cars in parking lot

The History of Buying a Car in the US and How it Could Get a Makeover

Branded Stores

Shopping for certain products in the US is fairly straightforward. If you want a refrigerator or washing machine you visit an appliance store. When it’s time to update your wardrobe, a trip to a clothing store like Nordstrom (JWN) or Gap (GPS) is in order. The same retail company both owns and operates the store. Buying an automobile is an entirely different operation.

For one thing, dealerships sell individual brands, as opposed to the way Walmart (WMT) for example sells a multitude of products from different companies. What’s potentially even more bizarre, a Ford (F) dealership is often not owned by the parent company, much in the same way Toyota (TM) dealerships are rarely owned by the carmaker. Many times, separate companies of varying sizes own the dealerships, despite the logo on the sign and the cars in the lot.

Early Autos

In an overly-simplified way, buying a car is much more complicated and involved than buying a new shirt or microwave. That can help to partially explain why shopping for automobiles is different from other products, but a deep dive into history is also in order.

Just over 100 years ago, cars like the early Benz Patent Motorwagen and Sears Motor Buggy sold through word of mouth and by mail-order catalog. Car companies began popping up and many went out of business, but a titan emerged in Ford (F) Motor Company, and it flexed its power with dealers forcing exclusivity agreements and high commissions. In response, dealers lobbied for protection laws, and it’s now virtually illegal everywhere in the US for car companies to open their own dealerships and sell directly to consumers.

New-Age Model

In the age of ecommerce, some car companies are attempting to change the way things are done. Tesla (TSLA), Rivian (RIVN), and Lucid (LCID) are using things like virtual-reality goggles and showrooms in shopping malls to reach customers, with sales completed online, sometimes directly to consumers.

That trend has made its way to more traditional car companies as well, spurring the creation of online ordering systems. In that case, delivery is done through existing auto dealerships. Some industry observers believe startups and larger automakers may eventually work together to develop a more flexible system and framework for buying cars online — something consumers may consider an improvement over hours spent at various dealerships.

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James Flippin ABOUT James Flippin James Flippin is the son of a financial advisor who grew up hearing and learning about bond yields, interest rates, the stock market, and the ins and outs of Wall Street. After stints as a licensing and business broker for Marcus and Millichap in New York City, James moved into broadcasting and became a reporter and anchor. He covered crime, politics, finance, and tech at NBC News Radio while working part-time as a producer for SiriusXM. James graduated from the University of Delaware with a bachelor’s degree in political science and economics. He's also an accomplished podcaster with over 10-years of experience.

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