The days of Southern California's gigantic car dealerships may be numbered.
That's because a statewide push toward electric vehicles, which require less maintenance than gasoline-powered cars and can be sold more easily online, is forcing automakers to rethink the retail experience.
Earlier this month, Volvo Cars said all their vehicles will go electric by 2030 and be sold online. Ford announced a similar move last month, and other large car companies, including General Motors, have also announced plans to sell mostly electric-only vehicles during the next decade. And they have made efforts to move to online sales and virtual showrooms.
"We're a digital-first brand and you can go online and you can shop and configure a car," said J.P. Canton, U.S. spokesman for Polestar, a Volvo-owned brand shifting the retail experience away from traditional dealerships in auto malls.
For years, franchised dealers stocked endless rows of shiny cars with several models and hundreds of configurations. Dealers built community relationships, cities fought for their presence with the taxes they drew in paying for roads. But the high cost of maintaining large staffs and renting real estate has legacy companies looking at more showrooms and typical retail spaces — and even steering customers away from showrooms or service centers altogether.
Part of the reason dealerships made sense in the combustion engine age was they house massive service centers. But electric cars eliminate part of that need. They have fewer parts and don't require regular tuneups. Plus, software can often be updated remotely.
The pandemic has made contactless purchases the norm. A number of electric car companies — including Tesla and Lucid — were already heading in that direction, featuring online ordering and small showrooms.
Now giant carmakers are following suit, bringing an end to an era.
Signs of Change
Last year, Governor Gavin Newsom announced California would move to electric vehicles and ban sales of gasoline and diesel-powered ones by 2035. Other states are considering similar moves. Ford and General Motors have pledged to do the same.
Cadillac, one of GM's lines, relies heavily on dealerships to sell its six different models at suburban auto malls with vast lots of new cars. But in Beverly Hills, it's testing out a different way of selling cars more akin to Tesla. Placed on the first floor of a multi-story building at Wilshire and Robertson boulevards, dealership representatives rely extensively on Shop-Click-Drive and Cadillac Live, the brand's digital showroom. The small footprint is meant to be more environmentally friendly.
"We feel very good about the prospect of going all EV not only about clean energy, but bringing into new experience, going all digital and introducing customers to that experience," said Mahmoud Samara, vice president of sales, service and marketing for Cadillac. The brand announced last summer that it will be all-electric by 2030 and will introduce its first model, the Lyriq EV SUV, in the first half of 2022.
Samara, who has worked for GM for 17 years, said the giant Detroit-based automaker is encouraging U.S. dealers to offer car buying through the Shop-Click-Drive system. That program lets Cadillac — as well as Chevrolet, Buick and GMC — shoppers research the vehicle they want and connect with a local dealer that either has the car in stock or can find one like it near the customer.
Cadillac Live distinguishes its approach among the other GM brands. The program was rolled out across the U.S. last March. It allows users to make an appointment with a Cadillac 'ambassador'' for a virtual car tour, where the sales person can answer questions and eventually line customers up with the Shop-Click-Drive program.
The experience became essential to allow dealers to sell what cars it could during the COVID-induced lockdowns. Samara said the program was well-received both by dealers and customers, pointing to higher customer satisfaction scores. Cadillac posted their best fourth-quarter sales in four years and the best dealer profitability on record.
"We had the vision for digital retailing way before COVID, Samara said. "As the pandemic hit, we were prepared with the platforms where physical contact was limited and whereby the adoption rate during the pandemic was extremely high."
Electric Startups Have a Leg Up
Polestar, a new electric-only car brand launched in 2017 as an offshoot of Volvo, has only four U.S. showrooms, including one in Santa Monica at a storefront along the Third Street Promenade. Their model may be a hint of what the future will look like for legacy carmakers.
Polestar's Canton said the brand's prospective customers do the majority of research online, including arranging for a vehicle to be dropped off at home for a 24-hour test drive.
Consumers can arrange for an in-person test drive at the Santa Monica showroom or at a "Polestar Space," as the company calls them. And while a representative shows buyers Polestar's features, all of the ordering is done online. There's no car salesperson, per se.
Orders typically take between a few days to six weeks. And because Polestar offers limited colors, upholstery choices and equipment packages, dealers don't need to keep as much stock on hand.
"Effectively, you never need to walk into a dealer or showroom," Canton said, "because everything can be arranged online, down to having the dealer deliver the car to your door."
The idea has already spread to its parent company. Volvo announced earlier this month the new Volvo C40 will be sold as a pure electric car, through limited configurations and online only for a no-haggle price. All future electric-only Volvos will also be sold this way, the company said. Like Polestar, existing Volvo dealers will still be involved in answering customer questions, preparing the cars for home or office delivery, as well as pickup and drop-off for servicing.
Meantime, Polestar announced this month it would open 15 new retail locations by the end of this year, including in Orange County, but also places that aren't exactly EV strongholds, including Detroit, Boston and Minneapolis.
Newark, Calif.-based Lucid Motors is taking a similar approach to Polestar with its yet-to-be-released car, offering it in only four different packages with limited colors.
The Tesla competitor opened up reservations online for its vehicles for between $70,000 to $170,000 in September, while keeping a retail footprint.
The Lucid Motors retail "studio" and service center is operated by the company and has more of a gallery feel than that of a traditional car dealership.
"The showroom is still a place where customers can sit and bring in their kids and get the full experience," Edson said.
The Century City showroom at the Westfield Mall, one of two in Southern California, has light wood paneled walls and recessed lighting. The other studio is in Beverly HIlls, and the company has plans to open locations and service centers in Orange, San Diego and Torrance later 2021.
"The retail format might be driven by EVs, but it's also driven because it's new," said Zak Edson, senior director of retail operations for Lucid Motors.
Edson said the atmosphere creates a "more direct relationship" with consumers. And with fewer service needs, the shift makes sense.
"Early on, it's important the studio locations are in high-traffic areas," he said. "As a brand, we're getting to be known. We want to be somewhere where it's easy to find. We look for areas with our desired expected customer."
In addition to malls and fashion centers, Lucid has repurposed some vacant dealerships. The Torrance location was most recently used by Rusnak Auto Group, and the Beverly Hills spot was an exotic car showroom that worked on brands such as Maserati and McLaren in the past.
Both of those locations will operate as service centers and hold inventory. Still, their footprint will be much smaller than a traditional automaker would require from a new franchise.
Being heavy on online sales and keeping its brick-and-mortar presence small proved helpful in 2020, especially as the COVID-19 pandemic swept the world and forced shutdowns on most in-person retail visits. Some dealers had to scramble to continue business. Neither Lucid or Polestar's spaces did, however.
"We were so well placed for it because online ordering was all in place," Canton said. "When most other [automakers] were trying to pivot to online, we were already there. What we did have is the immediate capability to address things for the customers. We take the deposit, arrange financing or leasing, do most of the paperwork online."
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