Do Dealers Really Discourage EV Sales?

January 11, 2016 by  
Filed under Uncategorized

Do dealers really turn customers away from buying electric vehicles (EVs)? I’m often asked this question at conferences. It has been a topic of conversation ever since Consumer Reports published a piece last year purporting wide scale dealer ignorance of the EVs they sell and frequent attempts to steer its mystery shoppers away from buying them.

On the surface, it seems counterintuitive that a dealer would try to talk someone out of buying a car.  Generally, dealer salespeople don’t want to “risk the sale” by introducing fear, uncertainty or doubt into a conversation with a customer that seems ready to buy.  Suggesting a conventional vehicle to a customer sold on an EV risks doing just that. So why do it?

In conversations with the dozens of dealers I visited, all said they avoid what the industry refers to as ”cross-selling” unless they have a very good reason to do so. Regardless, an analysis I conducted on 2013 JD Power data showed dealers are more likely to try to cross-sell buyers who wanted an EV into something else. Dealers may have had plenty of good reasons in mind: the customer’s commute is too long compared to the car’s range, the buyer’s home is not suited for installing a charger, etc.  But there are also bad reasons: the dealer is ignorant of these issues or just wants to sell more profitable cars on the lot.

But just as salespeople may be remiss to cross-sell an apparent EV customer into a conventional car, the reverse also holds:  Salespeople are loath to suggest an EV to customers at-large.  This is why dealers may not be the best advocates for introducing a technology as new and fundamentally different as EVs.  Rather, carmakers will need to do much of the heavy lifting through innovative marketing to ready customers for EVs before they arrive at the dealership.

Antiquated – some would say anticompetitive – state franchise laws leave little room for carmakers to experiment with new distribution approaches, however. Manufacturers cannot conduct sales, offer test drives or discuss pricing.  They also must refer customers to all “qualified” dealers in the customer’s home market, not just those that prove they can deliver exceptional support to EV customers.

Nevertheless, a few carmakers are trying.  Nissan and BMW cannot own stores but Nissan conducts “ride and drive” events at corporate and university campuses targeted at the customers who are more likely to buy its LEAF electric vehicle.  BMW and Mercedes are experimenting with temporary “pop-up” retail stores in high-traffic destinations like malls and airports.

These methods confer a number of advantages. They expose more customers to EV technology.  They also provide a much more controlled, learning-friendly environment free of the high-pressure sales tactics that customers often associate with traditional dealers.  Importantly, carmakers can better ensure stores are staffed by well-informed advisors who can patiently answer questions from customers on questions ranging from availability of chargers to government incentives and discounted utility rates.

All of this is done to strip fear, uncertainty and doubt out of the buying decision so that when a customer arrives at a dealer, the dealer can do what it does best: handle the trade-in, financing, licensing, titling and transacting of the sale. The carmaker has presumably taken care of everything else, at least within the parameters of what state laws allow.

Franchise laws generally prohibit automakers from offering services that dealers could otherwise perform, whether dealers choose to or not.  This includes not only ownership of storefronts dedicated solely to EV marketing, sales or maintenance, but even basic activities such as referrals to qualified local electricians for installation of home chargers or brokering a transaction between an EV customer and a qualified dealer.  Automakers are similarly barred from instituting uniform policies across the dealer network, even to ensure a specific level of support for EV customers. Requiring Apple-like “Genius bars” or “no haggle” pricing for EVs, for example, could not only shorten the buying process but steer the attention of dealers away from bothersome price negotiations and toward delivering the information, instruction and post-sale support customers will need to unlock the full value of EV ownership. Bold experiments such as these may be key for stoking positive word-of-mouth and gaining the loyalty needed to grow EV sales and market share.

Encumbrances on innovation imposed by state franchise laws is exactly why Tesla chose to operate its own retail stores.  The company also offers a 200+ mile car, prestige (premium) buying experience and supports its customers with company-owned charging and service infrastructure.   The strategy is not without its downsides.  In addition to the high cost of operating its own distribution network, Tesla has been subject to limits or outright bans in over half of all U.S. states.

But the list of benefits is long.  Corporate ownership provides full control over the customer experience. Responsibility rests with one organization rather than hundreds or even thousands of independent dealers.  As a result, customers are more likely to experience a consistently higher level of retail quality no matter what store an EV customer visits.  As a newcomer with no standing franchise arrangements, Tesla has more wiggle room to experiment with new approaches. Established carmakers, on the other hand, are far more constrained by state law. This begs the question: What if automakers were allowed to do more to support dealers that sell EVs?

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