Carmakers face a crossroads as they work to fit auto dealers into their EV plans
Customers wearing protective masks looks at the interior of a vehicle for sale at a Ford Motor Co. dealership in Colma, California, Feb. 1, 2021.
David Paul Morris | Bloomberg | Getty Images
DETROIT — As automakers chase Tesla-like profits on new electric vehicles, they face an existential question: how best to bring franchised auto dealers along with them as they transition to EVs.
Some, such as General Motors, are asking luxury dealers to go all-in on EVs or get out of the business. Others like Ford Motor are offering dealers different “EV-certification” levels, while most other carmakers, or OEMs, know they need to change the sales process to fit the evolving industry, but are still try to figure out how to do it.
“I think we’re all building this airplane as we fly,” Michael Alford, president of the National Auto Dealers Association, a trade association that represents more than 16,000 U.S. new franchised dealers, told CNBC. “Depending on the OEM, the level of engagement or the intensity of the engagement varies.”
Automakers and franchised dealers have a complex relationship that is backed, in many states, by laws that make it difficult, if not illegal, to bypass franchised dealers and sell new vehicles directly to consumers. (Tesla and other newer EV startups have worked around such regulations to cut costs.)
Both automakers and franchised dealers want to maximize profits, but they’re separate businesses that heavily rely on one another to succeed. Dealers rely on automakers for product to fill and move off lots, and the carmakers in turn rely on dealers to sell and service vehicles as well as serve as concierges for customers.
How that historical relationship fits into an all-electric future is expected to be at the forefront of discussions between automakers and dealers at the National Auto Dealers Association Show occurring through Sunday in Dallas. The event attracts thousands of franchise dealers annually to hear from their respective automotive brands.
For dealers — from mom-and-pop shops to large publicly traded chains — EVs will mean new employee training, infrastructure and substantial investments in their stores to be able to service, sell and charge the vehicles. Depending on the size of the dealer, those upgrades could easily cost hundreds of thousands, or millions, of dollars. Of course, they want to make sure their investments will pay off.
“The tone and tenor of this subject matter has evolved, and I think it’s very, very clear this year that our legacy OEMs absolutely realize that we are essential going forward,” said Alford, who runs Chevrolet and Cadillac dealerships in North Carolina.
Competing with Tesla
As more automakers introduce EVs, they’re rethinking the sales process, including selling new vehicles largely, if not fully, online. Tesla was among the first automakers to embrace online sales for a large portion of its business, though it still has physical dealerships, information sites and service shops.
A greater shift online may limit the role of dealers to strictly processing, maintenance and as delivery centers going forward and eliminate the need for large lots of cars that they then sell to consumers.
“By and large, the franchise system remains in place even for EVs by traditional automakers, although they all seem to be looking at ways to tweak it to be more competitive, so they say, with the Teslas of the world,” said Michelle Krebs, Cox Automotive executive analyst.
Automakers believe doing so will provide consumers a more streamlined and cohesive sales process, but they also consider the dealers to be their partners and to offer “strategic advantages” when it comes to other sales and maintenance issues.
A Tesla dealership in Colma, California, on Wednesday, Jan. 26, 2022.
David Paul Morris | Bloomberg | Getty Images
Honda Motor has said it plans to move more sales online, including 100% online sales for its luxury Acura brand for EVs. Mamadou Diallo, American Honda vice president of sales, said the plan is to facilitate the ordering process online, but with the vehicle being picked up or delivered by dealers. Those procedures are still being worked out, though, he said.
“We want to proceed with ensuring that we provide convenience with what customers are looking for, with no intention of bypassing our dealer body,” Mamadou said Tuesday during a media call.
Jay Vijayan, who assisted in building out Tesla’s digital and IT systems, doesn’t believe selling EVs exclusively online will pan out. He said a mix of sales points is best, which is why Tesla and newer EV startups are selling online as well as opening new showrooms and service centers.
“Apple still opens new stores, right? And every company you think is going to go direct is also opening new stores in the automotive space,” said Vijayan, founder and CEO of Tekion, a cloud-based dealer service provider.
Wall Street analysts have largely viewed direct-to-consumer sales as a means to optimize profit. However, there have been growing pains for Tesla when it comes to servicing its vehicles.
Ford CEO Jim Farley has said he wants the automaker’s dealers to cut selling and distribution costs by $2,000 per vehicle to be competitive with Tesla’s direct-to-consumer model.
