Sep 30, 2022 - Economy

Tomorrow's car dealership might look more like the Apple Store

Illustration of a person handing someone else car keys shaped like a lightning bolt.

Illustration: Maura Losch/Axios

Gasoline-powered cars could soon start to disappear, but car dealers aren't going anywhere, in part because they're protected by strong franchise laws.

  • Their business is changing fast, however, as car sales move online and electric vehicles get more popular.

Why it matters: Consumers have plenty of gripes about the car-buying process. But they still want to visit with knowledgeable specialists to learn about advanced technology and troubleshoot problems.

  • First-time EV buyers have lots of questions about charging and more. Down the road, pre-owned EV buyers will need more hand-holding, too.
  • Dealerships that adapt best will look something like the automotive version of Apple's Genius Bar, experts say.

Driving the news: Carmakers are delivering an ultimatum of sorts to their franchised dealers: Evolve and invest for the EV era, or say goodbye.

  • Ford dealers, for example, have until the end of October to decide whether to invest up to $1.2 million on chargers and other EV-related services. (The automaker wants its dealer network to serve double duty as a public charging network.)
  • Those who refuse won't be allowed to sell future Ford EVs, although they'll have a second chance to get on board in 2027.
  • Other brands, including GM and Hyundai, are demanding similar changes.
  • They all want to compete with disruptive EV makers like Tesla, which sells directly to consumers and handles maintenance through a network of mobile technicians and service centers.

The intrigue: Some experts say automakers are using the shift to EVs as a way to thin their dealer ranks.

  • When General Motors presented a similar choice to its 900 Cadillac dealers in 2020, more than a third opted for a buyout instead. The rest are all-in on EVs.

The big picture: Car dealers are raking in profits right now because pandemic-related supply chain disruptions mean they have fewer cars to sell and can charge higher prices.

  • Meanwhile, EVs are becoming more popular. They currently account for about 5% of new car sales, but that share is expected to grow significantly over the next decade.
  • On Thursday, New York Gov. Kathy Hochul said the state will follow California in mandating 100% zero-emissions for new vehicles by 2035.

All of this adds up to momentous changes for car dealers and their customers.

  • Yet car shoppers overwhelmingly prefer the dealer experience to online shopping, according to a new study from Escalent, a human behavior and analytics firm. 57% prefer the traditional approach, while just 20% favor Tesla's direct retail model.
  • When it comes to EVs, 74% said they would prefer to buy one at a dealership, rather than from an auto manufacturer or third party.
  • Nearly one-third of shoppers expect car dealers to be a primary source of EV information.

The surprising results contradict popular opinion that consumers want to buy cars the way they do shoes or groceries.

  • What they want, it turns out, is more education and less hard sell, Escalent vice president K.C. Boyce tells Axios.
  • "When EVs go mainstream, you can't underestimate the amount of hand-holding that will be needed."

Yes, but: Secret shopper surveys find that dealers aren't well-prepared to sell EVs.

  • They don't know enough about charging, for example, and don't always inform customers about warranties, rebates and incentives.

The other side: Many automakers weren't yet selling EVs when these surveys were conducted several years ago.

The bottom line: Carmakers insist their dealer networks can be an asset in the EV era because of their physical locations and their existing customer relationships.

  • But those dealers have a lot of work to do before they're EV experts.

Editor’s note: This story has been updated to clarify that some car dealers weren’t selling EVs when the secret shopper studies were done several years ago.

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