Car dealers fight the threat of extinction as the Teslafication of their industry intensifies

• Car-buying isn't what it used to be, and buyers have all-new demands.
• Auto dealers have to evolve to keep up.
• Some dealers are doing costly showroom renovations; others are preparing for wider EV adoption.

Car-buying isn't what it used to be. 

The modern car shopping experience, from initial research to final purchase, can now be done online — and the pandemic accelerated that shift. The dawn of electric cars is bringing another seismic shift that's threatening to eliminate dealerships altogether.

Auto dealers are now facing an existential crisis, and fighting to stay relevant. 

Some are training staff to be EV experts as customer demand grows for electric cars. Others are emulating firms like Carvana and moving some parts of the buying process online. Dealers also are investing in expensive renovations, building features like lounges and dog parks to lure shoppers to their showrooms. 

As they experiment with new strategies and customer perks, some dealers remain uncertain about what the future of selling cars will look like.

"When COVID first hit, nobody knew exactly what the new car business was going to look like," Scott Kunes, COO of Kunes Auto and RV Group in the Midwest, told Insider. "Same thing with EVs. We don't exactly know how the car business is going to look going forward with this EV shift, and how much the EV shift is actually going to take place."

One dealer hopes luxury perks and a dog park can lure shoppers

Porsche Fort Myers in Southwest Florida is undergoing construction on a new showroom and service center that will offer all sorts of luxury amenities, including indoor and outdoor event space, a full catering kitchen, lounges, workplaces, and even a mini dog park.

The new store is an example of how dealers are trying to improve the customer experience. CDK Global found the customer experience is five times more important to dealers this year than inventory and profits.

"We want to get away from that: 'I really don't want to go into a dealership,'" feeling among some buyers, Mitchell Sherwood, general manager at the Porsche store, told Insider. 

Dealers are racing to stay relevant as EV startups try to prove they don't need dealerships.

Much like Tesla, Rivian and Lucid have physical storefronts, but transactions are done through a digital-only, direct-to-consumer model. The more traditional auto companies haven't yet gone that route, but they've hinted at it — despite the advantages of a dealer network. 

But some industry experts say the dealership will never disappear entirely.

"I just don't see that dealership relationship and how the dealer interacts with the whole process of retail, period, changing too dramatically just because a few EV startups have had success doing it in a different way," Dave Thomas, CDK's director of content marketing, told Insider.

He said a hybrid model might be the most effective for dealers moving forward. 

"When you look at parts of the purchasing process that are the least fun, namely negotiating the price of a vehicle, if dealers have a process where they can get that done online, it changes the buyer's perception of the transaction itself tremendously," Thomas said.

Sherwood said Porsche is trying to make a hybrid model work.

"We keep thinking the digital is everything, but then consumers keep telling us they still want to come in and see it, touch it, feel it," Sherwood said. "So how do we blend those two ideas together?

"We really need to improve the experience in-dealership," Sherwood added, in ways "that make it feel like a place where somebody would actually say, swinging by the dealership is more of a regular part of my schedule."

Dealers prep for EVs while sustaining the gas-powered business

Dealers also are trying to prepare for wider adoption of EVs through staff trainings, special certifications, and more.

"We are seeing a change in how consumers view the sales rep and the people at the dealership when it comes to EVs," Thomas said. "They are looking for expert guidance from the dealer."

Automakers are pressuring dealers to quickly get up to speed and help make their multi-billion-dollar EV ambitions a reality, with GM even telling Buick dealers to go all-in on EVs or get out. Yet they are still relying on dealers, in the near term, to sustain the majority of their business through gas-powered car sales and service. 

Ford has set stringent requirements for its dealers to sell EVs — though some dealers have called its EV certification program unfair and dropped out. Dealers enrolled in a program to sell Hyundai's electric Ioniq cars must comply with certification requirements before they are provided vehicles to sell and service. Meanwhile, GM has asked retailers for substantial investments, and is leaning on them to support building a charging network. 

"The technicians had to get trained on EVs, salespeople did too," said Whitney Yates-Woods, dealer principal and president at Yates Buick GMC in Arizona, who has invested a lot in tooling and infrastructure for her store over the past two years. "We just kind of felt like we're going to have to do it anyway, so we might as well just be the first one."

Some dealers are having a hard time committing to changes when the return on investment — especially with EVs — isn't yet clear.

"The manufacturers are asking us to make large investments in our facilities, and we're willing to do it, once we have a clear and concise plan," Kunes said. But he said the dealership hasn't been provided with enough EVs to justify the changes.

"I mean, if we're only going to get 25 EVs a year, how can you ask us to invest $1.2 million on our facilities?" he asked.