Electric car manufacturers are working to fit car dealers into their future plans

Customers wearing protective masks look inside a car for sale at a Ford Motor Co. dealership. in Colma, California, February 1, 2021.

David Paul Morris | Bloomberg | Getty Images

DETROIT — As car manufacturers chasing profits like Tesla’s on new electric vehicles, they face an existential question: how best to bring franchise car dealers along with them as they transition to electric vehicles.

Some, such as General Motorsare asking luxury retailers to go all-in on EVs or go out of business. Others like Ford Motor offer dealers different levels of “EV-certification” while most other automakers or OEMs know they need to change their sales process to suit 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 Automobile Dealers Association, a trade association that represents more than 16,000 new franchised dealers in the U.S., told CNBC. “Depending on the OEM, the level of engagement or intensity of engagement varies.”

Car manufacturers and franchise dealers have a complex relationship that in many states is supported by laws that make it difficult, if not illegal, to bypass franchise dealers and sell new vehicles directly to consumers. (Tesla and other newer EV startups have worked around such cost-cutting provisions.)

Car manufacturers and franchise dealers both want to maximize profits, but they are separate businesses that rely heavily on each other to succeed. Dealers rely on automakers for products to fill and carry lots, and automakers in turn rely on dealers to sell and service vehicles, as well as serve as a concierge for customers.

How that historic connection fits into an all-electric future is expected to be at the forefront of discussions among automakers and dealers at the National Automobile Dealers Association show, which runs through Sunday in Dallas. The event attracts thousands of franchise dealers annually to hear from their respective automotive brands.

For retailers—from convenience stores to large publicly traded chains—EVs will mean new employee training, infrastructure and significant investment in their stores to service, 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 be sure that their investment will pay off.

“The tone and tone of this topic has changed, and I think it’s very, very clear this year that our legacy OEMs fully recognize that we are essential going forward,” said Alford, who leads Chevrolet and Cadillac dealerships in North Carolina.

Competing with Tesla

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

A greater shift online could limit the role of dealers to strictly processing, maintenance and as delivery centers in the future and eliminate the need for large lots of cars to then sell to consumers.

“In general, the franchise system remains in place even for electric cars from traditional car manufacturers, although they all seem to be looking for ways to change it to be more competitive, so they say, with the Teslas of the world,” said Michel Krebs, executive Cox Automotive analyst.

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

Tesla dealership in Colma, California on Wednesday, January 26, 2022.

David Paul Morris | Bloomberg | Getty Images

Honda motor said it plans to move more sales online, including 100 percent online sales for its Acura luxury electric car brand. Mamadou Diallo, vice president of sales for American Honda, said the plan is to make the ordering process easy online, but to have the car picked up or delivered by dealers. However, those procedures are still being developed, he said.

“We want to continue to ensure that we provide convenience with what customers are looking for without any intention of bypassing our dealership,” Mamadou said Tuesday during a media call.

Jay Vijayan, who helped build Tesla’s digital and IT systems, doesn’t believe selling electric cars exclusively online will succeed. He said the combination of points of sale is the best, which is why Tesla and newer EV startups are selling online as well as opening new showrooms and service centers.

An apple still opening new stores right? And every company you think would go head-to-head is also opening new stores in the automotive space,” said Vijayan, founder and CEO of Tekion, a cloud-based dealer services provider.

Wall Street analysts largely view direct-to-consumer sales as a means of optimizing profits. However, there are growing problems for Tesla when it comes to servicing its vehicles.

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

Approaches of the car manufacturer

Ford is among the automakers receiving the most flak from dealers for its EV push, which includes levels of EV certification 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 say the plan violates franchise laws. A group of 27 dealers in Illinois filed a protest with the state Motor Vehicle Review Board, and four dealers in New York filed a lawsuit against the automaker last month. according to Automotive News.

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

“I think we’re all concerned that what they’re having us put in now, by the time we actually get some vehicles, they’re going to be out of date and have to be upgraded or replaced,” said McEver, who also owns a Lincoln dealership.

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

On Saturday, Ford plans to outline some changes to its EV certification levels, according to two people familiar with the plans. Changes such as reported for the first time from Automotive News, will reduce the differences between the two levels of the program. The bottom tier comes with lower capital investment, but also less EV distribution than Ford.

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

GM has offered to buy out its Buick and Cadillac dealers, which don’t want to give money to sell electric cars. About 320 of Cadillac’s 880 retailers were buying up. The Buick buyout is continuing, according to a spokesman.

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

“I know you’re worried 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 not going anywhere. It remains as it is,” said Toyoda, who will step down as chief executive to become chairman in April.

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