income. And a peek into the future suggests that all three components will be disrupted as technology and mobility continue to converge.

Let's start with the easiest of the three, price negotiation. While it is still a common practice, True Car has already leveled the playing field. Tesla has eliminated negotiation from their process. Even Lexus is experimenting with no haggle pricing. Expect this trend to continue until price negotiations are a thing of the past.

But that's only the beginning. What about trade-ins? This is a practice that is a vestige of pre-automotive horse trading. The fact is trading a car into the dealership results in higher prices for customers. While most buyers know they can make more selling their car to private parties, historically this has been a random, risky and time consuming process that delays the new car purchase. So most customers trade-in their car for the sake of convenience and expediency. 

But technology is about to change this. The recently launched Beepi, is likely the first in a series of technology enabled start ups that have the potential to do to the used car business what Uber did to the taxi business. 

Beepi has taken the risk and inconvenience out of private party used car sales. From a 30 day sales guarantee, at a higher price than dealer trade in allowance, to managing the payment process, registration and delivery, Beepi has created a viable alternative to the trade-in. And this creates the potential to finally de-couple trade-ins from the new car deal.

That, however is just the tip of the iceberg. What if used cars didn't exist at all? It's not as far fetched as it seems. Elon Musk has already stated his intent to re-use Tesla batteries to power the grid, so the idea that cars could be dismantled, repurposed and recycled is not so far out there. And like all technology products, cars can be modularly upgraded so that they are likely to last until they become obsolete, and unsellable. And a world without used cars will have a knock on effect to the third part of the transaction, financing. The first casualty will be leasing...as it will be impossible without a residual value.

In addition, as we move to fully autonomous driving vehicles, it is more likely that these vehicles will be shared than owned. In a scenario where there are no owners, only users, the idea of new vs used becomes somewhat irrelevant...as does the purchase transaction itself!

And of course, modularly upgraded cars and autonomous car sharing changes the dealership service business model as well.

So instead of worrying about whether or not Tesla will disrupt the franchise model, perhaps automakers and their franchisees should be thinking about what the new automotive franchise business model will look like post auto/tech convergence. For in the end, it's not about who owns the business, but rather what the business is.

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