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The Quora Column

Why hasn't the internet eliminated car dealerships?

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In many ways, car company websites are no different from a shoe retailer’s. A visitor can select the desired product, pick the size, change the colour and tick extras with just a few clicks. But even now, an age where cars can almost drive themselves, consumers still cannot place a car in an online basket and proceed to checkout.

The reasons for this range from longstanding consumer habits to laws governing those habits. A look at Quora.com, the question and answer community, furnished some varied explanations for why new car shopping hasn't moved entirely online.

Building cars and relationships

Tommy McClung was co-founder and CEO of the online automotive marketplace CarWoo, which ceased operations at the beginning of 2014. On Quora he argued that dealerships provide customer service and buying assistance that an online click-and-purchase model simply could not match. "Dealers handle consumer inquiries about vehicles, availability, take people on test drives, prep cars for sale, service your vehicle, handle your warranties, etc."

McClung added that the one-stop-shop aspect of a dealership is difficult, if not impossible, to replace. "The web can serve as a conduit to the dealer and can simplify this engagement, but a replacement for the dealer will not happen and shouldn't," he wrote.

Quora user Frank Kemper agrees, contending that having dealerships is as much about what follows the purchase as the purchase itself. Because consumers spend plenty of money for vehicles, he said it's "a good idea to have a dealer nearby who feels responsible to keep this very, very expensive piece of investment running and healthy."

Competition? What competition?

Aside from servicing and selling new vehicles, as well as building relationships with customers, there's a rather obscure but critical reason that dealerships survive in an online age. Particularly in the United States, dealerships have contracts with carmakers that ensure manufacturers cannot sell vehicles directly to consumers. Such relationships are often codified in state law, under the umbrella of consumer protection.

"In the United States, it would generally be illegal for the manufactures to sell directly to the consumers due to the contractual agreements that they have made with the dealers and the state franchise laws that govern those contracts," Quora user Jared Hamilton noted.

Indeed, car companies agree not to sell vehicles directly to consumers in certain areas, and in turn dealers are allowed to sell cars in a specific region. "Without these provisions dealers would not invest the significant amounts of money it takes to start and run a dealership," Hamilton wrote. Even when a customer opts to take advantage of a European factory delivery program – such as those offered by BMW, Volvo and Porsche – the purchase must be initiated, negotiated and consummated at a local dealership.

This direct-to-consumer issue has been a hot button of late, as electric vehicle start-up Tesla Motors sells its cars online, in addition to maintaining company-owned and operated showrooms. Tesla has gone – and has been taken – to court in states such as Virginia, North Carolina and Texas to defend its strategy against attacks from US and state-level dealership associations.

Tesla CEO and co-founder Elon Musk has gone so far as to call the legal opposition a "perversion of democracy". One of Tesla's main arguments holds that the company has never franchised the retail side of its business, so it's not breaking any laws or contracts by selling its vehicles directly to consumers.

George Skentzos, founder of the automotive social network CarMooch, argued that it would be possible for other car manufactures to sell their vehicles online, but it would not be "in the best interest of the manufacturer as they would be cannibalizing this support infrastructure provided by dealerships".

An online middle man?

In late 2013, Nissan and online mega-marketplace Amazon.com sold Versa Note hatchbacks in the US for a limited promotion. Ever the promoter, Amazon delivered the Versas in huge cardboard boxes directly to their purchasers. (Though the orders were initiated on Amazon's site, just three delivery fulfillments of this kind occurred, with local Nissan dealers handling the transactions.)

Consumers may be ready for new cars to be delivered directly to their driveways, but longstanding industry structures will keep brick-and-mortar dealerships in the driver’s seat for the foreseeable future.

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