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The hard truth: What’s driving consumers away from dealerships?

The hard truth: What’s driving consumers away from dealerships?

Direct-to-consumer sales are gaining traction.

Anna del Villar & Car Dealership Guy
October 31, 2024

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Volkswagen’s Scout Motors has been dominating headlines after announcing plans to sell its electric SUV and pickup truck using a direct to consumer model (D2C). It’s a big blow to VW dealers, and dealer associations are already gearing up for a potential legal battle, with NADA President Mike Stanton calling the decision “disappointing and misguided.”

But it got me thinking...

Are consumers really ready to ditch the dealership experience?

To get some answers, I did what CDG does — ran a poll.

In just 24 hours, we collected over 20,000 votes, and the majority of participants claimed they would choose the D2C model over buying from a traditional dealership for their next car. Interesting.

In reality — I would bet that most buyers don’t clearly know the differences between D2C and the dealership model (there’s a lesson in there).

But the real insight came from the 730+ comments. I read through hundreds of personal stories, and the message was loud and clear: many consumers (on X, at least) are fed up with the car buying process and hungry for change.

The first step is understanding what the customer pain points are and why some dealers haven’t been able to solve them.

Where are dealerships falling short with some buyers?

A lot of car buyers perceive the dealership experience as confusing and time-consuming. Things like unclear pricing and surprise fees can be discouraging. Add in the potential for “pressure” to make quick decisions (likely from junior salespeople) and it can feel more stressful than exciting.

While most dealerships mean well, it’s easy to see why some customers end up less than thrilled about their new ride.

Complaints about motor vehicle transactions are regularly in the top ten complaint categories tracked by the Federal Trade Commission. Whether or not they are justified, the fact that so many consumers go to the trouble of reporting their experiences signals something deeper: the current system isn’t working as well as it should (and can).

And then there’s the allure of D2C…

Why are consumers drawn to direct-to-consumer sales models such as Teslas?

One obvious reason is the transparency — but it’s important to unpack what this really means.

Let’s roll with Tesla as an example. Its D2C approach gives the customer complete control over the car buying journey. And the price the customer sees on Tesla’s website is what they pay, period. But there is a catch.

Tesla can also increase prices. And it has, many times, actually. But when it does, most people don’t say anything. But, compare that to a dealer, and… I don’t need to say much more. Ask yourself — why is that? Why does a consumer “feel” better about paying a higher price if it goes directly to the manufacturer, as opposed to the dealer?

For starters, by offering fixed pricing that is visible to everyone, consumers don’t feel like there is any information asymmetry. That can be very reassuring. And because of that, they are willing to pay more for a low-effort buying experience. It’s simple, fast, and resonates with many of today’s buyers, who are used to shopping online and don’t want to spend hours haggling. And it even goes beyond price — today’s consumers demand the utmost convenience and control over their time and experience...

But there are also some flaws. This type of buying experience is more transactional and puts the focus on the point of sale but less on the after-sale experience (more on this later).

Yet — one thing remains clear…

Many automakers have said they would bypass dealers if they could

Buying cars online directly from OEMs means they can (in theory) better manage consumer data and production to align supply with demand, creating smoother, more efficient operations.

Instead of flooding dealer lots with every possible option, manufacturers can focus on building the cars people actually want.

But moving to a D2C model is a lot easier said than done for legacy OEMs.

Ford learned this lesson firsthand when it dipped its toes into D2C sales with its EV lineup, but Ford quickly reversed course.

The reason? State franchise laws remain a powerful roadblock. Designed to protect dealerships from manufacturer monopolies, these laws prevent automakers from bypassing dealers to sell directly to consumers.

And yet, the push for D2C sales isn’t fading away…

Which begs the question: If we ran another poll in 2035 and the results were reserved, what would have changed by then?

D2C isn’t magic — it is a solution that provides consumers with consistent transparency, clear communication, and alignment of expectations throughout the car buying journey.

And many dealers are adopting similar principles.

Michael Wood, general manager for Checkered Flag Auto Group’s Volkswagen, Jaguar, and Land Rover stores, told me he did away with price negotiations completely and switched to up-front, transparent pricing.

Is this a novel concept? Obviously not. Does it work in most markets? Yes. But in many cases, it comes with a short-term cost: lower gross profits. However, it does come with a potential long-term gain: higher perceived brand value and a better customer experience. (*The exceptions to this rule are CarMax and Carvana — and maybe others I’m unaware of — who have fixed pricing and also achieve higher gross profits but have clearly spent billions on marketing and branding.)

Michael has also overhauled the F&I process at his store, replacing the traditional back-and-forth with a single point of contact for the entire buying journey. He claims it’s a smoother, cleaner process that delivers the convenience buyers expect while keeping in-store support that only a dealership can provide — like advocating on behalf of buyers to secure better financing options with lenders.

And Brandon raises a good point as well — many people still want to touch, see, and feel the car they're buying…

This brings me back to the service department. I would argue this is where dealerships have a stronger upper hand. Service teams are local, accessible, and go to bat for customers — battling with automakers and third parties to get repairs covered under warranty. But as I replied to Todd below — many consumers view service as secondary to their buying transaction. Sorry, dealers.

With all this in mind…

What could the future of car buying reasonably look like?

The dealership model clearly has a lot of protections, but direct-to-consumer models are gaining steam with consumers, and this model has likely capitalized on the inefficiencies of this industry and its faults.

At its core, D2C is a mindset. Consumers aren’t fixated on D2C, the 'agency model,' or physical dealerships — they just want to save time, enjoy convenience, and trust that they’re paying a fair price. If dealers can’t consistently deliver this, the outlook is dim. But if the industry rises to the occasion, D2C could be the “competitor” that sparks a transformation of change.

*To stay updated on any developments with Scout — click Yes on the poll at the top of this newsletter to get Car Dealership Guy’s top 3 auto stories sent to your inbox every morning.

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