Direct to consumer auto sales are a new concept that is progressively reshaping the traditional auto retail business model. In this form of sale, automakers sell new cars directly to consumers online or through company-owned physical dealerships, removing the franchise dealers from the equation. This emerging automobile distribution approach aims at streamlining the vehicle purchase journey for buyers while allowing automakers to have more control over the sales process and better pricing leverage.
Consumers can browse the automaker’s website, design their ideal vehicle with multiple customization options, get instant price quotes including subsidies and financing details, then order the car for delivery directly. The automaker takes care of all the paperwork, delivers the vehicle at customers’ doorsteps, and provides ongoing servicing and repairs either by themselves or through local partners. This method eases many pain points customers often face at franchised dealers like haggling over prices, added markups or incomplete vehicle features. Let’s discuss D2C car sales, advantages and disadvantages and lows around it in detail below:
What is Direct-to-Consumer Car Sales?
Direct-to-consumer car sales, also known as direct sales, involve automakers selling new vehicles to customers without going through a traditional car dealership.
Instead of working with independent, franchised dealers, manufacturers sell vehicles online or at company-owned stores and deliver them directly to consumers.
Cutting Out the Middleman
By removing traditional dealers from the sale process, automakers hope to streamline operations and reduce costs. This allows them to potentially pass savings on to customers in the form of lower prices.
It also gives manufacturers more control over the consumer’s experience as they take charge of tasks like vehicle ordering, financing, trade-ins, and delivery themselves rather than relying on dealers.
| Pros | Cons |
|---|---|
|
|
Pioneers of the Model
Tesla was among the first to pioneer direct sales, selling its electric vehicles company-owned stores and online without franchise dealers beginning in 2014. Other automakers testing out direct sales include Rivian, Lucid, and Polestar.
By law, these companies are restricted to a direct sales approach in only some states that have passed legislation permitting this distribution method.
The Difference Between D2C & Digital Dealerships
Direct-to-consumer auto sales allow for a fully digital and streamlined purchasing process without traditional dealership middlemen involved.
Meanwhile, digital dealerships modernize elements like online vehicle selection and buying initiation while still utilizing physical dealership locations for tasks like finalizing deals and vehicle delivery.
Both approaches aim to enhance the consumer experience in automotive direct and auto sales.
| Feature | D2C Auto Manufacturers (e.g., Tesla) | Digital Dealerships (e.g., Carvana) |
|---|---|---|
| Sales Process | Entirely online or through a mobile app | Primarily online, with physical presence |
| Vehicle Delivery | Direct to customers’ homes or workplaces | Pickup from a local lot or dealership |
| Dealer Middlemen | Bypass traditional dealerships | May still involve local dealerships |
| Buying Process | Streamlined process, entirely managed internally | Modernizing process with online tools |
| Transaction Location | Entirely online or through mobile app | Completed at a physical dealership |
| Test Drives | Typically not offered | At-home test drives or local dealership options |
| Role of Dealerships | No involvement - handled internally | Advisory role, guiding through options |
| Showroom Presence | Minimal or no physical showrooms | Supplementing physical showrooms |
| Examples | Tesla, Rivian, Lucid, Polestar | Carvana, Vroom |
Why OEMs Are Considering to D2C-Like Buying Experiences
The traditional dealership model has served OEMs well for many decades but it also presents some challenges. Dealerships need to earn a profit on each vehicle sold to stay viable as businesses.
This means that the interests of the OEM and dealer are not always perfectly aligned when it comes to things like sales pricing and customer service standards. OEMs have less control over the buyer’s entire experience this way.
Increased Interest in Owning the Customer Relationship
As vehicle purchases increasingly shift to taking place partially or completely online, OEMs see an opening to connect directly with consumers during the shopping process rather than handing off this important relationship to independent dealers early on.
If an automaker could sell vehicles directly to buyers it would allow more opportunities for direct marketing, collecting first-party customer data for future engagements, and ensure quality of sales and post-sales support experiences align fully with the brand message.
Key Benefits of Direct-To-Consumer Auto Sales for OEMs
| Benefit | Description |
|---|---|
| First-Party Customer Data | Gain a trove of first-party vehicle purchase and ownership data that dealers don’t share. |
| Build an Online Sales Channel | Design an end-to-end digital experience for researching/buying autos the OEM controls directly. |
| Incremental Revenue Opportunity | Sell directly to consumers and retain profits normally earned by dealer networks. |
| Owning the Customer Relationship | Develop ongoing first-party relationships versus losing customers shortly after sale. |
Addressing Dealer Concerns with Hybrid Models
While fully replacing dealerships presents regulatory challenges in many markets, OEMs are exploring hybrid direct-to-consumer and dealer models. For example, allowing online vehicle sales with delivery through local dealers or dealer assistance on high-consideration transactions.
