Ford Mustang Mach-E vehicles at a Ford dealership in Colma, California, on July 22, 2022.
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After a home, buying a car is the most expensive purchase most consumers will ever make during their lifetime. Major automakers’ transition to electric cars is likely to add stress to the process, especially in the early stages of the EV era. Many consumers are not yet familiar with the basics of EVs. Car dealers will be crucial to convincing consumers to adopt battery-powered electric cars. The network of franchise auto dealerships is the one that provides education, service and face-toface sales. This is why companies like GM or Ford work closely with them. It’s a challenging time for the automotive industry. “The ground beneath the dealers’ decisions is still shifting. “The automakers are trying their best to make this change, but regulation is what will ultimately force us all to pivot. “
This includes his native California, where all new cars must be EVs in 2035. He said, “They’re listening to us as we make changes, but the landscape keeps changing at this point.” He added that “most auto dealers are excited and optimistic about the changing landscape.” Ford shared data that showed that as of late last summer, 65% (or just under 2,000) of its dealers were enrolled in the EV Certification Program. This has made the car dealer’s role central to the EV Transition process. According to Brian Maas of the California New Car Dealers Association, many consumers are looking for a simplified process. Virtually every transaction has an online component today. A fully online experience is only feasible for a small percentage of car purchasers due to the complexity of vehicle purchases (trade-ins and financing, extended warranties, etc.). This preference will also be true for EVs. Maas believes that CARB is aware of the importance of dealers in the adoption of electric vehicles. First, and most obvious, outside of
Tesla
it is franchised dealers who have to explain and sell this new technology to the mass market. Dealers administer or are responsible for all incentives that have been adopted by the federal government and states like California. And finally, EVs won’t approach affordability in the short term without dealers making these funds available to consumers and explaining how these programs work at the point of purchase.
Kerrigan Advisors, which works with dealership groups on sales and acquisitions, noted that Ford, relative to some top global competitors, has a relatively large dealership network to manage through the EV transition. Erin Kerrigan is the founder and managing director of Kerrigan Advisors. She said that Ford’s strategy was a way for them to weed out smaller dealers who were unwilling to invest in EVs. Kerrigan stated that Ford has more than 3,000 franchises across the U.S. Toyota, on the other hand, has 1,482 franchises and sells more cars than Ford. “
But she expects more Ford dealers will opt in at a future date, once they observe a meaningful consumer shift to EVs.
Timing of the EV transition is a concern
While EV sales are increasing rapidly — as recently as 2021, total battery-powered electric vehicle sales in the U.S. were under 450,000, but Kelley Blue Book says sales surpassed 800,000 in 2022 and are expected to top one million this year — dealers remain cautious about the timelines outlined by the auto companies.
“Despite significant increases in EV sales in 2023, dealers are largely skeptical about the OEM’s timeframes on the EV rollout,” Kerrigan said. Many dealers expect that the EV rollout will take twice as long and the EV market share will be half of what OEMs predicted. Ford’s opt-in will be open in 2027 to dealers who did not join initially. Maas noted that the process could feel a bit rushed if California is used as a guide, given its aggressive timeline. He said that in addition to changing the way vehicles are powered, we must also provide infrastructure to charge these vehicles as well as the electrical grid. We must also communicate to consumers the need to change their driving habits. Maas noted that the CARB 2035 target is ambitious and California has made significant progress in achieving it. However, “it is still a big leap,” Maas added. The supply-demand question is whether the California state government’s mandate for a complete transition within 12 years will be met by consumers. It is a national and state transition that ultimately becomes a local decision.Even within California, a dealer in a rural area of the state where EV charging infrastructure is a challenge and where public investment in charging will be less likely is going to be more wary than a dealer in a major metro area in the state. Maas says that a dealer in Santa Monica might decide faster to “go all-in” on EVs. He said that where you are in your business will determine how far ahead or behind the curve you are. “It’s pretty obvious that EV adoption is a big deal in California’s large cities, but will it be the same in Eureka as in LA? “Maybe, maybe not?” The charging of EVs is a major factor in California, where 2 million new cars are purchased annually. Factors include car owners who live in multi-family housing; and the time it can take to charge — as much as 30 minutes to several hours vs. less than five minutes today to fill a gas tank at the many fueling stations with prices prominently posted and adjusted frequently.“These challenges aren’t insurmountable, but we do have to explain them to consumers, honestly, so that future car buyers are prepared for what lies ahead,” Maas said.
To become “EV certified,” Ford dealerships need to make investments, initially estimated at a range of $500,000 at the low-end to as much as $1.2 million, with the vast majority of that investment tied to the expense of installing EV charging infrastructure. Ford spokesperson said that dealer investment levels differ, and some are significantly lower than Ford’s initial estimates for charging infrastructure. This certification is at the lower end, which provides dealers with repair, maintenance, and a DC fast charger. However, there are no EVs in the showroom and Ford.com does not have a presence. The “elite’ tier includes two public DC chargers, demonstration units, rapid replenishment and a Ford.com presence. Ford CEO Jim Farley stated to Automotive News in December that when the company announced two-thirds (mostly for the more expensive tier) of dealers were signed up for the EV Program, “the future of the franchise system is at stake here,” Farley said. “The No. “The No. We wanted to choose the opposite. “
But the specific concerns expressed by dealers to Ford offer a window on their desire to ask Ford to deepen its commitment as part of Ford’s own commitment to e-certification. Dealers’ reluctance in offering public charging has been a major issue. In January, Ford revised an initial 24/7 requirement for dealers to make public charging available, to 7 a.m.-8 p.m., six days/week, Monday through Saturday, though the Ford spokesman said 24/7 remains recommended for minimizing customer pain points.
