Electrification Could See Dealers Retreat into Used Car Market

The advance of electrification, burgeoning new technologies and the growth of carmaker agency retail models could see dealers veer off in to the used car market.

That’s the opinion of Robert Jones CEO of ASE Automotive Solutions, a global automotive dealer business advisory specialist. While electrification remains in its infancy, its promotion by government regulation chasing the twin goals of urban clean air and climate change, the trend sees dealers looking at reduced revenues.

Jones points to vehicle servicing as one of the most lucrative areas for dealers of new cars and one where revenues could be hit hard. He explained: “The data tells us that you need three services for an ICE product for every one needed for an EV so the dealer will lose a third of the servicing revenue [with EV servicing].”

He also said many dealerships are challenged by not understanding how to sell to the BEV consumer. He said: “Their other challenge is that most dealers do not know how to sell an EV. We have found the buyers of electric cars are not as brand loyal as those who buy cars with diesel or petrol engines. Instead, the buyers are instead more interested in the car’s technology so the salespeople have to change the way they talk to potential customers.”

However, dealers have also not been properly supported by the industry. Jones added: “Other issues have been a lack of supply of new electric cars, both during the pandemic and even before that, but in the customer’s mind you have range anxiety, overall cost of ownership which they do not know and also this involves the residual value. Another moving part in this challenge is government subsidies, of course, so the dealers are having to battle on a number of fronts to satisfy the sales requirements of the electric cars given the emissions targets.”

Jones said the pandemic should have been seen as an opportunity by the auto industry to ask governments for the help they needed. He said: “To be honest, during the lockdown, I expected a huge lobbying of government to delay these CO2 targets but it doesn’t seem to have happened. Some countries, such as Germany, have seen a stimulus package including increases in electric car grants.”

Dealers are also not blind to the ‘writing-on-the-wall’ that carmakers want more control over the sales and marketing of their products using the agency model. Jones expanded: “An even wider problem for dealers is, are we going to have dealers going forward in the shape and form that they are now? So where they have to invest in the things like training engineers to handle high voltage EV systems plus the reduced service intervals, they don’t know whether they will have the costs covered by their future revenues.”

Jones believes many dealers will retreat into the used car market which, albeit a short- to medium-term solution, at least gives them the control they need. He said: “The dealers only have complete autonomy over used vehicles. In times of change and of difficulty such as we have now, dealers focus on the used car market. That’s because it’s completely within their control what they buy, what they sell it for and how long they hold on to the vehicles before they sell them.

“Where the service department needs to be regulated and the technicians need to be trained around electric vehicles, or even with internal combustion engines, they are bound to the manufacturer in those service departments. New car sales are driven by things like fashion, brand advertising and all those other things that stimulate the market, whereas used cars is completely in their control.

“We have seen that since the dealerships have been able to open, the used car market has gone ballistic, therefore, the dealers will always focus on the things that they are in control of. As independent businesses, they will focus on the business that will feed their families.”

— Paul Myles is a seasoned automotive journalist based in London. Follow him on Twitter @Paulmyles_

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