Here’s the burning question at auto dealerships everywhere:
Will the sale of electric vehicles (EVs) hurt auto dealerships?
If your auto dealership depends on the profits made from servicing vehicles, then the answer could very well be yes. The National Automobile Dealership Association reports all new-vehicle dealerships made an aggregate of $58.40 billion in service and parts sales from January to June of 2018. The average dealership made $3,477,529 in sales in that department. This is in contrast to the aggregate $30 million made in the New Light-Vehicle department.
A dealership’s propensity to rely on the need for their products to be frequently maintained may no longer be operable in the near future.
Electric vehicle manufacturers have made radical improvements to the traditional internal combustion engine model that result in a product that wears down at a much slower rate.
Evaluating just how serious the EV revolution is, along with the effect it will have on revenue, is an essential consideration for any auto dealer.While electric cars will still require service, the diminished need for repair is worth understanding.
To determine whether EVs will hurt the average auto dealer, we must first evaluate just how serious anticipation of the upcoming EV revolution is.
The International Energy Agency (IEA) estimates 125 – 220 million EVs will be on the road by 2030.
Globally, the total number of EVs on the road is over 3 million in 2018, a 50 percent increase over 2016.
This November, Tesla’s Model 3 alone was the highest selling small/midsize luxury sedan in the U.S.
Additionally, most large auto makers are putting their horses behind the electric vehicle, such as General Motors changing their official slogan to, “Zero Crashes, Zero Emissions, Zero Congestion.” and Volvo’s plan to phase out the traditional combustion engine in all new models beginning in 2019.
If it is reasonable to expect EVs to dominate the market in the near-to-medium future, then it would also be reasonable to brace for the effect the change will have on the auto dealer industry.
Relying on sales in parts and services may no longer be advisable given the significant changes EVs will undoubtedly bring.
Electric engines don’t require oil changes, fuel filters, spark plug replacements, or emission checks. They also generally have fewer moving parts and break down less often. In many cases there aren’t any timing belts, or differential or transmission fluids that need to be changed. This eliminates many of the repair needs of customers that service centers rely on.
In addition, many problems with EVs can be serviced with parts bought online or with updates downloaded for free directly from the manufacturer.
Brake pad replacement also occurs considerably less frequently with EVs. EVs use regenerative braking, which returns energy to the vehicle’s battery and reduces the use (and therefore wear) on mechanical brakes.
Take, for instance, Elon Musk’s recent tweet about Tesla’s brakes on December 26: “Vast majority of vehicle motion is returned to the battery, as the electric motors act like a generator in reverse. Brake pads on a Tesla literally never need to be replaced for lifetime of the car.”
These improvements on the customer end could easily spell trouble for dealerships relying on service money. One example cites, “Chevy Bolt EV needs basically zero maintenance for first 150K miles”.
With less maintenance required on EVs, what is next for auto dealerships?
The incentive EVs provide to consumers will simply be too much to ignore in the long term. Less money spent on gasoline, less money spent on repair, along with the added bonus of not contributing to climate-changing vehicle emissions.
The future of EVs and auto dealerships is an interesting one. Tesla notoriously doesn’t use dealerships to sell their cars. Some states have actually banned the sale of the car for that very reason.
The newly anticipated Rivian all-electric pick-up truck plans to sell directly to consumers as well.
From the perspective of the auto dealership, there are already a few recent alternatives that have developed.
One example is a Naperville used car dealer that is resolved to “never carry a gas vehicle” and conduct their customer’s buying experience with a philosophy of “radical transparency”.
Even Electric’s founder Gisli Gislason set up electric vehicle showrooms with EVs from multiple brands that can be bought on the spot.
It is possible for auto dealers to evolve to face this next challenge, but first, awareness is key.
To learn more about how auto dealers can save time and money in the here and now, check out CrossCheck’s Blog.