Tesla Motors Inc(NASDAQ:TSLA) has long been a thorn in the side of traditional car dealers.
By setting up shop in malls across America instead of allowing third-party merchants to sell its Model S electric vehicles, TSLA has tried to cut out the middleman and sell directly to customers. However, Tesla Motors has had to defend its practice repeatedly in court as well-financed dealer groups look to protect their turf.
All the while, there have been whispered worries that if Tesla is able to go at it alone, maybe major auto manufacturers like General Motors Company(NYSE:GM), Ford Motor Company(NYSE:F) or Toyota Motor Corp (ADR)(NYSE:TM) would also abandon the dealers.
And with a recent announcement from Cadillac, that may be finally happening.
Cadillac’s New Showroom
The luxury arm of GM recently announced plans to offer virtual showrooms of its vehicles, using mall real estate like Tesla Motors to offer up its vehicle line via VR headsets. These locations will still be traditional dealerships in the legal and financial sense, since franchise laws would make closing existing locations difficult and costly.
However, the virtual showrooms will be “low on overhead and big on sophisticated technology” as a way to keep margins high … and perhaps to test the concept for a larger rollout in the coming years.
The downsides are obvious: A “test drive” in virtual reality isn’t the same as experiencing an actual luxury vehicle in real life, and eager customers can’t drive off right away in their new convertible even if they are instantly sold.
However, Cadillac moves half the volume of other luxury carmakers, despite having many more times the physical locations of rivals like Toyota’s Lexus brand. So, preventing inventory from being tied up in showrooms will be a big plus to profitability.
It’s not a magic bullet, of course. TSLA stock has seen its electric vehicles resonate with consumers thanks both to the quality of the autos as well as the focus on on-board technology and a twenty-first century approach to all aspects of the business.
GM stock still has plenty of pain right now with the lingering fallout of the ignition switch issues of 2014 continuing to cloud the brand, and Cadillac in particular seeing headwinds as it lags more popular rivals like Lexus and BMW(OTCMKTS:BAMXY) in total vehicles sold.
But it’s an interesting experiment for Cadillac to copy the Tesla sales playbook, in an attempt to connect with tech-savvy luxury consumers as well as prop up profitability. This makes the recent effort certainly worth watching.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via@JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
