Motor industry lead partner Steve Bragg said that the economics of selling and servicing EV versus ICE vehicles meant that dealership P&L would fundamentally change.
But, he said, dealers who maintained high levels of focus on new and used ICE vehicles would protect their businesses from the poorer returns generated by EV sales and that the focus on used ICE vehicles would lengthen the period of transition into an electric fleet.
Mr Bragg told GoAutoNews Premium: “To put it in the simplest terms, a person who buys a brand-new car typically keeps it for four or five years, before they trade it in and buy a new one”.
“The OEMs have worked out over the 100 years they’ve been selling cars that in that time there is a five-year service schedule. So in a five-year service period for an ICE car you get five paid services by the customer.
“In the exact same electric vehicle variant of an ICE model it is just two paid services,” he said.
“In a case study we did, the BMW iX3 versus an X3 it’s two services for every EV. It is the same for every EV in Hyundai; for every EV in Kia it’s two; for every EV in MG it is two years.
Steve Bragg
“Therefore, the important bit is that the times you see your customer in the five years after you sold them the car for EVs is just twice, versus five times for an ICE vehicle.
“And the year two service which is the ‘first service’ you get on an EV is literally just a check; a look over the car, check the battery, all the fluid levels and so on. They give you a wash and a vacuum and on your way. So, it’s a couple of hours of service and hardly any parts.
“In year four, the only parts you sell in the whole service schedule in the five years is brake fluid and cabin air filters. That’s it.
“From a service hours point of view in terms of standard repair times a dealer is down only 20 per cent but the issue is they are 60 percent down in part sales. And that is based on the most conservative examples out of all of them.
“The actual range for the drop in parts and service sales is 40 per cent to 60 per cent. Most of them are on the 60 per cent side, but we chose 40 per cent in our case study because we thought that was a big enough impact.
“I didn’t want to shock everyone straight away. I’m not making this up. This is straight from the factories service schedules. All I have done is model that EOM data out to see what it does to the rest of the business assuming that the new car sales side is not impacted and F&I is not impacted.
The impact to the dealer is the lost services on EVs requiring them to strip out on average a million dollars of service department expense a year on the same volumes.
“So there are a lot of big decisions that have to be made,” Mr Bragg said.
He said that analysis showed that at a ratio of 25/75 EV to ICE vehicle sales “you still have a big enough flow through of parts, service, new and used car sales that you can still have a traditional dealership business.
“But when you get over the 25 percent EV sales ratio and you’re heading towards 50 then there are big, big decisions you have to make. You have to make a decision: do I need a service department? Do I outsource it? Or do I just have a shopfront and then I have a service centre somewhere else that does all-makes?
“That’s what they’re doing in Europe.”
In Norway where they have 90 per cent EV sales for new vehicles and 25 per cent of the car park is EV, they have seen a minimum 60 per cent drop in service and part sales in the dealership.
So the dealers over there are selling tyres, doing windscreens, paint and panel, etc.
“My question to dealers is do you want to be a panel beater, Bob Jane, a Telstra shop or Australia Post? Ultimately, those are the choices you have as your business evolves in the next decade or two. You will no longer be a dealer in the sense that you are a dealer today.
“The OEMs will always need dealers to sell their cars from dealership rooftops, but the business is a completely different business. And I’m not sure a lot of dealers want to be a tyre retailer, or they want to be a panel beater. Because if you talk to them, they’re not really interested in that business. What they’re interested in is buying and selling cars.
“It doesn’t mean it’s the end of the dealer. I want to be clear, I am not saying that at all. What I’m saying is, you will exist but the way you exist will be completely different. The change is coming faster than many people think because there’s a lot of push behind EVs but there are things that dealers can do to manage the change.”
Mr Bragg said he wanted to encourage dealers to rethink their businesses.
“In discussing 25/75 EV to ICE ratio, remember that I am trying to throw out the door the concept of new vs used. What I’m saying is that the ratio needs to be for both new and used.
“So if you’re selling 100 new EV vehicles, you need to sell a combination of new and used ICE vehicles of 300 units. Because it’s used cars that will save the dealer in the long run.
