EV automakers are working to incorporate automobile dealerships of their future plans

Customers wearing protective masks look at the interior of a vehicle for sale at a Ford Motor Co. dealership in Colma, California, February 1, 2021.

David Paul Morris | Bloomberg | Getty Images

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

Some, such as General Motors, are asking luxury retailers to go all-in on EVs or go out of business. others like Ford engine offer dealers various “EV Certification” levels, while most other automakers or OEMs know they need to change the sales process to adapt to 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 that represents more than 16,000 new franchise dealerships in the United States, told CNBC. “Depending on the OEM, the degree of commitment or the intensity of the commitment varies.”

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

Both automakers and franchises want to maximize their profits, but they are separate companies that rely heavily on each other to thrive. Dealers rely on automakers to fill products and remove lots, and automakers in turn rely on dealers to sell and service vehicles and serve as concierges for customers.

How this 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, taking place in Dallas through Sunday. The event annually attracts thousands of franchise dealers to hear about their respective automotive brands.

For dealers – from corner shops to large publicly traded chains – electric vehicles mean new staff training, infrastructure and significant investments in their stores to be able to service, sell and charge the vehicles. Depending on the size of the retailer, these upgrades can easily cost hundreds of thousands or millions of dollars. Of course, they want to make sure their investments pay off.

“The tone and tenor of this theme has evolved and I think it’s very, very clear this year that our legacy OEMs absolutely recognize that we’re essential for the future,” said Alford, the Chevrolet and Cadillac dealer in North Carolina.

Competes with Tesla

As more automakers introduce electric vehicles, they’re rethinking the sales process, including selling new vehicles largely, if not entirely, online. Tesla was among the first automakers to adopt online sales for a large portion of their business, although physical dealerships, information sites, and service shops still exist.

A greater shift online could limit the role of dealerships to solely processing, servicing and as delivery centers in the future, eliminating the need for large volumes of cars that they then sell to consumers.

“Broadly speaking, the franchise system remains in place even for traditional automakers’ electric vehicles, although they’re all looking at ways to tweak it to, they say, become more competitive with the Teslas of the world,” said Michelle Krebs, senior analyst by Cox Automotive.

Automakers believe this will offer consumers a leaner and more cohesive sales process, but they also view dealers as their partners, offering “strategic advantages” when it comes to other sales and servicing issues.

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

David Paul Morris | Bloomberg | Getty Images

Honda engine has announced plans to move more sales online, including 100% online sales for its Acura luxury electric vehicle brand. Mamadou Diallo, American Honda vice president of sales, said the plan is to make the ordering process easier online, but the vehicle will be picked up or delivered by dealers. However, those procedures are still being worked out, he said.

“We want to continue to make sure that we offer what customers are looking for conveniently, with no intention of bypassing our dealer organization,” Mamadou said during a media briefing on Tuesday.

Jay Vijayan, who helped build Tesla’s digital and IT systems, doesn’t think selling electric vehicles online only will succeed. He said a mix of outlets is best, which is why Tesla and newer EV startups are selling online and opening new showrooms and service centers.

Apple still opening new stores right? And any company that you think will go direct is also opening new deals in the automotive space,” said Vijayan, founder and CEO of Tekion, a cloud-based dealership service provider.

Wall Street analysts have largely viewed direct-to-consumer sales as a means of optimizing profits. However, Tesla has growing problems when it comes to maintaining its vehicles.

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

Automaker is approaching

Ford is among the automakers receiving the most backlash from dealerships for its EV push, which includes EV certification levels that could cost upwards of $1 million per deal, depending on the size of the dealership.

The Detroit automaker is facing legal challenges over the certification program from dealers who argue the plan violates franchise laws. A group of 27 dealerships in Illinois filed a protest with the state’s motor vehicle inspection agency last month, according to Automotive News, and four dealerships in New York last month filed lawsuits against the automaker.

Ford dealer Marc McEver said he signed up for the highest level of EV certification at his dealership near Kansas City, Kansas, but he’s 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 really get some vehicles, it’s going to be obsolete and need to be upgraded or replaced,” said McEver, who also owns a Lincoln dealership.

Investments aside, dealers who choose to sell Ford electric vehicles must adhere to five standards to maintain a good reputation: clear and non-negotiable pricing; top-up investments; employee training; and enhanced vehicle buying and ownership experience for customers, both digitally and in person.

Ford plans to outline some changes to its EV certification levels on Saturday, according to two people familiar with the plans. The changes, as first reported by Automotive News, would narrow the differences between the two tiers of the program. The bottom tier comes with lower capital investment but also a lower allocation of Ford EVs.

Unlike archrival General Motors, however, Ford is allowing dealerships to opt out of selling electric vehicles and continue to sell the company’s gas-powered cars.

GM has offered buyouts to its Buick and Cadillac dealers who don’t want to shell out to sell electric vehicles. Approximately 320 of Cadillac’s 880 dealerships made acquisitions. According to a spokesman, the Buick buyouts are ongoing.

Toyota enginefor its part, has no plans to overhaul its franchised dealer network as it invests in electrified vehicles, CEO Akio Toyoda told dealerships in September to much applause.

“I know you’re worried about the future. I know you’re concerned about how this business is going to change. While I can’t predict the future, I can promise you this: you, me, we, this business, this franchise model is not going anywhere. It’s staying the way it is,” said Toyoda, who will step down as CEO and become chairman in April.

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