Bad Idea of the Week: Replacing Car Dealerships With Virtual-Reality Showrooms

A man uses virtual reality glasses at the booth of German carmaker Volkswagen at the 2016 Hanover Fair.

Tobias Schwarz/AFP/Getty Images

New ideas are rare in the auto industry, so Cadillac is getting a lot of attention for its just-announced plan to replace some new-car lots with “virtual dealerships.” According to the Wall Street Journal, these dealerships would service cars and offer test drives, perhaps via virtual-reality goggles. What they would not offer is actual inventory. So much for driving your new Caddy off the lot.

The company will start looking for dealers to volunteer for the program starting this month, the Journal reports.

At first glance, this might seem like a smart way for a car company to streamline its operations for a world in which people increasingly order things online, rather than going to a store to buy them. In theory you could save a lot of money and space by moving to a model more like that of Tesla, which operates showrooms where you can learn about, and in some cases test-drive and order, a car but can’t actually roll away in one. This approach, mind you, was not Tesla’s choice: It’s a way for the company to get around various states’ regulations that prohibit automakers from selling directly to consumers. Still, it hasn’t seemed to put much of a dent in the company’s sales.

The “virtual dealership” concept also opens up potential locations, like malls and downtown shopping districts, where you could fit a prominent storefront and maybe a vehicle or two, but not a whole lot full of cars. You could imagine Cadillac mini-showrooms popping up in the sorts of prime retail locations where you might typically see an Apple Store.

But, per the Journal’s report, that isn’t really what this is about. Saving money, yes—but not opening new locations. Rather, the idea seems to be Cadillac’s creative attempt at its own end-run around the Byzantine regulations by which independent auto dealers have captured America’s auto sales market. In addition to prohibiting direct sales, these laws make it costly for car companies to terminate their agreements with dealerships. Which is a problem for Cadillac, because it has far more dealerships in the U.S. than competing luxury brands, forcing it to overproduce new models to fill all those lots. Many end up being sold at a discount, tarnishing not only the company’s profits but the perception of scarcity that is central to a luxury brand’s image.

Rather than closing scores of dealerships, Cadillac hopes to convert the less popular ones to “virtual dealerships” where you can order a car but not buy it on the spot. It’s fun to imagine some of the conversations the company’s reps will be having with these dealers in the coming months.

DEALER: You’re trying to shut down my dealership? I’m calling my lawyer.
CADILLAC EXEC: No, no! Nothing like that. We’re offering you an opportunity to go “virtual.”
DEALER: But you’d be taking away my cars.
CADILLAC EXEC: Well, yes. But we’d be giving you virtual reality headsets!
DEALER: I’ll keep the cars, thanks.

The truth is, we’d all rather have the cars, and let’s hope Cadillac will at least give those poor dealers enough real ones to offer test drives. For all the hype around virtual reality, it’s still a poor substitute for actual reality, and no virtual test drive is going to convince a buyer to plunk down $50,000 on a CTS. Cadillac dealers might as well try to close a sale at the local mall arcade’s Cruisin’ USA machine. No wonder the company’s executives are headed out on a roadshow this month to try to assuage dealers’ concerns about the plan.  

Virtual reality can be a great way to experience something you otherwise couldn’t, like flying a fighter jet or slaying zombies. But if companies start trying to use it as a cut-rate substitute for mundane things like test drives or clothes fittings, the backlash from both customers and salespeople will be swift.