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Auto dealers who find EV buyers ahead of game.

Government, OEMs Nudging Dealers Toward EVs

Between the OEM agency model, EV incentives in the federal Inflation Reduction Act and California phasing out internal-combustion-powered vehicles, it’s not hard to read the handwriting on the wall.

As a former franchise dealer, I’m the last person to want retailers forced into selling any particular vehicle in any particular way. One of the key strengths of the franchise system is that dealers can adapt and thrive by meeting the wants and needs of their local market.

However, it is becoming crystal clear that if dealers choose to ignore the rise of the electric vehicle, and do not begin to adapt, it will be very tough sledding in the future.

There may be a “perfect storm” on the upside for dealer margins and profit right now, thanks to unprecedented supply/demand imbalance. But it’s hard not to notice that government and OEM actions have accelerated in the past year or so to force new retail sales in the direction of EVs, particularly battery-electric vehicles (BEVs) compared with plug-in hybrids.

First, “agency model” is front and center on the agenda of most traditional OEMs in the U.S. and globally. This is where EV sales and margins are controlled online by the manufacturer, and the dealer is chosen by the customer for the delivery and paid a set fee. Following the Tesla sales approach, the rationale given by traditional OEMs is that they need to take cost out of the distribution process and speed up EV adoption. OEMs in the U.S. are moving gingerly on this, given current franchise laws, and for now, just moving toward ordering online and creating things such as “e-invoices.”

Can state franchise laws really stop this? I’m not so sure. Under the precedent set by Tesla, all a legacy OEM really has to do is set up a new company under their EV brand, and then there are no real franchise protections other than in a couple of states. What other motivation do you think there might be for Volkswagen announcing their new Scout BEV standalone unit or Ford’s recent company split into Ford Blue (ICE models) and Ford Model e (BEVs)?

Also, OEMs are moving to control used-EV sales pricing and processes as well, by controlling the remarketing of all their fleet and retail lease returns (Ford already said they would do this with retail EV leases).

Second, the Inflation Reduction Act of 2022, signed into law Aug. 16 by President Biden, includes major tax credit incentives on the sale of new and, for the first time, used EVs. While there are restrictions on sourcing both parts and vehicle production locale, unlike previous new-EV incentives, there is no 200,000-unit sales limit for OEMs; the incentives continue through 2032; and most OEMs will adapt to the new rules well before then.

Third, the Advanced Clean Cars II regulations, approved Aug. 25 by the California Air Resources Board, phase out the sale of ICE vehicles so that by 2035 all new vehicles sold there must be zero emissions. (However, California will allow 20% of new cars sold in 2035 to be plug-in hybrids that use both battery power and a conventional engine.) This is just one state, but California is a trendsetter and at least 17 other states have adopted its zero-emissions vehicle standards in the past and are expected to follow in this as well (some already have, including Massachusetts, New York, Oregon, and Washington). And, important to note, is these states represent approximately 40% of the new-car market according to NADA.

John Possumato_2022 picture.jpgFinally, here’s a showstopper: Finance institutions may jump on this train and at some point, stop financing ICE vehicles. Sounds crazy, but in Australia, it already has happened. Bank Australia announced they will not finance any new gas or diesel vehicles beyond 2025. This is one smaller bank in a foreign country, but who is to say it couldn’t happen here?

So, as a dealer, better to accept (if not embrace) the inevitable change and find new ways to profitably sell and service EVs and focus on recapturing customers in used-EV sales, as this train has left the station, and we all can see where it’s headed.

John F. Possumato (pictured, above left) is an attorney and founder and CEO of DriveItAway, which provides a turn-key cloud platform/consumer app enabling dealers to offer new mobility solutions, including subscription-to-purchase options for new subprime and EV buyers.

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