EV carmakers are working to fit car dealers into future plans

DETROIT — As automakers chase Tesla-like profits on new electric vehicles, they face an existential question: how best to bring franchise car dealerships with them as they transition to electric vehicles.

Some, such as General Motors, is asking luxury retailers to go all-in on EVs or get out of business. Others like Ford Motor offers dealers different “EV certification”[ads1]; levels, while most other automakers, or OEMs, know they need to change their sales process to fit the evolving industry, but are still trying to figure out how to do it.

“I think we’re all building this plane as we fly,” Michael Alford, president of the National Auto Dealers Association, a trade association representing more than 16,000 new U.S. franchised dealers, told CNBC. “Depending on the OEM, the level of engagement or intensity of engagement varies.”

Automakers and franchised dealers have a complex relationship that in many states is supported by laws that make it difficult, if not illegal, to bypass franchised dealers and sell new vehicles directly to consumers. (Tesla and other recent EV startups have worked around such regulations to cut costs.)

Both car manufacturers and franchised dealers want to maximize profits, but they are separate businesses that are highly dependent on each other for success. Dealers depend on automakers for product to be filled and moved by lots, and automakers depend on dealers to sell and service vehicles as well as act as concierges for customers.

How that historic relationship fits into an all-electric future is expected to be at the forefront of discussions between automakers and dealers at the National Auto Dealers Association Show that runs through Sunday in Dallas. The event attracts thousands of franchise dealers annually to hear from their respective car brands.

For retailers – from mom-and-pop shops to large publicly traded chains – EVs will mean training new employees, infrastructure and significant investment in their stores to operate, sell and charge the vehicles. Depending on the size of the dealership, these upgrades can easily cost hundreds of thousands or millions of dollars. Of course, they want to make sure that their investments will pay off.

“The tone and tenor of this topic has evolved, and I think it’s very, very clear this year that our legacy OEMs certainly recognize that we’re important going forward,” said Alford, who operates Chevrolet and Cadillac dealerships in North Carolina.

As more automakers introduce electric vehicles, they are rethinking the sales process, including selling new vehicles largely, if not entirely, online. Tesla was among the first automakers to embrace online sales for a large part of its business, although it still has brick-and-mortar dealerships, information sites and service shops.

A major shift online could limit dealers’ role to strictly processing, maintenance and fulfillment centers going forward, eliminating the need for large volumes of cars that they then sell to consumers.

“By and large, the franchise system remains in place even for EVs from traditional automakers, although they all seem to be looking for ways to adapt it to be more competitive, so they say, with the Teslas of the world,” said Michelle Krebs , managing analyst at Cox Automotive.

Automakers believe this will provide consumers with a more streamlined and cohesive sales process, but they also consider dealers to be their partners and to offer “strategic advantages” when it comes to other sales and maintenance issues.

Honda engine has said it plans to move more sales online, including 100% online sales for its luxury electric car brand Acura. Mamadou Diallo, US Honda’s vice president of sales, said the plan is to simplify the online ordering process, but with the vehicle being picked up or delivered by dealers. Those procedures are still being worked out, he said.

“We want to continue to ensure that we provide convenience with what customers are looking for, with no intention of bypassing our dealer body,” Mamadou said Tuesday during a media briefing.

Jay Vijayan, who helped build out Tesla’s digital and IT systems, doesn’t think selling electric cars exclusively online will pan out. He said a mix of sales points is best, which is why Tesla and newer EV startups are selling online in addition to opening new showrooms and service centers.

“apple still opening new stores right? And every company you think is going to go direct is also opening new stores in the auto industry,” said Vijayan, founder and CEO of Tekion, a cloud-based dealership service provider.

Wall Street analysts have largely looked to direct-to-consumer sales as a means of optimizing profits. However, there have been growing pains for Tesla when it comes to servicing the vehicles.

Ford CEO Jim Farley has said he wants the automaker’s dealers to cut sales and distribution costs by $2,000 per vehicle to compete with Tesla’s direct-to-consumer model.

Ford is among the automakers facing the most pushback from dealers for its EV push, which includes EV certification levels that can cost more than $1 million per store, depending on the size of the dealership.

The Detroit automaker is facing legal challenges to the certification program from dealers who claim the plan violates franchise laws. A group of 27 Illinois dealers filed a protest with the state’s Motor Vehicle Control Panel, and four New York dealers filed suit against the automaker last month, according to Automotive News.

Ford dealer Marc McEver said he signed up for the highest level of EV certification at his dealership near Kansas City, Kansas, but he worries about the cost and timing of the program.

“I think we’re all concerned that what they’re having us put in now, when we actually get some vehicles, will be outdated and have to be upgraded or replaced,” said McEver, who also owns a Lincoln dealership. .

Aside from the investment, dealers who choose to sell Ford EVs will have to adhere to five standards to stay in good standing: clear and non-negotiable pricing; charging investment; employee training; and improved vehicle purchase and ownership experience for the customer, both digitally and in person.

Ford plans on Saturday to outline some changes to its EV certification levels, according to two people familiar with the plans. The changes, first reported by Automotive News, would narrow the differences between the program’s two tiers. The bottom level comes with lower capital investments, but also a smaller allocation of electric cars from Ford.

However, Ford, unlike arch-rival General Motors, allows dealers to opt out of selling electric cars and continue to sell the company’s gas-powered cars.

GM has offered buyouts to its Buick and Cadillac dealers that don’t want to pay out to sell electric cars. About 320 of Cadillac’s 880 dealers made acquisitions. Buick’s acquisition is ongoing, according to a spokesman.

Toyota Motorfor its part, has no plans to overhaul its franchise network as it invests in electrified vehicles, CEO Akio Toyoda told dealers to thunderous applause in September.

“I know you’re anxious about the future. I know you’re worried about how this business will change. While I can’t predict the future, I can promise you this: You, me, us, this business, this franchise model is is not going anywhere. It remains exactly as it is,” said Toyoda, who is stepping down as CEO to become chairman in April.