Big Brand’s EV Announcements and the Impact on Auto Dealerships

In early March, Ford announced that it would be forming a distinct auto unit to scale electric vehicles (EVs), creating a new division under the Ford umbrella.

We spoke with Tony Wolf, Dealership Services Consultant for Brady Ware’s Dealership Advisors, and Faris Syed, President and CEO of Strategic Automotive Resources LLC, about the shift Ford is making and this trend in the auto manufacturing industry.

How does Ford’s announcement impact U.S. dealership nationwide?

Faris: I think it’s a significant announcement. At a conference recently, every dealer I spoke with was talking about EVs. I had never seen so much related to electric vehicles – chargers, parts, vehicles, etc. – at an automotive conference before. Dealers might be in denial due to the millions of dollars they have tied up in facilities, training, and parts, but the future is in the EV industry. From my perspective, Ford is hoping that by separating the EV and combustion engine markets, they will increase shareholder value and increase stock prices by creating a new Division for EVs. I believe their thinking is they can sidestep current sales and service that are in place now and drive toward a direct-to-consumer model, like Tesla, in the near future.

Tony: We’ve been hearing that some luxury brands are going down the same path and if you want to be one of their dealers, the cost of admission will be significant. This change could reduce dealerships by over 30 percent. The feeling is that sure, they will still need dealerships, but will they need as many or will they need only a few in the metro areas to deliver the units through? Don’t get me wrong, the combustion engine may still be manufactured until 2030 and a little beyond, but there will not be as much emphasis on manufacturing and delivering those cars. We may only see a 30-40% output of combustion engine vehicles, which is not enough to keep all the dealerships we have today in business.

Do you think creating distinct, focused EV units within their brands is the future of large automakers?

Tony: In early March, Honda and Sony signed a Memorandum of Understanding that “outlines their intent to establish a joint venture (“New Company”) through which they plan to engage in the joint development and sales of high value-added battery electric vehicles (EVs) and commercialize them in conjunction with providing mobility services.” From my understanding, Honda sated this a separate entity. They will use the technology from the joint venture (JV) and still build Honda’s, but the vehicles produced by the JV will not be sold through the Honda network. What dealers need to be thinking about is minimal showroom space and possibly a few service bays, but EVs won’t need that much room because of the direct-to-consumer sales model.

Faris: According to Consumer Reports, automakers are adding EVs to their lineup, including Honda, BMW, Ford, GM, Jaguar, Mercedes-Benz, Subaru, Volkswagen, Volvo, and more. I equate this shift to the 70s and 80s when large cars were being passed over with smaller-sized models. What’s happening now is the direct-to-consumer market is reducing the need for gas-powered cars as well as sales and service departments. Ford is hoping that by separating its EV and combustion-engine businesses, they will be able to increase market share by selling direct to consumers.

Can you give an example of where you’re seeing the changes take place?

Faris: This year Carvana bought the second-largest automotive auction business in America in order to sell cars direct to consumers. But the more interesting piece of the story is that they are hoping to engage in a deal with a large, mass retailer to help them sell direct to consumer and to have a piece of that pie.

Tony: Ford created the Blue Oval City outside of Memphis for an EV and battery manufacturing campus and production of next generation, all-electric F-Series trucks. Rivian has cemented a $5 million deal to build an EV assembly plant in Georgia. A bill allowing new EV only companies to sell direct to customers remains on the docket in the Georgia Legislature, along with new bills to expand the exemption that currently allows Tesla to bypass the dealer body.  These types of laws are what’s spurring the aforementioned Honda/Sony JV and prompted Ford’s original concept of spinning the EV business into a separate company.

How does this change impact existing dealerships in the sense of service departments, supply chain/inventory, and existing business model?

Tony: Over the past three years vehicles sales have been down, but dealerships are making a profit because of the demand and increase in at- or above-MSRP pricing. However, when you look a few years into the future, traditional sales units and operations may decrease without the bump in demand for current models. Inventory, parts, and service will go to dealerships that have opted into the EV sales model and combination offering, i.e., combustion engines and EVs. It goes back to “Now’s the Time” to make a decision. The dealers on the fence, those in small towns outside of metro areas, and those who don’t want to reinvest in their dealership to comply with the full EV strategy will miss out. New units will go to sales-effective dealerships that have opted into the EV sales model.

Also, in their sales and service agreement, manufacturers have to supply its dealerships with one of everything they manufacture. They can send that inventory allocation to any dealership, but most importantly, where there is sales demand. If they stop, that alone could put the small- to mid-sized dealerships out of business.

Faris: Keep in mind, consumers with combustion engines will begin to see a decreases in resale value, which will put them upside down on their numbers causing frustration in the marketplace. Non-electric sales dealerships will also begin to see a decrease in inventory, which could lead to them being pushed out of the market. They might get service, but not sales. Keep in mind, in the last three-year period, there was a 20 percent decline in total overall sales, which means fewer cars will be coming back for service.

What would you say to dealers who are on the fence about planning for a future with EVs?

Tony: There’s still money out there to be made, but the business looks completely different. Let’s say you are a family owned dealership seeking generational wealth for the family. You’re better off selling and taking the money that’s available now, then invest in EV’s and compete against the private groups who have multiple franchises and the economies of scale to compete in the new business model. For example, local consolidators and groups (10-20 dealerships) have the inventory to supply that market, while the individual dealer will receive the bare minimum of inventory to compete in the future. The dealership business looks completely different and the market is moving away from single-point dealers into local consolidators.

With all these changes coming into the market by manufacturers, how will this impact single-point dealerships like mom-and-pop dealerships, in the future? The answer may be the lack of inventory points toward dealers with multiple locations to provide inventory and economy of scale to survive the next generation of the business.

Think of it like you’re buying a market rather than just a dealership. If you have two metro stores and buy a small dealership 100 miles away, you can make money because you can supply the smaller dealer with your extra inventory and start the EV in that dealership, too.

Faris: It’s not all bad news. We are an adaptable nation. When one industry leaves, another comes in. What’s going to happen now, as we saw in the 1970s and 80s? The current model is to bring manufacturing back to this country and that’s what manufacturers are doing. The added positives to this are that the high-end paying and well-educated jobs will replace the jobs we have now. Think of Ford in the Memphis area. There will be good paying jobs outside the metro, too.

Final Thoughts

Faris: If I were a dealer now, I would have to be realistic and identify today’s marketing environment. Then, ask where is manufacturing sending me? Avoid the fight if you are not willing to change; rather, find something else to do.

Tony: I’d recommend dealers truly look at a five-year plan and where the industry is heading. Listen to what your manufacturers are saying, identify the trends, and pay attention to where your community’s heading.

For more on the inside scoop, watch the Brady Ware Automotive Dealership Advisor Series. Or, contact us today to discuss your current situation and where you’d like to be in five years.