In the 21st century landscape of the automotive industry, one of the most interesting and industry-defining topics among manufacturers and consumers alike is the potential “death” of the traditional car dealership. As we move into 2025 in a few weeks, one thing is becoming more and more apparent, with the signs almost literally written on the wall: The traditional model of car buying that has been in place for nearly a century is undergoing a significant transformation. It is not unfair to say that it may even be threatened with extinction. The questions are, however, what has driven this change, and are there any adaptations that the industry is making to keep selling their vehicles?
The Catalysts for Change
While there is no one single reason that the automotive buying process is undergoing significant metamorphosis, there are several catalysts that have driven things forward faster than many expected. These are:
Digitization, or The Rise of the Mobile Internet
The most potent disruptor has been the internet’s penetration into every aspect of our lives. Even 15 years ago, the thought of quite literally having the entire internet in your pocket was science fiction. Nowadays, we get emails, website notifications, trade stocks and cryptocurrencies using apps, read news articles, stream our favorite shows, and so on. This transformation from a somewhat digital society to fully digitized one has changed the entire landscape around the globe, including how we buy cars.
With platforms such as Carvana, Vroom, or Tesla‘s direct sales model, consumers can now purchase vehicles entirely online, from browsing to financing, selecting options, and even arranging delivery. To a point, it has to be said that the biggest thrust towards this model was the global pandemic of 2020 to 2022, which forced many manufacturers to offer contactless buying processes, and consumers to turn to digital solutions for their car buying needs. In a digitized society, this led to a realization that you could buy pretty much anything via the internet. In essence, the comfort and convenience of this process has set a new standard for the industry, one that traditional dealerships are struggling to match.
Consumer Behavior
Today’s consumers, especially younger generations like Millennials and Gen Z, place high value on convenience, transparency, and speed over the traditional haggling and negotiation. They don’t want to have to sit down with a salesperson and hash out the fine details. Instead, they want to be able to do all of that “haggling” online, trimming what they don’t need or want, selecting what they do, and seeing pricing pops up. In fact, studies show a significant percentage of the younger generations prefer buying cars online, with close to 50% stating they want the process to be entirely digital.
There are those that still value the traditional process, but the base fact is that those people are usually in the older side of the millennials. For them, most dealerships will still see “door traffic” at a pretty steady rate, yet that rate is on a downward trend. Nowadays, many who come through the door have already “Spec’d out” their car on the manufacturer’s website. With the options on those sites to forward their spec to their preferred dealership, they are now arriving simply to set up the financing and pick up their vehicle, if one exactly like it is on the lot.
Technological Advancements
The rise of electric vehicles (EVs), connected cars, and the looming presence of autonomous vehicles by their very definition necessitate a different kind of sales and service model. This is one area where the traditional dealership truly struggles, as many updates and developments about these types of vehicles happen at the speed of the internet. It is much more likely for the consumers themselves to know more at the moment than a dealership!
In this sense, dealerships must adapt to sell cars with software updates, manage battery life, and provide tech support, areas where traditional dealerships have historically been underequipped. They are changing, especially dealer service centers with many manufacturers having one or more EVs. Yet, like most changes, it takes time and effort to make such a monumental shift in planning and procedures, as well as creating new service guides, specialized tools, and manuals for the technicians.
The Response from Traditional Dealerships
The reason we put quotes around the “Death” part of the title is that while many many have predicted the end of the dealership model, the reality is much more nuanced. Those who set up and operate dealerships are, for the largest part, rather intelligent individuals with rather intelligent teams under them. Because of this, traditional dealerships have not been passive in the face of these disruptive trends.
Digital Integration
Many dealerships have embraced what is known as an “omnichannel approach.” In the purest definition, this means integrating digital tools into their sales and service processes. Some examples are:
- Virtual showrooms that you can visit on your VR headset at home;
- Online financing options and live chat with a financing specialist for that manufacturer or dealership;
- Home delivery services or “last mile” pick-up options from a depot instead of a dealership
- And two way communications built directly into the vehicles so that a dealership service department can do rudimentary diagnostics on issues via the internet.
The idea with an omnichannel approach is not to eliminate the physical presence of the dealership, but to enhance it with digital capabilities. In this way, for example if an issue with a warning light on your vehicle needs a simple firmware update, a service technician could do that in five minutes while your car is in your driveway. Conversely, if the issue is deemed serious enough, you could either drive the car in for physical servicing, or the dealership could help arrange a flatbed to get your car to the service department.
The best real-world example of this integration is Tesla. The entire car is designed to “talk” with multiple servers around the world, and if your car needs an update, it downloads it while you drive. When the car is sure it’s parked for a while using light sensors to detect night and the fact you aren’t near it, it installs the update. The next time you get in, the car is already updated without you having to do anything.
Consolidation
In the old model, every dealership was its own franchise. If a dealership owner was particularly successful, they might have two dealerships, but that was rare. Nowadays there’s been a significant consolidation among dealerships. It is much more common now for a large controlling interest or group to acquire smaller operations, betting on complex economies of scale to fund digital transformations and maintain market presence.
