For many people, buying a car means going through a dealership as opposed to dealing directly with the manufacturer. This has been the practice for many decades. However, with the advent of electric vehicles, it may no longer be business as usual.
Will the dealership model survive the EV revolution? What role will dealerships play as the world moves to zero-emission mobility? Here are my thoughts.
Dealerships and the Tesla effect
There is little doubt that Tesla has had a massive impact on the EV sector and the auto industry. One of the changes it brought was the way cars are sold. Instead of going through dealerships, the EV startup decided to sell directly to the customer to control the experience. To this day, you can only order and configure your Tesla car online and take delivery at the nearest Tesla showroom.
Other EV startups have jumped on the direct-to-customer trend, including Lucid and Rivian with great success. This leads me to believe that other upcoming EV startups will likely take after Tesla and cut out dealerships. Ford recently announced steps to decouple its dealership network from its line of electric cars.
Selling directly affects dealerships as it means a loss of revenue in more ways than one including unnecessary upselling and servicing. Some traditional automakers have also enabled online ordering, although buyers will still get their deliveries through a dealer.
The changing dealership landscape
Dealerships have been losing their grip on the auto industry for the last few years. More states are now allowing carmakers to sell directly to buyers and some states even make an exception for electric vehicles.
Simply put, EVs take money away from dealerships. To illustrate, dealerships generate revenue from servicing and repairing cars, but EVs are known not to require as much maintenance. In fact, a McKinsey study found that EVs bring in less than 60% of the aftermarket revenue that ICEs fetch.
Companies making EVs like GM have also warned their dealers to desist from adding high markups, a lucrative practice, especially when the model is scarce or not meeting demand. This is one of the main reasons that dealerships have lost the trust or many consumers who often feel like they are being gouged by pushy salesmen at dealerships.
Check out Arnold Schwarzenegger’s Oscar-worthy performance as a pushy car salesman 😂:
Is there a role for dealerships in an EV world?
The answer is yes, although it requires significant investment. First, used car dealerships may branch into fleets by renting out their inventory to small and medium-scale businesses. They can also turn the higher costs of purchasing EVs into an advantage; buyers may need more loans, and dealerships can earn loan origination and processing fees by assisting in securing them.
Remaining relevant, however, requires dealerships to upgrade their premises by installing EV chargers and retraining their staff to sell EVs. Plugin America has a service called PlugStar Electric Vehicle Dealer Training to help dealerships with EV retraining. Moreover, dealerships must convince buyers that they offer a better experience than ordering online.
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