When developed openly with dealer input, such solutions could address dealer margin concerns while gaining OEMs a stronger digital sales foothold and more customer ownership. An emphasis on co-op advertising, joint customer acquisition programs and clearly defined dealer versus OEM sales territories could also help reach an acceptable compromise.
Gradually shifting to a digital-first relationship model between automakers and customers seems inevitable in the coming years. With care and cooperation between all parties, dealerships may find a way to remain valuable partners amid this evolution.
State Laws Regarding Direct to Consumer Auto Sales
Most states have dealer franchise laws that regulate the sale of vehicles by requiring most vehicle sales to take place through franchised dealers. These laws aim to protect car dealers from unfair competition that could put them out of business.
However, many see them as limiting consumer choice in how and from whom they can buy vehicles. They prevent automakers from selling directly to consumers.
States Allowing Direct Sales
A few states like Utah, Colorado, Ohio and others allow some direct auto sales without a dealer acting as a middleman. This lets automakers like Tesla sell directly to consumers online or through company-owned stores. It fosters competition and puts consumers in control of their purchase process.
Many states like Alabama, Montana and New Mexico have passed laws strictly banning direct auto sales from manufacturers to customers in order to protect the existing auto dealership franchise system. This effectively shuts out new innovative players in the market.
Here’s a shortened version of the state laws table uploaded by WisPolitics on direct to consumer auto sales for every state:
| State | Source | Provides for Direct-Sales? |
|---|---|---|
| Alabama | Ala. Code § 8-20-4(3)(h) | NO |
| Alaska | Alaska Code § 45.25.300 | UNCLEAR |
| Arizona | Ariz. Rev. Stat Ann. § 28-4460 | UNCLEAR |
| Arkansas | Ark. Stat. Ann. § 23-112-403 | NO |
| California | Cal. Veh. Code § 11713.3 | YES (limited direct-sales) |
| Colorado | Colo. Rev. Stat. § 44-20-126 | YES |
| Connecticut | Conn. Gen. Stat. § 42-133cc | NO |
| Delaware | Del. Code Ann. tit. 6 § 4901 et seq. | UNCLEAR |
| Florida | Fla. Stat. § 320.645 | YES (limited direct-sales) |
| Georgia | Ga. Code. § 10-1-664.1 | YES (limited/no new direct-sales) |
| Hawaii | Hawaii Rev. Stat. §437-1 et seq. | UNCLEAR |
| Idaho | Idaho Code § 49-1601 et seq. | UNCLEAR |
| Illinois | Ill. Rev. Stat. ch. 815 § 710/4 | UNCLEAR (pending legislation) |
| Indiana | Ind. Code § 9-32-11-20 | YES (limited/no new direct-sales) |
| Iowa | Iowa Code § 322.3(14) | NO |
| Kansas | Kan. Stat. Ann. § 8-2438 | NO |
| Kentucky | Ky. Rev. Stat. § 190.070 | NO |
| Louisiana | La. Rev. Stat. Ann. § 32:1261(A)(1)(k) | NO |
| Maine | Me. Rev. Stat. Ann. 10 § 1174 | YES (limited direct-sales) |
| Maryland | Md. Transp. Code Ann. § 15-305 | YES (limited direct-sales) |
| Massachusetts | Mass. Gen. Laws Ann. Ch.93B § 4 | UNCLEAR (limited direct-sales) |
| Michigan | Mich. Code Ann. § 445.1574 | UNCLEAR (limited direct-sales for Tesla only) |
| Minnesota | Minn. Stat. Ann. § 80E.13 | UNCLEAR (limited direct-sales) |
| Mississippi | Miss. Code Ann. § 63-17-115 | UNCLEAR (limited direct-sales) |
| Missouri | Mo. Rev. Stat. § 407.826 | UNCLEAR (limited direct-sales) |
| Montana | Mont. Code Ann. § 61-4-208 | NO |
| Nebraska | Neb. Rev. Stat. § 60-1438.01 | NO (pending legislation) |
| Nevada | Nev. Rev. Stat. § 482.36349 | YES (limited/no new direct-sales) |
| New Hampshire | N.H. Rev. Stat. Ann. § 357-C et seq.; N.H. Senate Bill 126 | YES |
| New Jersey | N.J. Rev. stat. Ann. § 56:10-27.1 | YES (limited/no new direct-sales) |
| New Mexico | N.M. Stat. Ann. § 57-16-5 | NO |
