Automakers are at a crossroads as they work to integrate car dealerships into their electric vehicle plans

DETROIT — As automakers seek Tesla-like benefits 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, like General Motors, are asking luxury dealerships to go all-in on electric vehicles or get out of business. Others like Ford engine offer different levels of “EV certification” to dealers, while most other automakers, or OEMs, know they have to change the sales process to adapt to the changing industry, but still try to figure out how to do it.

“I think we’re all building this plane while we’re flying,” Michael Alford, president of the National Auto Dealers Association, a trade association that represents more than 16,000 new American franchise dealers, told CNBC. “Depending on the OEM, the level of engagement or intensity of engagement varies.”

Automakers and franchise dealerships have a complex relationship that is supported, in many states, by laws that make it difficult, if not illegal, to circumvent franchise dealerships and sell new vehicles directly to consumers. (Tesla and other newer EV startups have circumvented these regulations to cut costs.)

Automakers and franchised dealerships want to maximize their profits, but they are separate businesses that depend heavily on each other to succeed. Dealerships rely on automakers to fill product and move lots, and automakers in turn rely on dealerships to sell and service vehicles as well as 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 through Sunday in Dallas. The event attracts thousands of franchise dealerships each year to hear about their respective automotive brands.

For dealerships – from mom-and-pop shops to large, publicly traded chains – electric vehicles will mean training new employees, infrastructure and substantial investment in their stores to be able to service, sell and charge the vehicles. Depending on the size of the dealership, these upgrades could easily cost hundreds of thousands or even millions of dollars. Of course, they want to be 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 former OEMs absolutely realize that we’re key to moving forward,” said Alford, who leads the 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 adopt online sales for much of its business, although it still has physical dealerships, news sites and service shops.

A greater shift online could limit the role of dealerships to strict fulfillment, servicing and as delivery centers in the future and eliminate the need for large batches of cars which they then sell to consumers.

“Overall, the franchise system remains in place even for electric vehicles from traditional automakers, although they all seem to be looking at ways to modify it to be more competitive, they say, with Teslas. world,” said Michelle Krebs. , executive analyst of Cox Automotive.

Automakers believe this will give consumers a more streamlined and consistent sales process, but they also see dealerships as their partners and offer “strategic advantages” when it comes to other sales and marketing issues. ‘interview.

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

“We want to continue to ensure that we deliver convenience with what customers are looking for, with no intention of bypassing our dealership corps,” Mamadou said Tuesday during a media call.

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

“Apple are still opening new stores, right? And every company that you think will go into direct selling is also opening new stores in the automotive sector,” said Vijayan, Founder and CEO of Tekion, a cloud-based dealership services provider.

Wall Street analysts have widely viewed direct-to-consumer sales as a way to maximize profits. However, Tesla has experienced increasing difficulties when it comes to servicing its vehicles.

Ford CEO Jim Farley said he wants the automaker’s dealerships 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 receiving the most pushback from dealerships for its EV push, which includes EV certification levels that could cost more than $1 million per store, depending on dealership size.

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

Ford dealership Marc McEver said he signed up for the highest level of EV certification at his dealership near Kansas City, Kansas, but he’s worried about the cost and schedule of the program.

“I think we’re all worried that what they’re having us install now, by the time we really have vehicles, will be outdated and will need to be upgraded or replaced,” said McEver, who also owns a Lincoln dealership. .

In addition to investments, dealers who choose to sell Ford electric vehicles will need to meet five standards to stay in good standing: clear, non-negotiable prices; invoicing of investments; employee training; and improving the customer experience of buying and owning vehicles, both digitally and in person.

Ford plans to introduce some changes to its EV certification levels on Saturday, according to two people familiar with the plans. The changes, like reported for the first time by Automotive News, would reduce the differences between the two levels of the program. The lower tier comes with a lower capital investment, but also a smaller EV allocation from Ford.

Ford, however, unlike arch-rival General Motors, allows 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. About 320 of Cadillac’s 880 retailers bought buyouts. Buick takeovers are underway, according to a spokesperson.

Toyota enginefor 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. Although I can’t predict the future, I can promise you this: you, me, us, this business, this franchise model is It’s not going anywhere. It’s staying as is,” said Toyoda, who will step down as CEO to become chairman in April.