Lucid's Sales Model Gives It A Huge Advantage Over Legacy Automakers
It's fair to say that the Covid-19 pandemic has been disastrous for many global industries, but especially for car companies because of the way they've been strangled by parts shortages and idling factories. GM alone saw revenues decrease by 40% last year, and the General's not alone in its misery. Thanks to a shortage of semiconductor microchips the global auto industry is estimated to have lost a colossal $210 billion in 2021.
Chip Shortages and Covid
When Covid hit and the car industry had to slow right down, demand for chips skyrocketed from the electronics sector. With people around the world forced to stay home there was a huge uptick in sales of phones, TVs, computers, games, and other home electronics that use chips from manufacturers that also supply the auto industry. By the time auto manufacturers were ready to being building cars again in the summer of 2020 most of the world's microchip production as well as future production contracts were spoken for by the more lucrative electronics industry.
There was also a factory fire at Renesas Electronics in Japan which hit Ford particularly hard. It would be six months before the factory returned to pre-fire production levels. Of course, it goes without saying that Covid forcing the closure of chip factories in the major productions areas of China, Taiwan, and South Korea only made the precious chips more scarce.
Another issue for the auto industry was the fact that vehicles were being designed as if there were an unlimited number of chips available leading to many of the tiny but vital components being used for small individual purposes in a vehicle, from brakes and transmission control to adjusting the lumbar support in a power seat. Future designs will rely less on individual chips controlling every little function.
The upshot of all these supply problems and Covid shutdowns is fewer vehicles for customers to buy, and, as a result of the high demand and low stock volumes, the much-despised practice of dealer mark-ups. Such mark-ups have always existed, because the dealer buys the vehicle from the manufacturer, and then needs to turn a profit, but Covid and the resulting chip shortage have seen mark-ups soar to dizzying new heights. With fewer units to sell and more people wanting to buy, dealers across the industry have been adding eye-watering mark-ups to the price of new vehicles.
Lucid's direct sales model is the antidote to this problem.
Video creator Jon Rettinger, who provided Lucid fans with videos of the over-the-air updates received by his Lucid Air Dream Edition, was actually trying to buy a Mercedes EQS and had one reserved at a dealership when he received a call informing him that there would be a $50,000 mark-up on the vehicle's $119,000 MSRP. He said no thanks, and headed over to Lucid to buy direct from the manufacturer and avoid such price hikes.
Here's a story. I was originally going to get a @MercedesBenzUSA EQS 580. Even had one reserved and ready for pickup. The dealer called to inform me there was a $50k (not a typo) markup on the car. I passed. Infer what you will about the dealer model protecting consumers. https://t.co/XIbzdzB5CX — Jon Rettinger (@Jon4Lakers) December 29, 2021
Here's a story. I was originally going to get a @MercedesBenzUSA EQS 580. Even had one reserved and ready for pickup. The dealer called to inform me there was a $50k (not a typo) markup on the car. I passed. Infer what you will about the dealer model protecting consumers. https://t.co/XIbzdzB5CX
— Jon Rettinger (@Jon4Lakers) December 29, 2021
Guess Who Hates The Direct Sales Model
If you said car dealers you'd be right. Dealers have been part of the buying process for decades and can be a powerful political force when they want to be. By putting pressure on state lawmakers some dealers' organizations have been able to outlaw direct sales entirely, while others make it possible though a hassle for the manufacturer. Tesla took a lot of heat from legislators and dealers' unions when it became the poster child for direct sales, though this has eased somewhat since. Rivian also sells vehicles direct-to-consumer.
Whether you're for or against the direct sales model for vehicles it's undeniable that a $50,000 mark-up would be enough to push all but the most fanatically dedicated customers away from a company and into the arms of a rival that doesn't hit them with similar mark-ups. With EVs growing ever-more favored as the personal transport of the future, and the newer EV companies selling direct-to-customer, legacy manufacturers will need to do something about the situation or risk falling behind to the new kids on the block. For now, as Mr. Rettinger was told by a Mercedes rep when he reached out to inform the company of the outrageous price hike, manufacturers are legally powerless to dictate a dealer's price for their vehicles.
James Walker is an automotive journalist at Torque News focusing on Lucid Motors. If it's got wheels he's interested in it, and he's very excited to see what kind of cars the EV revolution brings us. Whether it's fast, slow, new, or old, James wants to have a look around it and share it in print and on video, ideally with some twisty roads involved. You can connect with James on Twitter, Instagram, and LinkedIn.