| New York | N.Y. VAT. Stat. Ann. § 415 | YES (no new direct-sales, pending legislation) |
| North Carolina | N.C. Senate Bill 384 | YES (limited/no new direct-sales) |
| North Dakota | N.D. Cent. Code § 39-22-24 | NO |
| Ohio | Ohio Rev. Code Ann. § 4517.12 | YES (limited/no new direct-sales) |
| Oklahoma | Okla. Stat. tit. 47 §565(11) | NO (legislation pending) |
| Oregon | Ore. Rev. Stat. § 650 et seq. | UNCLEAR (limited direct-sales) |
| Pennsylvania | Pa. Cons. Stat. Ann. 63 § 818.310 | YES (limited/no new direct-sales) |
| Rhode Island | R.I. Gen. Laws § 31-5.1-4 | UNCLEAR (limited direct-sales) |
| South Carolina | S.C. Code Ann. § 56-15-45 | NO (pending legislation) |
| South Dakota | S.D. Codified Laws Ann. § 32-6B-80 | NO |
| Tennessee | Tenn. Code Ann. § 55-17-114 | UNCLEAR (limited direct-sales) |
| Texas | Tex. Occ. Code Ann. § 2301.476 | NO |
| Utah | Utah Code Ann. §43-3-101 et seq.; House Bill 369 | YES |
| Vermont | Vt. Stat. Ann. tit. 9 § 4097 | UNCLEAR |
| Virginia | Va. Code. § 46.2-1572 | YES (limited direct-sales) |
| Washington | Wash. Rev. Code § 46.96.185 | YES (limited/no new direct-sales) |
| West Virginia | W. Va. Code. §17A-6A-10 | NO |
| Wisconsin | Wis. Stat. Ann. § 218.0121(2m) | NO (pending legislation) |
| Wyoming | Wyo. Stat. § 31-16-101; Senate File 57 | YES |
Court Battles Over Direct-to-Consumer Laws
Tesla has fought numerous legal battles over direct-to-consumer auto sales laws across different states. In 2023, Gov. Ron DeSantis signed legislation further tightening the ban on automakers from directly selling automobiles to consumers in Florida but Tesla is an exception. However, the debate around consumer access versus dealer protection continues nationally.
Direct to Consumer Car Brands in The U.S.
Here’s an overview of car brands selling directly to consumers online.
BMW
BMW offers customers the ability to browse, build, test drive, trade-in, finance, and schedule delivery of their vehicle entirely online. Online support is also available from a local BMW dealership throughout the process.
Chrysler
With Chrysler’s online shopping, consumers can look through vehicles, choose options, arrange a home test drive, organize financing and trade-ins, and sign contracts electronically. Some interactions with dealership representatives are still involved in the purchase process.
Jaguar Land Rover
When buying a new Land Rover online, customers can select or customize their vehicle, pay a refundable deposit, select a purchase plan, get an instant price on a part exchange, and visit a retailer showroom to finalize the sale. Solo test drives and click-and-collect service are options as well.
Ford
Ford allows online browsing of their vehicles, customization, viewing of pricing details and incentives, getting guaranteed trade-in offers, adding protection plans, and completing a credit check and financing exploration - with the transaction wrapped up at the nearest dealership.
Tesla
Tesla’s entire inventory can be viewed on their website or app by location, model, trim, and condition. Customers can configure their car, place an order, confirm via the app along with arranging trade-ins and financing, and schedule delivery - paying the remaining balance fully via the Tesla app before taking possession of their vehicle.
Rivian
Rivian is marketed towards outdoor enthusiasts, with features like a “gear tunnel” and optional cooking station. The company plans electric trucks, SUVs, and delivery vehicles, and has received investments from Amazon and Ford.
Lucid
Positioned as a luxury brand, Lucid aims to compete with Mercedes. The Lucid Air is highlighted for its performance, range, and record-setting electric vehicle specs. Backed by Saudi Arabia’s wealth fund, the Dream Edition starts at $169,000 and is sold out, with more affordable models starting at $77,000.