“The issue is there is going to be fewer and fewer new ICE vehicles to sell because we’re just going to get whatever the OEMs choose to send us. We don’t manufacture cars anymore so the cars that come to us are the cars we will sell.
“And it is fair enough to mix all your brands into the ratio. If you are an all EV brand it will be difficult but if in your mix of brands you are selling 100 EVs per month then you need to be selling a combination of 300 new and used ICE vehicles.
“That is how dealers are going to survive because then they will apply their good CRM to get those customers back into the dealership and service them. So even at 50/50 EV to ICE sales of new cars you can still achieve that 75/25 by selling 200 more used cars.
“That means the good dealers will be able to lengthen their ability to trade as a dealer by doing that. And it gives them more time to make the decisions they need to make.”
EV sales predictions and trends
Mr Bragg predicted Australia would reach 25 per cent new EV sales in the next three to five years.
“I believe this because those are the cars that we are going to get from overseas and so we will have to sell them. And people will buy them because they won’t have a choice and frankly they don’t want to pollute.”
But he said that in Australia especially, “there’s going to be a cap on the number of people who want to buy and can buy EVs. I think that is somewhere between that 25 and 50 per cent range”.
“In 15 years, I think Australian might level off at about 50 per cent new EV to ICE sales to be honest. The reason I think this is because really what an EV says about you is that you’re rich, because you can actually afford to buy one. Right now most EVs on offer are close to 100 grand. Since they’re expensive and you have a home so you have off street parking so you can charge it mostly only well off people will be driving EVs. So, number one, affording an EV is going to limit who can buy them.
“Number two, at least initially you are only going to buy one EV. You don’t want two of them because you don’t want two times the ownership issues that currently come with EVs. So you will choose to have one EV and a backup ICE vehicle.
“In the UK they’re really struggling to see how they’re going to get to 100 per cent EVs because the people buying them are basically wealthy and they already have an EV. So they are only replacing the one that they already have.
“Number three, many customers are keeping an ICE vehicle as well because they don’t trust the fact that they can actually charge their cars conveniently every time they want to and they’re afraid that they’ll be stuck. So this will tend to prolong the life of ICE vehicles.”
Mr Bragg said that in Australia hybrids were a popular form of electric vehicle because they overcome range and charging point issues and this would prolong the service requirement for ICE drivelines in dealerships. Hybrids are already a proven product in Australia and have enjoyed success in many brands selling them.
“Hybrids still need five services so that’s good for dealers,” Mr Bragg said.
(As reported in GoAutoNews Premium last week Toyota sold 72,850 hybrids in 2022. This was 31.5 per cent of its total sales. The RAV4 was Australia’s best-selling hybrid with 26,547 sales, representing 76.2 per cent of the model’s volume. Toyota said that if hybrids were a separate
franchise, Toyota hybrids would rank sixth by sales in the Australian market).
Mr Bragg said: “But as a dealer, you need to focus on your used cars and throw the concept of new and used out the window. Get that out of your head and start measuring EV to ICE.
“That is the important measure going forward because for every EV you sell you must save $1,800 in overheads and for every EV you sell you’re going to do half the service you normally do.”
“There’s a long way to run with this. There are 20-plus, maybe 30-plus years of ICE engines in vehicles that need to be maintained. This is interesting because the life of an ICE vehicle is 15 years plus even 20-plus years. The cars just last forever.
“Today, in 2022, there are 4.6 million cars more than 15 years old.”
Image source: Otago Polytechnic Research
Mr Bragg told managers at the Pitcher Partners Sydney forums that they should take the following steps …
- Change your accounting system now to run two P&Ls: EVs / ICE – talk to your
DMS provider - Make sure your service department treatment of used car customers is identical to the experience of new car customers
- Ensure all used cars have in-house warranty and your service logbooks for retention
- Include the new KPIs in your DOC and monthly management pack
- Understand parallel imports as a supply chain solution (Pitcher Partners can help with that)
- Consider going into the EV conversion business. This will be an industry of the future
- If there is no prepaid service schedule, customers will not return
By Matt Brogan