Dealers would also like to see Ford to up its own investment in public charging, even though dealers are aware the OEMs are spending billions on factories for new EVs and batteries. In a release from May, the National Automobile Dealers Association stated that franchise owners would spend $5.5 billion across OEM brands on EV infrastructure. Store costs will range between $100,000 and over $1 million. Dealers are ready to provide charging services for vehicles that will be sold and serviced on their lot. Dealers are not happy when OEMs ask them to be public charging stations. Maas stated that Tesla pays for the supercharging network. Yes, it does so with taxpayer subsidies. But they do pay. He said that dealers are in the business to sell and service cars, not electrons. Maas said that while future business cases could prove that dealers make money by charging, the sale of electrons in the United States is heavily regulated. He said that dealers may just want to service and sell cars. I haven’t visited a dealer that sells gas.”
Notably, Ford announced a deal with Tesla last week to use its charging network, which surprised some EV experts given the competitive nature of the market, but also placed more pressure on GM to increase charging options.
Charging is a big issue, but not the only issue for dealers.
“While 24/7 public charging has perhaps garnered the most attention, there are numerous program features that we have asked Ford to modify or eliminate,” Maas said. Ford’s CEO Jim Farley said on CNBC that the company must change its cost profile. Ford’s approach to selling EVs is similar to Tesla’s. This gives Ford more control of standards across stores than it can achieve through Ford’s franchise model. That is not limited to charging, but OEM programs dictating how consumers can reserve EVs, and prescribing how EVs have to be sold, dealer trade-in programs, and service contracts.
“Dealers generally chafe at manufacturer requirements that intrude on their ability to sell to their customers,” Maas said. The OEMs build the cars, and the dealers buy them wholesale. They then sell. Why should this change just because it is powered by electricity. The auto dealership sales market is still hot
Kerrigan says that most dealers she talks to expect GM will eventually offer a program similar to Ford’s. GM reduces its dealer headcount through the purchase of existing dealers. In the case Buick, GM offers a franchise purchase for dealers who don’t want to invest in EVs. Kerrigan stated that Cadillac had also “quietly” reduced its dealer count by way of buyouts. She said that GM’s current strategy is more carrot than stick, and she compared it to Ford’s pay-to-play approach. By reducing the number of franchises, GM has ensured its network’s readiness to sell and service EVs. Dealers, however, may be able to see both sides of the way that the two big OEMs approach the EV transition. Ford’s decision to allow dealers to opt-in later will be seen as more flexible by dealers who are less willing today, even if it requires a larger upfront investment. Depending on the situation, some dealers may view the GM strategy as more rigid. Maas stated that “if you sold your shop, it is impossible to change your mind.” The OEMs face a challenge in meeting all dealer concerns and needs regarding EVs. He said that it is difficult to create a program for new vehicles that fits everyone. According to Kerrigan’s report, the number of transactions in the auto dealer industry in 2022 was the second highest ever. The average retail price for a new car increased from $33,000 in 2015 to $46,000 in 2023. Private buyers increased their market presence in 2022 as average dealership earnings rose 9%, which was 210% above the pre-pandemic five-year average. Average dealership earnings rose 9% in 2022, which was 210% above the pre-pandemic five-year average.
“Even in a rising interest rate environment, dealers voted with their pocketbooks and grew their businesses through acquisition in 2022 and continue to do so in 2023,” Kerrigan noted in its April report on sales activity.
Car dealership owners have proven to be an adaptive group of small business owners throughout history.
“Dealers are very resilient business people,” Kerrigan said. Kerrigan said that the demise of auto retail has been predicted many times in error. She said that most people are not too concerned about the switch to EVs. Some worry that fixed operations revenues will decline as ICEs disappear. Others see the opportunity for increased revenue in service and parts departments as dealers retain a greater percentage of customer service spending with EVs. Maas says that while there’s been a lot said about a service cliff with EVs, this is just talk. He said that service would not disappear. In 2022, service contributed 12% of dealership revenue, according to the National Auto Dealers Association, versus nearly 50% for new car sales and 38% for used vehicles.
Dealers are gaining a larger share of EV sales, totaling almost 260,000 units in 2022, according to NADA, and dealers capturing 35% of the new EV market by the end of the year. NADA’s annual report stated that “we expect this trend to continue” as the legacy OEMs release more BEVs in the future. The consumers will ultimately be the ones to inform the OEMs, dealers, and the wider market of what is going to happen. If consumers purchase these vehicles in large numbers, then we must respond. If they do not buy at the rate CARB has set then adjustments will have to be made. “
Correction – This article has been updated with the fact that Ford removed a limit on EV inventories that was part of its initial EV dealer program. Also, public charging hours at dealerships have now changed to 7 a.m.-8 p.m. six days a week.