According to a recent report, automakers that rely on direct sales have ripped potential profits from traditional franchised dealerships in California. Data from J.D. Power suggests that some $910 million in unrealized profit was taken from the legacy dealers in 2022 alone.
The recent report comes from Automotive News based on J.D. Power data and was shared by Autoblog. For years, it appeared legacy automotive dealerships were winning the battle against startups like Tesla, but that has been slowly changing. Now, other EV startups have come to market, including Lucid and Rivian, and they also sell their vehicles via a direct-to-consumer model.
Automakers and the traditional dealership association have pushed back against Tesla and others for obvious reasons. These newer car companies are allowed, in many cases, to sell their own cars via their own stores and online sales, with no middleman. Meanwhile, traditional automotive manufacturers must still succumb to the rules of the antiquated franchised dealership model.
In 2022, Tesla, Lucid, and Rivian added some 12% market share in California by selling their EVs directly to consumers. At the same time, legacy dealerships in the state lost of average profit of about $700,000 per site. California has over 1,300 traditional dealerships, so the total loss in unrealized profits adds up to over $900 million.
According to J.D. Power, Tesla, Lucid, and Rivian accounted for a combined 193,707 new-car registrations in the Golden State last year, though about 188,000 of those were Tesla models. California's legacy dealers averaged about $4,700 in profit per vehicle sold in 2022. Thus, the startups essentially snatched up $910 million in potential profits that the dealers could have made.
While some legacy dealerships are successfully selling EVs, none are even coming close to selling them in numbers that parallel Tesla. Moreover, many traditional dealerships have chosen not to sell EVs at all, and those that wish to sell more of the popular new vehicles often can't get any inventory.
In the end, it's all about having the best product, or at least, the product customers want. Brian Maas of the California New Car Dealers Association shared:
"Dealers should be going to their OEMs and asking for product to beat Tesla."
Car buyers are proving they're much more eager to buy an EV than they were in the past, and this is especially true in California, where electric cars are more popular than in most places on the planet.
