Another day, another headline from Mary Barra stating that General Motors would surpass Tesla in EVs sold in the United States. As GM, arguably, was the first traditional manufacturer to offer a fully-realized electric vehicle in 1996 (lease only, I may add), it only seems appropriate. Despite how many of us in the car business feel, the rush towards an electric future seems imminent on both sides of the desk. Welcome to capitalism. Welcome to the EV Revolution that is among us now.
Yet, as the headlines keep rolling in, much of the dealer community seems unprepared for this revolution. Given the recent circumstances, who could blame them? Uncertainties around inventory, a restless client base (and staff), and downward economic pressures make it feel like there are bigger fish to fry right now. For some, it may already be too late.
Considering this utopian/dystopian future, we must take a strong look at how it will transform the dealership landscape.
The EV Revolution Affects the Service Department
Remember that quick-change oil lane the OEM made you put inside your dealership? Well, now you’ll have a great space to show off your steam engine and horse-drawn carriage collection. The gold standard of repeat traffic to the dealership will continue its decline to a fraction of what it once was. Instead of counting on your best customers showing up after two to three months in the pre-synthetic lubricant days, you’ll only see them for the expensive stuff. And, there-in-lays the scarier problem.
Electric vehicles have far fewer moving parts. No more crankshafts, camshafts, or valvetrains. No more clutch packs or torque converters. No more fuel pumps, water pumps, or lovely lady humps (sorry, the Black-eyed Peas came to mind). With fewer cars making funny noises, fewer customers will be visiting the dealership. While the most recent NADA data estimates that 11% of a dealership’s revenue comes from the service department, estimates range from 40-60% of a dealership’s profit comes from those vehicles on the hoist.
The good news is that not everyone will switch to electrics overnight, and the transition won’t happen nearly as fast as the current administration would prefer. Your best bet is to go after the independent quick-lubes today to consolidate the internal combustion holdouts, thus eliminating your competition in the future. While all parties must come to an end, it doesn’t have to be for a long time.
The EV Revolution Affects the Finance Department
Ah, yes, the other pre-pandemic profit machine, also known as F&I. For the years leading up to the chip shortage, the F&I department was the alchemy that turned a new vehicle sale from a net loss to a net profit. Whether it was service contracts, extended warranties, or…um…” selecting the right lending institution,” F&I managers have traditionally walked on water inside the dealerships. Now may be the time to acquire some life jackets.
Consumable or high-wear items such as tires, brakes, wiper blades, and head/tail lights have typically been written out of extended warranty and service contracts. It’s hard to pinpoint manufacturer defects when so much depends on how the driver uses those items, the roads they drive on, and the environment they live in. With electric vehicles, wearable items are all that is left to maintain. Nearly everything bolts-on and plugs in. All those billable hours to rip things apart just to put them back together just go poof.
Moreover, many manufacturers have already moved to keep their leases instead of letting dealerships buy them out (just like the EV1). Assuming lease penetration returns to the 28% it maintained for the five years before the chip shortage, this means F&I departments will have even fewer swings at the plate. Imagine a Mercedes dealership with a 60% average lease penetration and an all-EV lineup by 2030, and that change horizon starts getting a hell of a lot closer.
Like any apex predator, the F&I department has, historically, evolved with the times. Cars are dramatically more reliable and durable than they were 20 years ago, yet still, get extended warranties. Environmental issues will still be a concern, even for plastic body panels. Kids will still throw up the chocolate milk they didn’t dump all over the seats. But, understanding the seismic shift that’s taking place in new car sales will only continue to get more unpredictable, and finance departments will need to get more nimble while needing to capture a higher volume of small ticket sales. There will still be a seat at the table for the F&I department, but only if it decides to change.
The EV Revolution Affects the Sales Department
As for the face of dealerships, when it comes to EVs, the sales team is simply along for the ride. Too much has already been written on the topic. Some would say it’ll be so bad that Ben Affleck and Bruce Willis will be in a movie about it. Aerosmith is already working on the soundtrack.
The truth is that the best salespeople will play the same role they have already been playing. With a significant upheaval in models, the reshuffling of major industry players, the erosion of franchised dealerships, and the advent of entirely new brands, would-be customers will need a tremendous amount of help navigating uncharted waters. This will present an opportunity not seen since the advent of the mass-produced automobile, except on a global scale. That’s right, those pesky emission standards (and franchise laws, by the looks of it) that have prevented inexpensive and forbidden fruit from American shores won’t be a barrier anymore, meaning a potential onslaught of new offerings from China, India, and Eastern Europe.
Some vehicles will be offered by companies that don’t currently make vehicles at all, have no intention of creating a dealer network, and have the money and know-how to create a superior experience. As a result, product expertise will become even more valuable to customers who will undoubtedly suffer from decision fatigue.
If you find yourself mindlessly facilitating the sale of vehicles, just pushing papers from one desk to another, it’s time to go to work. It’s always been part of the job to help customers decide between makes, models, packages, options, and colors. It’s always been part of the job to know what will best fit their budget, how to make a fair profit, and not rob yourself of future transactions. It’s always been part of the job to know when to order, when to present alternatives, when to dealer trade, and when to present a used option. And, even when to tell someone to hold off (gasp!).
The best of the best know that their customers will pay a premium for their services, no matter what the supply and economic circumstances look like. Undoubtedly, they’re learning everything possible about EVs. If you’re a car salesperson not working on these skills daily, it’s probably best to start planning on life outside a franchised dealership.
Is Your Dealership Prepared for the EV Revolution?
With most major manufacturers publicly committing to ending internal combustion vehicles by the end of the decade, the EV revolution warning signs have been given. There is no time like the present to plan your service department strategy, realign your F&I offerings, and indoctrinate the sales team on the value of EVs.
Like it or not, there’s a high probability that the last customer who drove off the lot just bought their last internal combustion engined vehicle. I’m sure it seemed improbable when the car replaced the horse. Or when the airplane replaced the train. Or when the Japanese carmakers would outsell the Americans. But it all happened. Like it or not, we’re in a global economy that only moves forward through a loop of innovation and consumption. To the victor go the spoils.