If millennials prefer to make most purchases online, why not let them buy cars online? And if they’re used to getting a new phone every year or two, why not give them the option to get a new car that often?
That is the approach to selling cars that a fledgling brand called Lynk & Co plans to take when it launches in China in 2018 and in the US and Europe in early 2019.
Lynk is owned by Geely Automobile, the Chinese multinational that also owns Volvo, and it will sell cars online and through company-owned stores, like Tesla, instead of through franchised dealers like other manufacturers.
Lynk’s entry in the US would present another challenge to the franchise dealer system that has been in effect for more than 100 years, following Tesla’s lead. In addition, short-term car rental services such as Maven and Zipcar are giving consumers alternatives to owning a vehicle, and companies such as Carvana are selling used cars online directly to consumers.
“We don’t think the other model is wrong. We believe that if you come out with a new car brand, just bringing another really great car is not good enough, so we want to offer a totally different customer promise and a different business model,” Lynk senior vice-president Alain Visser said.
The company’s approach will depart from traditional automotive retailing in several ways:
Lynk will adopt a fixed, one-price only policy globally. Lynk will offer fewer than 10 trim levels of each model, with no individual options or packages available.
Instead of sprawling suburban dealerships, the company will set up small stores in malls or pop-up stores in major cities such as Chicago, Boston and San Francisco. The company expects to have 70 to 80 US sales points within about three years.
Customers will be able to buy or lease cars, but the company will focus on “subscriptions” for one, two or three years. Visser said subscriptions would be similar to leases, and customers would be able to exchange their cars for new models at the end of their terms.
Vehicles will be delivered to customers (or they can pick them up), and they will receive a walk-around explaining the car features. Lynk also will pick up and deliver cars for service.
Lynk will not own its service centres. It is negotiating with Volvo dealers to provide service.
The vehicles will have a standard “sharing button” and embedded technology that will allow owners to rent their cars to others when they aren’t using them.
Millennials will be the primary target because they are most likely to embrace this new approach and “they are the biggest customer group in all major regions globally,” Visser said in a telephone interview from Gothenburg, Sweden, where Lynk and Volvo are based but have separate headquarters.
“Those customers who do not see the advantage of going to a dealer and negotiating a price can come to us. Does that mean the dealer model is wrong? Not necessarily, but we believe there is enough customers out there who are ready for something else,” Visser said.
Initially, the brand will offer one model in the US, a compact SUV based on the Volvo XC40 called the 01, which Visser said will be a “premium product” but priced against SUVs from volume brands. Other models will be added (and also have numerical names), though Visser didn’t give details.
Lynk’s blueprint borrows from Tesla, the electric car company that used a similar approach to sell expensive battery-powered cars to well-heeled buyers without relying on franchised dealers.
Auto industry analyst Maryann Keller, though, thinks that because Lynk will compete with volume brands such as Ford and Toyota, what worked for Tesla and its CEO, Elon Musk, won’t work as well for it.
Musk “got a billion dollars’ worth of free publicity because of the novelty of the car and who he is, a brilliant entrepreneur, wealthy, very charismatic, a great speaker. And it was a phenomenal car,” Keller said in a telephone interview.
“I think (Lynk executives) have this strange notion that who comes to them is going to be able to click online, pick the colour, pick the interior, pick whatever style – and please send it. They don’t understand that the car-buying process for 90% of Americans is more complicated,” she said.
Many buyers, especially younger ones, have credit issues that make it hard for them to get a loan or approval for a lease, she said. In addition, Lynk will have to set up a means to take and dispose of trade-ins, and it may also have to get into the used-car business.
Lynk, she argues, would be better off setting up a network of franchised dealers who are experienced in all aspects of the car business.
“They would be able to be up and running across the country faster, and they would do it without having to put their own capital to work. They can set whatever standards (for dealers) they want,” said Keller, a former Wall Street analyst who now runs her own firm, Maryann Keller & Associates. In 2014, Keller wrote a report for the National Automobile Dealers Association that extolled the benefits of the franchise system for consumers.
Visser said Lynk is aware that car dealers are equipped to handle all aspects of the retail side of the business, but he argues that a growing number of consumers are ready for a different approach to buying a car.
“There is a different way, and maybe a better way, to run this business. This is not against dealers. This is showing that we have alternatives to the existing model,” he said.
University of Michigan law professor Daniel Crane argues that car manufacturers should be able to choose what they see as the most efficient distribution system.
“The way markets should work is that the government doesn’t pick winners, doesn’t pick a single way of doing things. It should let everyone take their own risk, and different people will succeed with different strategies and different people will fail with different strategies,” Crane said.
Lynk will have to fight the same battles with franchise dealers that Tesla did to open its own stores and sell directly to consumers.
Mark Scarpelli, a Chicago-area dealer and NADA chairman, would not say whether NADA will actively oppose Lynk, but said, “That’s a state issue that each state has the flexibility to say yes or no.”
Each state has laws that require vehicle manufacturers to sell through franchised dealers or restrict sales through company stores, and Tesla encountered strong opposition from dealer groups in every state where it tried to set up shop. Visser said Lynk is prepared to wage those battles.
“That’s why we will start in the US in 2019, so we have time to prepare. As far as Tesla, we have already learned from it,” Visser said, adding that Lynk will attempt to follow Tesla into some of the same major cities.
Crane sees it as the natural evolution of the car shopping experience. “People will learn, people will adapt, people will have choices, and that’s how market economies are supposed to work. The only way to find out if they’re right is to test it in the market, and that’s what the laws are not allowing to happen.”
— Chicago Tribune/Tribune News Service