While this might seem a bit of reverse thinking, in buying up dealerships that are on the verge of “death,” it is not. These consolidations mean that while the number of dealerships might not decrease, their structures and operations will fundamentally change. Think of it as having one dealership that specializes in luxury models of one brand, while the dealership down the road will be the affordable family car dealership. Since both are owned by the same group, one dealership can become much more specialized for VIP customers, while the other remains “traditional.”
Service Over Sales
With the potential decrease in new car sales due to shared mobility and EVs, dealerships are being forced to pivot towards becoming service centers more than anything else. This tonal shift is crucial for their survival, as maintenance and repair for vehicles, especially modern vehicles with very complex technology, become more significant.
Dealerships are pursuing many paths, including investing in expanded service departments, offering extended training for technicians, and offering subscription services for maintenance, which could keep them relevant even if sales decline.
What The Future Holds
While a traditional dealership, as we have discussed, may not survive much longer, there are other ways that a dealership can be used by manufacturers. Some of these include:
Direct-to-Consumer Models
Companies such as Tesla have shown that direct sales can be highly effective, cutting out the middleman and controlling the entire customer experience from production to delivery. They even offer after-sales service at certified service centers. This sales model might be the future for all automakers, particularly those focusing on EVs, where software updates and customer relationships are paramount.
Where a dealership may become relevant here is that some customers do not want to have home delivery. In this case, a dealership can be used as a “Drive it home” depot, or have the vehicle go through a PDI before being transported the last mile with a local or contracted delivery service.
Subscription & Mobility Services
All across the world, there has been a rise in vehicle subscription services, where consumers pay for access to a car rather than owning one. In terms of month-to-month costs to the consumer, this is a much more economical route than worrying about gas, insurance, maintenance, service schedules, and the like. While this model fits well with urban lifestyles, it is still developing, although Hyundai and Kia have three successful programs running in South Korea. These programs are:
- Flex, which allows access to family cars and small hatchbacks from either brand;
- Kia Flex Premium, which allows for the same as Flex but with four of Kia’s top end vehicles added such as the Stinger and the K9 executive saloon;
- Genesis Spectrum, which is designed to allow customers access to their top end executive cars such as the G70, G80, G80 Sports, and the Genesis GV80 executive SUV.
Pricing varies, but at a monthly rate, Kia Flex Premium comes in a 1,290,000 won per month, and Genesis Spectrum at 1,490,000 won per month. At current exchange rates to USD, that comes in at $884/mth and $1,020/mth. This might sound expensive, but factor in insurance, service, regular maintenance, and detailing is all taken care of, as well as having a 24/7 emergency roadside service as part of the subscription. All you pay for is access to the car and gas if you run it to empty.
Where manufacturers and dealerships can be integrated is with the manufacturer themselves becoming the service provider, as with Hyundai-Kia above. In the same sense as rental cars, if the manufacturer dedicated some of their production to a subscription service or pay-per-mile mobility access, the dealership could become a “Rental hub” of sorts, as well as keeping the vehicles serviced and in running order.
Regulatory & Legal Challenges
The dealer franchise system as it stands right now in December 2024 is heavily protected by state laws in the U.S., as well as federal laws in other countries. These laws have historically posed challenges to direct sales models, such as Tesla. However, as consumer demand shifts, these laws are being evolved, and many more new ones are being proposed to allow for direct sales.
This is the only truly negative thing facing the traditional dealership. By having new laws or evolving old ones, this could precipitate a rapid decline in the dealership’s usefulness. This is why there is currently heavy emphasis on providing customer and vehicle service at many dealerships, even today. The dealerships are trying to create that rapport that makes you happy to bring your vehicle to them for maintenance and servicing, because as we pointed out earlier, that may be what dealerships are used for primarily!
Is The Traditional Dealership Truly “Dying?”
The narrative around the “death” of the traditional dealership might be somewhat exaggerated, but it’s undeniable that the model is undergoing a profound shift, even a transformation. The future might not see the complete extinction of dealerships, but rather their metamorphosis into entities that are more service-oriented, digitally integrated, and maybe even fewer in number but larger in scope.
The automotive retail landscape right now is a place where adaptability, innovation, and customer-centric approaches will determine which manufacturers and their dealership networks thrive, and which ones flounder. As we look ahead, the industry’s evolution will undoubtedly mark the end of traditional car buying as we know it, which is the “Death” mentioned. However, from many a death comes a rebirth, a “New dawn” of a more dynamic era in automotive retail.
Put as bluntly as possible, this shift isn’t just about where and how cars are sold; it’s about redefining the entire automotive experience from purchase to ownership. That, ultimately, leads towards new concepts of mobility and transportation. The traditional car dealership, in its classic form, might indeed be on its last legs, but if such a place can adapt quickly enough, and in the right ways, dealerships might still be useful after all.
