Auto dealers eye a weird electric future
March 28, 2022
Originally published on EnergyWire
LAS VEGAS — Jason Hooe is a Ford dealer who can’t wait to sell the electric F-150 to the young and hip of Bentonville, Ark. But the chargers are a problem.
Earlier this month, he paced the floor of America’s biggest auto dealer conference, talking to vendors who sell the new fueling system. He peppered them with questions, and no one persuaded him that today’s technology is ready to meet his customers’ needs later this decade.
“It’s the eight-track, and CDs are coming after it,” is how he described what he saw. “Do I buy these chargers, when I know at some point I’m going to have to phase them out?”
Auto Dealers and Electric Vehicles
He was vexed, as were many of the dealers who attended the National Automobile Dealers Association conference in Las Vegas looking for answers about electric cars.
For the first time ever — and after a two-year Covid-19 pandemic hiatus that turned the automotive world on its ear — the theme of the auto dealer conference was electric vehicles. “We’re absolutely essential to bringing this product to market,” said Mike Stanton, NADA’s president.
Essential, perhaps, but also unsettled by the rapid change EVs are causing in the auto industry.
Market Demand for Electric Vehicles at Auto Dealerships
Dealers in 2022 find themselves in a stressful spot. Customers are clamoring for electric vehicles they don’t yet have in stock. The automakers promise that the cars are coming, sometime, but want dealers to invest hundreds of thousands of dollars to prepare for them right now. Dealers aren’t sure this crescendo of EV buyer interest will last, or how this brave new ecosystem is supposed to make them money.
“Everything that’s being introduced is version 1.0,” said John Malishenko, the operations manager of Germain Motor Co., a dealer group with locations in four states.
Hooe, 43, takes on the uncertainty with the can-do attitude one would expect from a guy who spends his days persuading people to buy a car.
His dealership, McLarty Daniel Ford Lincoln, is a mile from where Walmart Inc. is building its new 350-acre corporate campus. The grounds — dotted with lakes to control stormwater, with offices constructed of mass timber — are meant to draw young high-tech employees. Hooe imagines them strapping their knobby-tired bikes into the beds of the electric F-150s he will sell them for a bout on Bentonville’s trails (“the Aspen of mountain biking,” he calls them).
“I have to be the e-dealer of Arkansas, Missouri, Oklahoma,” he said.
But the conference also heightened his awareness of the electric vehicle’s shortcomings. He wants to anticipate the questions that his customers might ask — in fact, that they’re asking already.
For example, he learned at the conference that Ukraine and Russia are the sources of many of the critical raw materials that go into an EV battery. “Is there a built-in bubble here?” he wondered.
He frets about how long it takes to fill the battery, and how few charging stations there are. Will young families fall prey to criminals while waiting for electrons in the parking lot of some big-box store?
He knew something about EVs from the last in-person conference NADA held two years ago. But in the intervening time — as General Motors Co. pledged to go all-electric by 2035, and as Ford’s F-150 Lightning fired the imagination of truck drivers — the EV has undergone a revolution in the minds of auto dealers.
In the before times, EVs were the contraptions that dealers were obliged to sell because emissions-minded states like California told them they had to.
According to a 2019 survey of hundreds of dealerships by the Sierra Club, they often did a poor job. Salespeople were often unaware of the basics, like purchase incentives, and buried the electrics in the rear of the lot. But it might not have mattered. The few EVs available were often snapped up by eco-minded drivers who knew kilowatts and charging stations far better than the dealers did.
Now EVs are the talk of the town. Automakers are investing billions in EVs and redesigning their entire business models around them. No sooner does an automaker announce a new EV model than customers pile onto the waiting lists.
But along with the EV promises come the ulcers, because no one can tell the dealers exactly what their role will be.
Auto Dealers Adapting to Change by Offering EVs
“If you didn’t think car dealers are resilient, welcome to the last 750 days,” said Jason Stein.
Stein, a veteran auto journalist and consultant, delivered this congratulatory nod as moderator of the marquee panel of the NADA Show. Called “Plugging Into What’s Possible,” it convened a group of dealers to discuss adaptation to EVs. The room was packed.
Dealers are approaching EVs, the latest disruption, after two years of head-snapping change.
Many showrooms locked their doors during the early pandemic lockdowns. When they reopened, the in-person sales skills they had honed over decades were useless; fear of infection caused many buyers to stay away. Dealerships realized that if they were to survive, they would have to throw out the old playbook and move to the internet. And so they did.
Salesmen used to conducting business by handshake found themselves collecting digital signatures and dropping the cars off at people’s homes, sanitized and touchless.
Auto Manufacturers Reduce EV Supply
Automakers, surveying this chilly market, throttled back their production. They thought auto demand would keep sagging in 2021. They thought wrong.
