Electricity: The New ‘King’s Gold’ for Dealerships
April 29, 2022
As some franchise dealerships warily eye electric vehicles, it’s important to realize that the car business isn’t necessarily changing—it’s how vehicles are being fueled
Change in the auto industry can often happen at a glacial pace. Take, for example, the transition from the horse buggy to the automobile, which took years—decades—at the beginning of the last century to fully transform how we got from point A to B.
Or it can happen more quickly. Just ask Ryan Ferrero, a profitability expert for the auto industry who serves as the national director of Auto Industry Electrification to assist dealerships in sustainability solutions. One such change was in the electric vehicle market approximately four years ago, when he noted a dramatic shift in the auto world moving toward becoming a “green” industry. Or was it something else other than just being green?
“Around 2018, when Tesla had perhaps one month of working capital left, it was to be the ‘death of Tesla.’ And dealerships were watching and wondering what was going on with Elon Musk,” Ferrero told members of the Colorado Automobile Dealers Association (CADA) at its headquarters in downtown Denver in April, during a presentation, “Dealership Electrification: Dealership Answers.”
“But like a cat with nine lives, Musk gets more cash and keeps going as new sales clipped along.”
And as Volkswagen was emerging from its “Dieselgate” scandal, Ferrero had a meeting with VW executives in 2019 and asked them what the auto manufacturer had in store for its next chapter. The response was simple: Electric vehicles.
“Well, we’re not going to make diesels, so we have to do something,” he said they told him. It was with that gritty, rugged start that VW had made its decision, Ferrero said. “It was literally that casual.”
He also spoke with the CEO of Porsche around the same time and asked him about their new lineup of performance EVs and their introduction on Porsche’s website. “But there was no mention of sustainability. When I inquired, he said they weren’t going electric because of sustainability—it was because they performed better.”
Franchise dealerships have been warily eyeing and pondering what these EV developments would mean to their businesses and inventories. In addition to those developments, Tesla, as well as companies such as Rivian and other EV startups that are receiving investment funding, have been a growing concern among dealerships—were they going to make the franchise model obsolete by selling direct to consumers? And to exacerbate dealerships’ existential concerns, the pandemic hit, which had threatened dealership sales but ultimately resulted in record profits. The chip shortage also promised to be an ominous harbinger of bad news for new car dealers. But, yet again, booming sales ensued. So, despite much dealership handwringing, the industry has not only survived but thrived. But what’s next is now the looming question. EV sales are growing, which brings its own set of unknowns. How will dealers evolve?
“All along the way, the questions that dealer principles and managers are asking have become increasingly mature around the transition to EVs, which is really just about how we fuel cars,” Ferrero said. “It’s not that the car business is changing—we’re just changing the fuel. That’s the raw nature of what’s happening in the industry.”
There are several challenges in this evolving paradigm shift; among them are dealership infrastructures and charging capabilities. While the OEMs know how to build vehicles, they are now in the new territory of needing to know how to fuel the cars that they build. And by extension, dealerships now have to pioneer into a new frontier of building out their facilities’ EV charging infrastructure with a loosely defined map, Ferrero said. But challenges continue to arise.
Did anyone know, for example, that transformers could be an issue? Wait, the conduit being run for DC chargers is different than for level 2 chargers? So, you mean that by installing DC chargers in the back of my dealership that they aren’t eligible for public use and public incentives? How can I generate income off my charging stations?
Equipping a dealership with the charging infrastructure required for selling and servicing EVs has become a little like flying an airplane and building it at the same time.
“Dealerships now have a new learning curve,” Ferrero said. “EV charging infrastructure had been really about the ‘appliance,’ or the charger—which was considered a glorified extension cord. Now we’re getting a little more advanced.”
It’s no longer just about acquiring allocation and new technician training to service EVs, among other considerations; it’s now about electricity and realizing that that’s where the “King’s gold resides,” said Ferrero, who related a story about a discussion he had with the president of Starbucks Coffee and his advice:
“If you can ever get into the fluids business, do it,” Ferrero said he was advised, mentioning gas, oil, soft drinks and, obviously, coffee, to name a few of the very many. “It’s consumed, then it’s gone—and it has to be consumed again. As a business, it just gets to a point where you’re only trying to articulate production, procurement and distribution of liquids. ‘Guess what,’ he told me, ‘you’re in the liquid business now.’”
Dealerships today need to realize the potential—and capitalize—on electricity, from on-site production and distribution to its consumption; from charging their inventory to public use (and making it a profit center) and more, in addition to everything else that a dealer does.
“Most dealers are looking at their EV charging as a revenue stream,” Ferrero said. “They’re investing in their new infrastructure and learning the new language of electric vehicles and charging—and they should have a return on those investments.”
He noted that dealerships can have different charging rates: an internal rate that realizes a minimum return; a public rate; and a lower rate than the public rate for customers. For those dealerships that choose to give away charging, there’s still opportunity to capitalize, using an LA car dealership that’s thinking outside of the box, as an example.
“When they see a public-use customer coming on, they have their sales staff give away a free code, for which they need to see someone in the sales department. It’s a way to create contact and fold them into their business model, instead of just willy-nilly giving the electricity away for free. And Mercedes-Benz dealers, for instance, have a method where they give free charging to customers for the first two years, but are reimbursed by the manufacturer.”
Ferrero added that there are a lot of opportunities for dealerships to try new things and see what works—and what works best at this time in the early stages of EV charging. It’s a new age of discovery.
“We are on the dance floor right now, with an entire spectrum of ideas. I recommend that we move slowly because there’s not enough market data to build out an entire system. But at this time, it’s important to understand the terminology, rules of engagement, have patience, and have a mental picture of your dealership in 2025 on what it would take to produce, distribute and consume electricity. It’s necessary to understand because it’s an important and different conversation now.”
Photo by Rob Merwin