If Carmakers Want
to Sell EVs, They Need to Sell the Dealers First.
The lesson here is that,
in many businesses, you need to get the sales team on board first; the buyers
will follow.
BY HOWARD TULLMAN, GENERAL
MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS@HOWARDTULLMAN1
In
1980 I started CCC Information
Services, which is still the world leader in providing the
automotive insurance industry with vehicle valuation data. Like many
entrepreneurs, I struggled initially with a problem I couldn't anticipate.
CCC's greatest early challenge was securing the cooperation and participation
of tens of thousands of car dealers so that we could capture and incorporate
their new and used vehicle information, and their actual inventories, into our
valuation systems.
The
premise was that real-time market data about the average asking price for a
particular used car was the best and fairest way to establish the amount to be
paid by an insurer in the event that a comparable vehicle was stolen or
destroyed. Securing the dealers assistance turned out to be a very complicated
task for reasons that are especially relevant today as automotive
manufacturers, dealer ownership groups, and the last of the individual,
old-time, family-owned dealerships confront the issues posed by the oncoming
deluge of electric vehicles along with the emergence of new generations of
owners, professional managers and operators.
Today
most car dealers aren't really much interested in selling EVs; in a
recent survey, more than a third of them said they wouldn't offer an EV to
their customers even if they could. Adding EVs, funding new staff training
along with the incremental equipment costs necessary to maintain and service
the new cars, building out new showrooms and display space, and facing
uncertain near-term demand all mean that EVs aren't especially attractive
undertakings. This is one of the major reasons that Tesla-- after lengthy
battles with dealer groups, state regulators and local politicians who had been
in the dealers' pockets for years-- built its own direct-to-consumer sales
organization and its own outlets.
Talking
to a car dealer (who is laser-focused on today's sales results) about a
five-to-ten-year time horizon for substantial EV sales volume to develop is
like trying to sell an anvil to a drowning man. It's not easy to sell these
guys anything because they're world-class skeptics. They have the attention
span of a typical teenager, the patience of a fruit fly, and they don't trust
anyone-- especially to the extent that it concerns new technology. The U.S.
goal of having 2/3 of the new cars sold here be EVs by 2032 seems like a pipe
dream when you talk to most dealers. They don't have a clue as to how we're
going to get from here to there.
To be
honest, most established dealers today are fairly fat and happy with the way
things have gone for them and their families for decades. They may have family and
generational challenges, as do many other industries, but they've
also had exclusive territories, scarce inventories, political protection, and
very little price competition. They don't like change, they don't like
spending new money, and they're not
really sold on the vehicles themselves.
We
faced this kind of resistance and inertia when we first tried to introduce CCC.
The best way to value a car that had been stolen or destroyed (a total
loss) was to find several existing comparable vehicles that were as close in
age, features, and mileage to the lost car as possible. The insurer's adjuster
could then point the insured or claimant to the available cars, give them a
check based on the comparable values, and tell them where the cars could be
found.
Our
two-part pitch was pretty straightforward: (a) we'd do all the work; and (b)
because we'd be handling hundreds of claimants every day who had just lost
their cars, we could provide a steady stream of prospective customers who were
interested in cars that were in their inventories and actually sitting on their
lots -- and had insurance checks to pay for them. More importantly, even if the
prospective buyer didn't want another version of the car they had been driving,
they definitely needed a car, and they could be sold an alternative or even a
new model. We thought that dealers would be drooling over a steady flow of
prospects looking at their used car inventories. But what seemed like a no
brainer took years to accomplish and to scale.
There
were three main barriers to acceptance by the dealers, apart from their simple
laziness and complacency. First, they regarded their used car operation as a
necessary evil, not a part of the business that they really cared about.
Second, they were reluctant to invest time, money, or effort into these
cars (even something as simple as capturing each car's specific features,
add-ons, and mileage) because they regarded them as fungible assets that would
be on their lots for a short time and then, if not sold, sent to auction or
scrapped. And third, used car sales represented a small percentage of their
annual profits.
Even
apart from the fact that there won't be too many used EVs any time soon (even
though Elon is trying his best to make owning a Tesla an embarrassment), as
noted above the dealers see plenty of similar problems with jumping into the
new EV line of business. The manufacturers are trying very hard to push the EVs
out the door-- a loaded dealer is a loyal dealer--because at scale they're much
cheaper and easier to make than traditional cars and command higher prices. But
the dealers are going to need to be bribed, cajoled, and eventually dragged
across the finish line. The bright spot for the carmakers is that they have
seen this situation before and have a pretty good game plan already prepared.
The
first solution is the Carfax model.
Dealers absolutely hated Carfax when it first emerged because the absolute last
thing they wanted to do was to tell their customers about the nasty past
histories of the used cars they were trying to sell them. So, Carfax jumped
right over the dealers and went directly to consumers with a pitch that said
only an idiot wouldn't check out a used car before they bought it. Today,
almost every dealer in America offers customers a Carfax report (or one like
it) as a free benefit and assurance. Tesla has already shown the way for the
other OEMs to reach out to and convince the buyers of the benefits of the EVs
in order to drive sufficient traffic and demand to win the dealers over.
The
second solution is to move the whole discussion upstream in the consumers'
minds and turn the EVs into a premium item and a status symbol (as Tesla has
done so well) rather than simply a transportation tool. This is a page from the
Japanese manufacturers who created entirely new and distinct imagery and
marketing for their luxury cars to separate them from the public's perceptions
about their legacy brand's quality and value. Lexus (Toyota) and Infiniti
(Nissan) led this strategy with entirely separate stores and branding, and
demonstrated the potential for substantially greater profits, renewed customer
loyalty and improved dealer reputations. Today we see Genesis vehicles, which
no one would ever suspect are a Hyundai product, independently marketed for the
same reasons. Interestingly enough, at the other end of the economic spectrum,
Hyundai also has just announced that Amazon will begin selling its cars online
with delivery made by local dealers.
Finally,
the manufacturers need to understand that, for a substantial period of time,
they're going to have to share in the costs of the EV transition with the
dealers. To jumpstart the adoption and use of the CCC system, we had to build
our own internal sales staff -- not to sell the CCC system -- but to actually
help dealers sell the cars to the insured buyers. Once they saw the program
working, they eventually took it over for themselves.
The
OEMs are going to have to finance equipment, subsidize EV training in both
sales and service, and lobby nationally for extensive state and federal
investments in charging stations if they want to win over the roughly 12,000
dealerships out there today who are sitting on the fence.
The
bottom line is an old and simple rule: nothing good happens to a business
without salespeople who are willing to sell your product.
