Is The Internet The New Way To Sell Cars?

Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The Internet has revolutionized the way business is conducted. Once-mighty retailers are looking at questionable futures after Amazon eliminated the cost of the brick and mortar store, while Blockbuster was forced into bankruptcy after having its market taken over by Netflix. But car sales are still primarily done in the way they have been for decades, where customers haggle over prices on large inventory dealership lots. One automaker is beginning to change this, and others may soon begin to embrace online car sales.

Silicon Valley brings car sales online

The Tesla (NASDAQ: TSLA) Model S is a remarkable car in and of itself, but the sales method Tesla is using eliminates the need for the large-inventory dealer lots. For Tesla, this is an ideal business model since the automaker has virtually no unsold inventory due to high demand for the Model S. But even Tesla realizes customers want to see before buying, so it has opened a bunch of Apple-esque Tesla Stores. And their similarity to Apple is not just a coincidence--Tesla hired former Apple store designer George Blankenship to design the Tesla Stores. Unlike traditional auto dealerships located in auto mall settings, Tesla Stores are located in shopping malls, typically high-end ones to further emphasize the paradigm-changing effect.

New EV, new sales strategy

As Tesla increases Model S production and store locations, some other automakers look ready to embrace the online sales strategy. Information from Green Car Reports says that BMW (NASDAQOTH: BAMXF) is looking to sell the new electric BMW i3 and i8 online. The idea of selling EVs online is quite likely a sales tactic by BMW to go with the futuristic technology in the cars.

However, not all EVs are being sold online. Toyota’s (NYSE: TM) new Plug-in Prius is sold alongside other cars in its lineup. Since much of automotive sales comes down to the right marketing, Toyota’s strategy appears to be centered around making the Plug-in Prius appear as part of the ordinary Prius lineup and selling it as part of the dealership fits with the sales strategy.  Whether or not BMW ever plans to expand online sales into other models remains to be seen. But if it does, BMW and other automakers will have a tough fight ahead of them.

Dealerships fight back

Auto dealerships operate on a franchise model where the automaker does not own the dealers themselves. As a result, BMW could not simply choose to shutter its dealerships in favor of online sales. In fact state laws currently prevent automakers from opening their own company owned stores in many states.

To prevent automakers from driving their dealers out of business and assuming their positions, laws passed after World War II set up barriers for automakers wanting to sell their vehicles without franchised dealers. Tesla has been fighting these dealership laws in many states through lawyers, lobbying, and rallies. In Texas, where state law forbids Tesla to have company-owned stores, Tesla has set up Galleries where cars are displayed but no sales information can be given.

The question is if major automakers will try to fight these laws and move online. After all, the resources of major automakers dwarf those of Tesla, both in automotive production and lobbying power. In a political system where money can buy influence, a lobbying effort spearheaded by large automakers could quite likely get farther in changing state laws regarding online auto sales.

Amazon of cars

Despite so much our lives moving online, the method to buying a vehicle remains stuck in the past. But EV start-up Tesla Motors is building its sales online and BMW is following by launching its own EV sales online. Other automakers like Toyota are using sales strategies meant to relate their EVs to existing models by keeping them in dealerships. If and when major automakers decide to move mass market sales online, investors should prepare to witness a state-by-state legislative battle over the fate of Internet auto orders.

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Alexander MacLennan owns shares of Tesla Motors. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool recommends Tesla Motors . The Motley Fool owns shares of Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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