The Fuse

Why Car Dealerships Struggle With Selling Electric Vehicles

by R. Kress | December 08, 2015

Perhaps the most critical moment in an electric vehicle’s life happens on the dealership showroom floor, where sellers sometimes struggle in convincing consumers to make the leap on EVs. With the lofty goal set by President Obama to reach one million electric vehicles on the road by this year, the country is only one-third of the way there. EVs have a lot going for them: They save money over time, many have more than enough range to handle the average commuter’s daily driving needs, and they produce zero emissions.

So, why aren’t more EVs flying off the lot?

Maintenance Costs

Despite their advantages, EVs are getting undermined at the point of sale for a very compelling reason: They don’t make dealerships as much money in the long term as gasoline-powered cars.

Despite their advantages, EVs are getting undermined at the point of sale for a very compelling reason: They don’t make dealerships as much money in the long term as gasoline-powered cars. New car sales represent 57.6 percent of the total amount of dollars that come in the door at the nation’s dealerships, according to the National Automobile Dealers Association (NADA), while service and parts represent 11.4-percent. However, margins are significantly more attractive on the maintenance side of the business for dealers. NADA data shows the average dealership’s net profit at around $40,000 from new vehicle sales and $120,000 from used vehicle sales, so the $350,000 that comes from parts and service looms particularly large. While NADA doesn’t provide exact numbers on net profits, the association tells The Fuse that the relative size of the profits coming from parts and service is tough for dealers to ignore when instructing sales staff which cars to push on consumers and which to discourage drivers from purchasing.

“In a traditional internal combustion engine you have more than 2000 parts…and all those pieces [can] break. And every time those pieces break, that’s a business opportunity for a car dealership,” Levi Tillemann, the author of The Great Race: The Global Quest for the Car of the Future and a fellow with the New America Foundation, tells The Fuse. “Auto dealerships have a somewhat perverse incentive not to sell EVs.”

“Auto dealerships have a somewhat perverse incentive not to sell EVs.”

EVs, for example, do not require the routine oil changes and service appointments that gasoline-powered cars do, which takes away from profits that come from routine maintenance.

Plug In America’s chief science officer Tom Saxton says that while ultimately it’s up to the individual dealership to decide how to prioritize sales of the cars on the showroom floor, it’s important not to be short-sighted about EVs.

“Forward-thinking dealers who realize that EVs will become the dominant force in the market and have the opportunity to get a strong foothold in that market early on—those dealers will be very successful with selling EVs,” Saxton says. “Other dealers are maybe not willing to face the music and get on board with supporting EVs.”

Other factors at play

There have been some reports—most notably in a recent New York Times article—in which consumers say dealerships and salespeople have attempted to dissuade them from purchasing an EV. Tillemann cautions that it is hard to make generalizations about dealerships as a whole because “so much of what happens on the showroom floor is specific to that one shop. They’re not necessarily being micromanaged by the corporate structure.”

However, in these instances in which dealership sales staff may persuade a customer away from an EV, Tillemann says that other factors could still be at play.

Tesla is successful in selling EVs at least in part because the company has upended the traditional business model of the dealership such that the incentives of the customer and salesperson are better aligned.

“There are also very real, practical reasons why they might steer you away from an EV. A lot of people running car dealerships come at their customers from a traditional standpoint. They look at the value proposition of an automobile as a vehicle that can take you long distances, on vacations, or run for 500 miles without being refilled and utilize the expansive infrastructure that’s already in place for gas-powered vehicles,” Tillemann explains. “So, some auto dealers might have a genuine, altruistic intent in recommending you buy a standard internal combustion engine for personal utility.”

Tillemann explains that Tesla is successful in selling EVs at least in part because the company has upended the traditional business model of the dealership such that the incentives of the customer and salesperson are better aligned.

Lack of experience with EV sales

Many who sell cars at dealerships may not have much experience in dealing with EVs. As Plug In America’s Saxton notes, not until staff drive EVs on a daily basis will they be better informed in selling the vehicles. “Until you have that experience, you’re not going to have that advantage in selling these cars,” he says.

Many who work at dealerships may not have much experience in dealing with EVs.

Saxton is, however, optimistic that this experience gap will correct itself as EVs become increasingly more popular. Soon, he believes, more sales staff will have driven an EV and come to understand that for local driving, “limited range” is really a non-issue.

Paul Scott, who sold Nissan Leafs at a Los Angeles Nissan dealership and is the founding member of Plug In America, says the Japanese automaker mandates that salespeople who work with the EVs receive special training. About eight people out of the 20 working at his dealership were qualified by Nissan to sell the Leaf. Still, he says in the four years he sold cars, only twice did people who entered the showroom intending to buy a gasoline-powered car get sent his way—and he wasn’t able to convince them to buy an EV. The bulk of his sales, he says, were “customers who were already educated [about EVs]. You just needed to show them where the charge port was.”

Top-down trouble

While salesmanship certainly plays a role in getting the cars off the lot, Saxton notes that the problem in educating consumers may lie in the vehicles themselves: Not all EVs are the same. He defines three levels of EVs now being produced by automakers: compliance cars, conquest cars, and EVs created by manufacturers who are serious about the technology.

Compliance cars Saxton defines as those that the automakers create simply to satisfy requirements in California and the other zero emission vehicles (ZEVs) states that obligate manufacturers to reach a certain number of credits for the number of cars produced and sold in state. “Some automakers are just making cars to satisfy that. That’s the lowest level,” he says.

Conquest cars, meanwhile, aim to use the most exciting technology available. “They’re cool, new and high-tech. They make people think the automaker is technologically sophisticated. But they’re just there to get people in the showroom and then have them buy a gas car instead,” Saxton explains.

Ultimately, Saxton sees Nissan and BMW as the automakers best suited for selling quality EVs that are practical for drivers. Tesla, of course, is doing so as well, but its cars do not have to compete with gasoline-powered cars on the showroom floor.