Ford is among the automakers receiving the most pushback from dealers for its EV push, which includes EV-certification tiers that could cost more than $1 million per store, depending on the size of the dealership.
The Detroit automaker is facing legal challenges to the certification program from dealers who argue that the plan violates franchise laws. A group of 27 dealerships in Illinois filed a protest with the state’s motor vehicle review board, and four dealers in New York filed suit against the automaker last month, according to Automotive News.
Ford dealer Marc McEver said he signed on for the highest EV-certification tier at his dealership near Kansas City, Kansas, but he worries about the cost and timing of the program.
“I think we’re all concerned that what they’re having us put in now, by the time we really get some vehicles, will be outdated and need to be upgraded or replaced,” McEver, who also owns a Lincoln dealership, said.
Aside from the investments, dealers who opt into selling Ford EVs will need to abide by five standards to stay within good standing: clear and nonnegotiable pricing; charging investment; employee training; and improved vehicle purchasing and ownership experience for customer, both digitally and in person.
Ford on Saturday plans to outline some changes to its EV-certification tiers, according to two people familiar with the plans. The changes, as first reported by Automotive News, would narrow the differences between the program’s two tiers. The bottom tier comes with lower capital investment but also a smaller allocation of EVs from Ford.
Ford, though, unlike archrival General Motors, is allowing dealers to opt out of selling EVs and continue to sell the company’s gas-powered cars.
GM has offered buyouts to its Buick and Cadillac dealers that don’t want to shell out to sell EVs. About 320 of Cadillac’s 880 retailers took buyouts. Buick’s buyouts are ongoing, according to a spokesman.
Toyota Motor, for its part, has no plans to overhaul its franchised dealership network as it invests in electrified vehicles, CEO Akio Toyoda told dealers to resounding applause in September.
“I know you are anxious about the future. I know you are worried about how this business will change. While I can’t predict the future, I can promise you this: You, me, us, this business, this franchised model is not going anywhere. It’s staying just as it is,” said Toyoda, who will step down as CEO to become chairman in April.
Will it be New York, Chicago or Atlanta? Cities angle for 2024 Democratic convention
Nordstrom Rack's Clear the Rack Sale Has Limited-Time 80% Off Deals
Jake Paul says Tommy Fury is ‘my son’ despite loss that resulted from ‘my worst training camp ever’
Thirteen Chelsea aces with 11 games to save their future including Mount & Mendy
Tether Chats, Breaching Hacks, Hostile Takeovers, Bitcoin Gurus and 20 Crypto Jokes
The Benefits of Using Rice Water for Hair, According to Experts
21 Songs to Power Your Morning Routine on Days When You’re Just Not Feeling It
A neurologist explains: If you don’t sleep enough, you will develop dementia faster!
Remittances’ Shift To Digital: Driving Change In An Industry Split Between Yesterday And Tomorrow
What a Lifting Belt Can—and Can’t—Do for Your Workout
Tom Brady’s Gaunt Appearance Sparks Plastic Surgery Rumors; An Expert Weighs In on the Retired NFL Player’s Face
‘The Bold and the Beautiful’ Actor Scott Clifton Announced Split From Wife of 10 Years
Jon Bon Jovi Says ‘Livin’ on a Prayer’ Is About a Friend Who Wanted to Be a Baseball Player
‘RHONJ’: Melissa Gorga Addresses Teresa Guidice’s Claim That Joe Only Visited Her in Prison Once
Jenna Fischer Believes 1 Movie Saved ‘The Office’ From Cancellation After Season 1
Finance19 hours ago
Deniz Dalkilic, CTO of MRHB, on Halal Defi, Tokenizing Commodities, and Decentralizing Cloud Computing | Ep. 215
Lifestyle24 hours ago
Five Series Pitched at Series Mania as Taiwan Strengthens its Claim in Chinese-Language TV Production
Travel22 hours ago
WTTC data reveals Portugal’s Travel & Tourism sector’s climate footprint
News22 hours ago
Man is almost killed while gardening ‘after WW1-era bug lurking in soil got into his sore’
Politics13 hours ago
TikTok confirms it banned ex-NBA player Enes Kanter Freedom
Finance23 hours ago
Council Post: Ten Tax Filings Tips For The 2023 Tax Season
News13 hours ago
Man accused of assaulting two women on redeye flight to Boston pleads guilty
Auto12 hours ago
Is Tesla A Premium Car Brand?