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  • Writer's picturePhil Villegas

The Case for Electric Vehicles as a Distinct Dealership Department - Insight Vol. 32



AXM - The Case for Electric Vehicles
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Numerous articles discuss the rapid deployment of Electric Vehicles (EVs) by manufacturers and question the sustainability of these initiatives. These pieces often highlight the challenges associated with EVs, including quality concerns and the supporting infrastructure. For clarity, this discussion pertains specifically to Battery Electric Vehicles (BEVs), not to traditional Hybrid Electric Vehicles (HEVs) or Plug-in Hybrid Electric Vehicles (PHEVs).

 

This article does not oppose EVs; rather, it examines the economic strain and risk that the aggressive push into EVs places on dealerships and proposes strategies to manage this transition.

 

The approach here is akin to that used in dealership acquisitions. When evaluating a potential acquisition, one must assess the dealer's resources and strategize their optimal use. Dealers possess limited resources—financial, personnel, and time—all of which influence their willingness to engage in transactions.

 

It is my contention that the true financial impact of the shift towards EVs remains underestimated regarding the total cost and investment required from dealers. Dealers are, in effect, subsidizing the government and manufacturers' venture into EV sales without a clear understanding or justification for the investments they are compelled to make.

 

The industry is nearing a critical juncture concerning the retailing of EVs. This should not be confused with consumer adoption, which began years ago and has been gaining momentum. Tesla has set the standard in the EV market, leaving other major manufacturers scrambling to stay competitive or at least appear relevant to consumers and investors. The anticipated inflection point, or at least the hoped-for correction, would address the excessive response many manufacturers had in competing with Tesla—an overreaction involving billions of dollars and vast resources to establish a presence in an EV market that lacked equivalent demand. This all-in approach to EVs by manufacturers has adversely affected dealers through capital investments, training expenses, interest costs, and the reduced allocation of more profitable and sought-after vehicles.

 

To better comprehend the full impact of their investment and relative performance, dealers and manufacturers should implement a financial reporting strategy that treats EVs as a separate business unit within the dealership's financial statement. This would mirror the existing structure where New, Fleet, Certified, and Pre-Owned departments are distinct. This strategy should also apply to fixed operations departments.

 

We already observe this separation in the reporting of new vehicle inventory "Days Supply," as dealers and manufacturers distinguish between internal combustion engine (ICE) inventories and EVs. Some dealers report over 120 days' supply of vehicles, only to reveal that their ICE supply is around 30 days while their EV supply nears 180 days. Such metrics underscore the financial and reporting complexities EVs introduce to dealership finances, underscoring the need for segregation.

 

The business model for selling and servicing EVs differs markedly from that of traditional ICE vehicles, both in the front-end sales and back-end service aspects of the dealership. The current practice of integrating EVs into dealership financials obscures the true negative impact on dealers.

 

For the purpose of this discussion, consider EVs as their own business unit within a dealership, distinct from individual models. View current EV offerings by manufacturers as separate entities within their main franchise—for instance, EQ for Mercedes, Ioniq for Hyundai, and ID for Volkswagen. This concept is not novel; manufacturers have historically treated unique vehicle lines as individual franchises, such as Scion with Toyota, Mini with BMW, or Genesis with Hyundai.

 

Both the Balance Sheet and Profit & Loss (P&L) statement should enable dealers to understand the impact of EVs on their finances. Examples of Balance Sheet accounts include:

 

• EV New Inventory

• Pre-Owned EV Inventory

• EV Parts Inventory

• EV Fixed Asset Investments

 

Examples of P&L accounts include:

 

• EV Sales Compensation Expense

• EV Delivery Expense

• EV Flooring Interest Expense

• EV Advertising Expense

• EV Demo/Loaner Expense

• EV Supplies and Tools Expense

• EV Training Expense

• EV Related Insurance Expense

 

Supplemental departmental examples include:

 

• EV New Inventory Days Supply

• EV Monthly Sales

• EV Repair Orders

• EV Personnel Data (Sales, Technicians, Parts)

• EV Finance & Insurance Data

• EV Service and Parts Data (Service Bays, Revenue per Repair Order)

 

EVs have transformed the retail landscape, particularly in terms of competition. It is no longer simply dealer versus dealer but also includes direct-to-consumer brands. If manufacturers adopt a financial reporting model that clearly delineates EVs, it will assist both dealers and manufacturers in advancing EV sales and market penetration. Without clear and measurable data, improvement becomes challenging.

 

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