Buyers did in fact surge back to the dealership. But, in a cruel twist for the automakers, they couldn’t meet the new demand. Factory after factory was idled because of a pandemic-induced supply chain problem: not enough microchips.
Today, shortages of new vehicles are everywhere. The disruption caused by war, the pandemic, and now an earthquake in Japan seems to ensure that dealerships will have too few cars. This is especially true for EVs: Anyone pinched by soaring gas prices and joining an electric waiting list now might not see their vehicles for a year, or two, or longer.
Frustrating as this situation is for automakers and car buyers, it is a rosy time for auto sellers. Prices for used cars have shot through the roof, and many dealers are reporting record profits.
Malishenko summed it up for the crowd: “We’re battle-hardened, we’ve remade ourselves, and we are making more money than ever before.”
The NADA show felt like boom times. Days started and ended with lines of buses arriving to the convention center from any of the 17 official conference hotels, such as Caesars Palace and the Bellagio, where attendees had reserved more than 10,500 rooms.
For its opening soiree, NADA rented the entirety of Allegiant Stadium, the brand-new home of the Raiders football team. Salesmen and managers moved to the end zone to grab a plate of chicken and waffles, then over to where the Raiders’ cheerleaders waited to take photos with them.
Educating Electric Vehicle Marketplace
One message that Liza Borches wanted to impress upon dealers was that the move to EVs — and with it the world of electricity — is more profound than they may realize.
“I’ve learned more about energy than I ever thought I would need to know,” said Borches, the president of Carter Myers Automotive, a dealer group in Virginia and West Virginia, during the EV session. She added: “I would love to say we’re experts, but we’re not.”
Urgent efforts to start dealers on that learning curve launched at the NADA Show.
A new consortium unveiled a program to educate dealers about EVs through online and in-person sessions. Besides NADA, it includes the nonprofit Center for Sustainable Energy, which runs EV incentive programs around the country; Plug In America, a major EV advocacy group; and the Alliance for Automotive Innovation, which represents almost every legacy automaker that manufactures in America.
Also at the show, Ford launched “Electric University,” a new effort to do the same thing for Ford dealers, to be held at its headquarters in Dearborn, Mich.
The range of new things an e-dealer needs to know are vast. Instead of gallons to the tank, it’s kilowatt-hours to the battery; instead of gas prices, it’s the inscrutable electricity rates of the power company. To justify the (usually higher) EV sticker price, the dealer needs to explain how the total cost of ownership may be lower because electricity is cheaper and because the maintenance costs less — unless it doesn’t.
And then there are state, local and federal incentives for both EVs and charging stations. “There are so many incentives, and they change all the time,” said Joel Levin, the executive director of Plug In America.
It’s possible that 2022 represents a sea change in how the automakers and auto dealers approach EVs, but some have doubts.
One is Hieu Le, one of the authors of the Sierra Club’s survey of auto dealers. He pointed out that some major automakers, including General Motors, sided with an attempt by the Trump administration to curtail the power to regulate car tailpipe emissions in California, which has been driving the move to EVs for more than a decade.
EPA under President Biden reversed the Trump-era policy earlier this month.
“We’ll believe it when we see it,” Le said of the dealers’ new relationship to EVs, “and we desperately want to see it.”
Selling EVs Means Auto Dealers Need EV Infrastructure
Asked whether she is excited about selling EVs, Patricia Rostron, the office manager of Sun Buick GMC on Long Island, N.Y., tilts her head to one side and twists her lips.
“I dunno,” she said. “I’m 50-50, I guess.”
On one end, her customers are eager. Twenty of them have put down $100 deposits for the Sierra, a future electric pickup truck, and more than 100 have done the same for the electric Hummer. On the minus side, it all doesn’t seem quite real.
She has not yet sat in the Sierra or the Hummer, or even seen one in person. The ability of traditional automakers to produce EVs is so outstripped by demand that even the dealers have to settle for images on the internet. “Getting the vehicles to us is the problem,” she said.
The expenses, however, are real. Rostron estimated that the dealership has invested more than $150,000, including $80,000 to build charging stations.
To prepare for the coming electrics, dealers have bought new, taller electric lifts needed to access the battery, and new forklifts to carry the battery around. They need new tools. They pay servicepeople’s wages as they learn how to repair this new platform.
The reason Rostron and thousands of other dealers are entering this bargain is that automakers have given them a stark choice: Prepare for EVs now, or you won’t get them later.
“If you don’t sign up for it,” Rostron said, “you’re out of it.”
EV Creates Rift Between Automakers and Auto Dealers
The EV is creating flashpoints between dealers and the carmakers. Late last year, Cadillac gave its dealers an ultimatum: Pay about $200,000 to go electric, or take a buyout of the franchise. About 17 percent of dealers chose to walk away, according to The Wall Street Journal.
