Summary List Placement
The transition to electric and advanced technology vehicles is poised to upend the auto dealer landscape, erode profit margins, and spark a massive industry consolidation.
“The impact on the current auto dealer business model will be quite profound,” Adam Jonas, the auto and shared mobility analyst at Morgan Stanley Research, wrote in a March 10 investor report.
There are about 16,600 new vehicle dealers in the US. Combined, they do about $1 trillion (CQ) in annual sales and have 1.1 million employees, according to the National Automobile Dealers Association.
Electric vehicles make up about 2% of US auto sales now, but are expected to grow rapidly over the next two decades. Market research firm IHS Markit forecasts they will reach between 25% and 30% of new car sales in the US by 2030, and 45% to 50% by 2035, as the firm expects California and four other states to ban gas and diesel autos by 2035.
With over-the-air updates and software- and processor-based architecture, EVs will require far less service than combustion engine vehicles, which have mechanically complex engines and automatic transmissions. There are about 20 parts in an electric powertrain but thousands in its gasoline counterpart.
“That threatens one of dealers’ last reliable sources of dealer profits—service and parts,” Gary Silberg, who heads the US automotive practice for KPMG, said in an April 8 industry report.
Jonas estimates that parts and service account for about half of dealer profitability.
Direct to consumer sales
Changes in how vehicles are sold also may also erode auto dealer profits.
The vast majority of new electric car companies are selling direct to consumers, Silberg wrote, which means dealers will control a smaller slice of the pie.
In many states, complex franchise laws dictate that a dealer deliver nearly every vehicle sold. That even applies to big fleet deals. But Tesla has …read more
Source:: Business Insider