When former President Obama mandated higher fuel standards for the automotive industry back in 2011, most manufacturers, feeling the pressure to comply and be ahead of the curve, responded by investing billions of dollars into “green alternatives” to the combustion engine. Currently, these include a variety of options as collectively, the industry hopes one or more of these formats will be embraced by the majority of consumers sooner than later. Toyota’s Prius (which I’ve owned since 2011) has been a favorite for several years due to its fuel efficiency. Early on, I felt as though I was being friendlier to the environment, and sticking it to the oil barons at the same time.
Whether or not we really have environmentally friendly/green alternatives is debatable on many levels (https://bit.ly/2NuLrBA). Remember, oil was at $112 per barrel when Obama signed his mandate. With all of the investment and marketing strategies being employed by virtually every manufacturer, recent sales performances by Hybrids, BEVs, PHEVs, and FCEVs lead one to speculate that America isn’t quite ready to walk away from the combustion engine just yet. President Trump’s elimination of Obama’s mandate suggests that some manufacturers may have acted too quickly, and that the vast majority consumers can care less about “green” cars, preferring the lure of the SUV and pickup truck.
June sales for EVs, PHEVs, hybrids, and FCEVs are still down. Here is a quick breakdown of exactly what’s going on through July:
Tesla sales are perhaps the one and only alternative outlier in the conversation. Tesla is more of a luxury/status brand than anything else as is the BMW 530E which are all showing positive growth but are not practically priced for the average consumer. Granted, it’s cheaper to drive either one from a fuel investment angle, but at the price point that Teslas and BMW 530E’s are offered, it’s not a practical investment for most of us. Tesla drivers may be eager to do their part in eliminating our dependence on fossil fuels, but they still want to show their neighbors that they’re affluent, and so they invest in, and trust the Elon Musk products (The Tesla family has nothing to do with this company).
Meanwhile, Volvo is working hard to reduce Tesla’s dominant position in the market, and will soon be 100% alternative themselves, having committed to beat Tesla out of its market share by the next decade. Volvo announced earlier this year that it will completely do away with the combustion engine and that all new models in 2019 will have electric motors (BEV, PHEV, HEV) including an all-electric SUV VC-40. Volvo Cars has been majority-owned by the Geely Holding Group, a Chinese multinational automotive manufacturing company since 2010, and is looking to eclipse Tesla in sales by leveraging their more familiar, trusted, and technologically sound brand to the global market. More on Tesla vs Volvo next month.
So, where are we now as far as new car sales are concerned involving alternative technologies?
Currently, we are experiencing a downturn in sales of hybrids, EVs, PHEVs, BEVS, and FCEVs. Aside from the west coast, and other liberal, big-city bastions, it’s a trend that’s a bit concerning to automakers who have all banked on just the opposite. When oil prices are stable, and gas prices aren’t outrageous, people will buy vehicles that are less fuel-efficient with aplomb. Currently, we have very healthy SUV and pickup segments because oil prices haven’t driven gas prices up through the roof like they have in past cycles.
If gas prices stay at acceptable levels, we can expect “Green Car” sales to be far less than robust, unless of course you’re Tesla - whereby status is your primary buying incentive. YTD, only the Chevy Bolt is besting last year’s numbers, but June’s fall off in sales was precipitous even for the Bolt.
Should you carry alternative inventory on your lot? If you have slow movers, how do you as a salesman, speed up the turnover of "Green" cars on your lot?
Ask your customer what kind of vehicle they are looking for, and most importantly, why. If they are tight on funds, a hybrid or EV will be 50% of the annual operational costs of a conventionally fueled vehicle. That’s $1,000 less per year, or a savings of $83 per month.
Used Car Dealers need to continue finding the best vehicles available to match their PMAs. If you serve an area with a higher per capita income, and you sell vehicles to parents of new drivers, then carrying some used Priuses, or Volts might make sense. Both are hybrids but the Volt gets 53 miles on battery only while the Prius electric only range is almost negligible. If you serve a market with a lower per-capita annual income, the Prius, Nissan Leaf, and Chevy Volt are good additions to your inventory.
If you serve a mid to upper middle-class demographic, you’re still looking for SUVs and pickup trucks as your primary movers. Gas prices are stable, and oil prices have actually started to drop despite the media suggesting otherwise. In fact, if one is to look at oil pricing trends, we can see that the artificial forces (banks, investment houses) that historically jack up the price of a barrel of oil, have been muted.
As a used car dealer, hopefully, you’re seeing a lift in sales this summer. New car sales are down in most markets if you compare May and June of 2017 with May and June of 2018. People with marginal or bad credit can no longer buy a new car so easily. Rising interest rates and the fact that loans are harder to get are funneling consumers to used car lots en masse.
QUICK TIP: If you have EVs on your lot that require a charging station, make sure to amortize it into the cost of the vehicle. Selling it separately as a line item is a turn off and gives a customer pause to reconsider. Charging stations run between $379 and $4500 depending on your vehicle and need for commercial capacity.
Where we will be a few years from now is anyone’s guess, but I’m going to postulate that although sales are slow for alternatives now, there is likely no stopping the transition. The gas-powered engine is clearly on the endangered list. The amount of maintenance needed is far less in electric-powered vehicles, let alone engines that utilize hydrogen as a power source like the Toyota Mirai which is in its infancy as an experiment. The cows have definitely left the barn, you just couldn’t tell by looking at this summer’s sales numbers.