“We chose to keep Cadillac,” said Darrin Bauer, a dealer south of Chicago whose customers are interested in Cadillac’s new electric crossover, the Lyriq.
“You can like it, or you can not like it, but if you need it, that’s what you have to do,” he said, noting that he had picked up business from two nearby Cadillac dealers who had turned away from the brand.
Another shock wave hit dealers earlier this month when Jim Farley, the CEO of Ford, announced that the automaker would reorganize itself into three units. Dealers will need to declare whether they intend to sell electric cars, traditional cars, or commercial vehicles (Energywire, March 3).
“Get ready to specialize,” Farley said.
As part of the reorganization, Ford may push its dealers to sell cars in a drastically different way. The practices are borrowed from an electric car company that didn’t attend the conference but was a constant topic of conversation: Tesla Inc.
Specifically, Farley talked about EV dealers carrying almost no inventory, like Tesla does in its showrooms, and selling at no-haggle prices. Both would be tectonic shifts for dealers who are accustomed to having hundreds of cars on hand, and who are used to, well, making a deal.
Tesla even lurked under attendees’ feet.
Connections between the wings of the vast Las Vegas Convention Center are made by a system of tunnels called the Loop. They were dug by another of Tesla CEO Elon Musk’s enterprises, the Boring Co. With just a short walk out the doors into the Nevada sun, dealers could call a Tesla and be whisked in a silent, sky-blue tube to their next meeting.
At this early stage, the influence that Tesla is having on the relationship between automaker and dealer is uncomfortable.
“There are a few [automakers] that have made comments that have made us nervous,” Borches said at the EV meeting.
It was one of the few comments that drew wide applause.
Profitability of Selling EVs
Many dealers are tiptoeing down the EV path because the future is so murky. Keith McCluskey, the CEO of a Chevrolet dealership in Cincinnati, is not one of them.
He declared at the NADA Show a plan for a giant new facility centered around EVs. The vast site, formerly a JCPenney store, will become an “automotive retail destination,” according to application documents. It will boast 150 service bays, McCluskey said, including 120 super-tall lifts that EVs need to service their batteries — so tall, in fact, that a second car could be serviced underneath. On site will be 75 charging stations.
“We’re all in,” said McCluskey, echoing an EV catchphrase frequently uttered by General Motors CEO Mary Barra.
Just how the EV will affect an auto dealer’s bottom line is the subject of intense interest but few answers.
A huge question hangs over the service bay. While dealers are known for selling cars, most of their profit is made from the ensuing years of repairs, maintenance and parts. How will EVs affect that profit center? “The hand-wringing is omnipresent,” said Stein, the auto consultant.
Major Factor of Perception Regarding EVs’ Profitability
A central assumption that because EVs have fewer parts they require less service is talked up by EV advocates but quietly dreaded by dealers. But the assumption may not be quite right.
In a presentation to a clutch of riveted salespeople, Renee Stephens called the service-free EV “a hypothesis.”
Stephens is a vice president of We Predict, an analytics firm. It crunched the service records of 19 million vehicles spanning four years. The results for the EV portion were surprising. In the first three months, EVs cost three times as much to service as gas-powered cars. In the first year, that gulf narrowed only slightly.
The reason, she thinks, is that the platform is new. Automakers haven’t perfected their manufacturing techniques; vehicle recalls are more common. Customers pay more for labor hours because repair workers, still learning the technology, take twice as long to diagnose the problem.
In the ensuing years, the price of servicing an EV drops dramatically, until by year three, the cost of service is equal to that of an internal-combustion-engine car.
“People ask if EVs need less repairs, and I say, ’Not yet,’” Stephens concluded.
Some dealers are guessing there are decades more of profits to earn from the traditional gas guzzler. It’s possible, Malishenko said, that decades from now, the dealer’s best customers will be the passionate hobbyists who maintain their old Chevy Suburbans and diesel F-150s.
“It’s going to look like Havana,” he said, referring to Cuba and the 1950s cars that still cruise its streets. “People are not going to go quietly.”
Also present at the show were clean energy companies encouraging dealers to think of themselves as an energy centers. SunPower, the solar company, had a booth proposing to turn roofs into a solar farm. Others proposed that batteries, coupled with the dealership’s EV chargers, could mean arbitraging electrons to the power grid.
“The money of that energy is big-time,” said Ryan Ferrero, a former auto dealer and energy consultant, to a group of dealers while peeling imaginary dollars off his palm. “I think electrification is an entrepreneur’s paradise.”
Whatever the specifics, electric cars are likely to keep the business of selling cars in a constant state of change.
The outlook, according to one slide by Stephens of We Predict: “Perpetual launch mode for the next 5-7 years.”
Correction: An earlier version of this story included an inaccurate size for the site of the future dealership in Cincinnati.