Other Brands
Established brands like Cadillac, Polestar, Genesis, and Land Rover are introducing customer lounges and pop-up shops to connect with consumers without violating sales laws. Representatives can discuss vehicles without technically selling them.
Advantages of Direct to Consumer Auto Sales
Direct sales models can provide benefits for both automakers and customers.
Cost Savings for Manufacturers
By selling vehicles directly to buyers online, automakers can reduce expenditures on marketing through traditional dealerships. This allows them to pass on savings to consumers or invest in new technologies. For example, when Ford adopted direct sales for electric vehicles, it aimed to cut costs associated with the dealership network and push the industry towards electric vehicles.
Increased Customization for Consumers
A direct-to-consumer approach gives shoppers more control over the purchasing process. People can customize specs and options on automaker websites instead of relying on dealer inventory. This expands access to personalized configurations beyond what small lots may stock. Buyers gain selection and empowerment in choosing their desired trim levels, colors and features.
Focus on Customer Service
Dealers may concentrate on value-added services like maintenance, repairs and customer support with automakers handling online sales. This allows local shops to prioritize keeping clients satisfied rather serve as a middleman. Communities still obtain employment and economic activity from physical locations providing specialized care after the sale.
No Dealer Markups
By transacting direct, manufacturers set firm prices that buyers see upfront rather than dealers negotiating adjustments. This ensures full transparency and prevents extra charges being passed to the customer. People get an unambiguous price online without uncertainty overaddded on later at a lot.
Disadvantages of Direct to Consumer Auto Sales
While direct sales offer advantages, some challenges also exist.
Limiting Test Drives
Unlike traditional showrooms, the online model makes actually experiencing a vehicle before purchase more difficult. Customers may have trouble finding demonstrations of rare makes/models close to home. This less hands-on process could result in unsatisfied buyers post-sale without true senses of fit and feel.
Potential Price Increases
To offset costs of developing internet infrastructure and eliminating dealer revenue, automakers may slightly inflate the manufacturer’s suggested retail price. While transparency exists, total costs may rise depending on industry pricing strategies in a direct system.
Impact on Local Jobs and Economies
Direct sales mean reduced need for physical dealership staffing. Though valuable services remain, communities lose part of employment and tax income footprint. Areas rely less on auto sector activity stimulating additional local business if online substitutes traditional retail roles.
Safety and Regulatory Concerns
Dealers act as a liaison between buyers and brands, fielding issues to manufacturers. Their absence could impact prompt safety recalls and reporting repeated defects. Also, some states like Texas still forbid direct-to-consumer sales altogether due to passed legislation.
Are Consumers Ready For Direct to Consumer Auto Sales?
Despite advances in technology, many consumers still prefer traditional dealership experience.
Most Consumers Still Prefer Buying Cars In-Person
As per a survey by Deloitte, a large majority of 71% American consumers still like visiting an auto dealership to purchase their vehicle.
They want to check out different models, sit inside them, and negotiate terms directly with a salesperson as per their study.
Online-Only Purchase Process Makes Many Feel Uncomfortable
As per a Harris Poll, around two-thirds or 64% of consumers said they would feel uneasy buying a vehicle entirely online without any in-person interactions.
Shoppers want the reassurance of being able to see the actual auto and get answers to their queries in real-time from dealership staff.
Consumers Are Open to Blending Online and Offline Steps
While direct-to-consumer auto sales don’t appeal to most yet, the survey found that shoppers are receptive to utilizing digital platforms for certain pre-purchase activities.
This includes researching autos online, getting the final price calculated digitally, scheduling test-drive appointments virtually and assessing trade-in values of current vehicles remotely. Online portals are also commonly used for credit checks and financing applications today.
Industry Experts Expect Gradual Shift Towards More Direct Digital Sales
Although present studies indicate the car-buying public still favors the traditional in-dealership experience, industry analysts foresee consumer attitudes evolving gradually over the next decade.
As more automakers offer buying options that blend various online and offline steps seamlessly, direct-to-consumer auto sales may gain broader acceptance according to experts in the field.
Secure payment technologies also need to catch up and build more trust for complete digital purchasing to take off.
While advances have been made, shoppers have grown accustomed to seeing and test driving cars in-person before committing to a purchase. A purely online direct-to-consumer auto sales process remains untenable for the majority presently.
However, preferences may shift progressively as Generation Z consumers less tied to dealerships come of driving age in the future. Blending digital conveniences with offline assurances is most likely to drive this industry transition.