Electric vehicles are hitting a road block: Car dealers - Yahoo Finance

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As news started coming out about electric cars in early 2016, Michael Young, a self-described "car guy," knew he wanted to try one. One afternoon, he strolled into his local dealership and asked to test drive the BMW i3, a small, sporty car with a range of up to 150 miles. The salesperson stopped him. "You can't drive that car on the highway," Young recalls the salesperson saying, explaining that the car couldn't go over 45 miles per hour.

"I was kind of dumbfounded by that," Young said.

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Young knew it could go much faster - and, after convincing the salesperson to let him go on a test drive, ultimately bought the i3. The experience motivated him to launch a website that helps consumers shop for electric vehicles.

But the incident underscores a problem that still plagues electric vehicles: Many U.S. buyers say car dealerships, which sell the majority of new vehicles, are not prepared for the electric transition. The Biden administration aims to have as many as two-thirds of new cars sold in the United States be electric by 2032; and automakers have invested hundreds of billions of dollars in EVs. But if car dealers don't want to sell EVs, the country's electric transition could be in jeopardy.

Car sales are unlike any other commercial transaction in America. For most products - everything including shoes and iPhones - you can buy directly from the manufacturer or in dozens of other stores. Cars used to be the same: Before World War II, people bought personal vehicles at big-box department stores, from the manufacturers themselves and even at gas stations.

But in the 1940s and 1950s, dealerships - which were mostly single-family businesses - argued that the powerful automakers could undercut their sales and drive them out of business. Over the next two decades, dozens of states passed laws to protect dealers; many of them prevented manufacturers from selling directly to consumers.

In recent years, Tesla, which does not use car dealerships, has fought some of those laws in court. The company has won in some states and, in others, has received workarounds that allow a few select storefronts. Still, many automakers have to sell their vehicles through one of the country's more than 16,000 franchised auto dealerships. And those salespeople often don't have extensive training on how to sell an EV or even on the technology itself.

Frustrated customers told The Washington Post that dealers tried to redirect their attention toward gas cars, or gave incorrect or unclear answers to questions about charging and day-to-day electric vehicle use.

James Richards, the CEO of a water heating company in Davis, Calif., spent days test-driving EVs at Volkswagen, Tesla, Chevy and Ford. But the 40-year-old found the dealership experience "cringeworthy" - the dealers didn't seem to know much about the EVs they were selling. "I felt like I knew more than they did," Richards said.

Initially, Richards was hoping to buy an F-150 Lightning, but the truck was back-ordered. The salesperson could only get him an expensive trim that came with a high dealer markup. That markup added "insult to injury," Richards said. He ended up buying a Tesla Model Y. Tesla salespeople "strike you as EV geeks," Richards explained. "All the other dealerships: Ford, VW, the GM people - they didn't seem like specialists."

Maya Batres, a 34-year-old adviser for an environmental organization, bought a used Fiat 500e from a dealer in February 2022. The dealer, she said, didn't know much about EVs but was happy to make the sale since she and her husband came prepared. But when it came time to sign the paperwork, the salesperson offered her a plan for oil changes and an extended warranty for a gas-powered car. "I knew we didn't need that," Batres said, laughing.

EVs are complex. There are three types of charging ports and three different speeds of charging for electric vehicles. (Young recalls a salesman telling him that he could use Tesla's charging network for a non-Tesla vehicle, long before the company began opening their fast chargers to other cars.) Electric cars also often come with new features like one-pedal driving and adaptive cruise control. Then there is the maze of federal and state tax incentives that can help drivers afford a new or used EV - but only if the dealer and the consumer can understand how they work.

Some dealers, however, don't seem to want to offer electric cars: According to a survey that the Sierra Club conducted at the end of 2022, 66 percent of dealerships did not have an EV available for sale. That was at the height of EV supply chain problems, but 45 percent of those dealers - or 30 percent of all dealers surveyed - said they wouldn't offer an EV even if they could.

Amid concern over an EV slowdown, electric cars are sitting longer on dealerships' lots than gas-powered cars. According to data from Cox Automotive, dealerships started the year with a roughly 50 days' supply of gas cars and electric cars. Now the supply of gas cars is around the same, but the supply of EVs has doubled.

Dealers may have less economic incentive to sell electric vehicles. Buzz Smith, a former Chevrolet car salesman who now helps train dealers to sell EVs, says it can take much longer to sell an electric car than a gas-powered one. A gas car, he said, might take no more than an hour in a single visit to sell, yielding a tidy commission.

But for electric vehicles, "it was usually four visits, an hour each, before they would buy the EV," Smith said. Customers want to make sure they understand the technology, how to charge it and more. "So I'm volunteering to take a 75 percent pay cut - and no salesman wants to do that."

Smith said he believes the pay structure of auto salespeople isn't a good fit for the EV era. Electric cars have narrower profit margins, he said, which cuts into the commission a dealer can get. And if a customer returns to the dealership multiple times, salespeople may have to split the commission, again cutting into their take-home pay.

At the same time, car dealerships make most of their overall profits from providing service for vehicles - not selling new cars. According to an analysis from the U.S. Bureau of Labor Statistics, just 16 percent of dealers' gross profits came from new car sales, while 43 percent came from parts, labor and service. (The rest of the profits come from used car sales and financing and incentives.)

"It's a lot like giving away the razor to sell the blade," said Daniel Crane, a law professor at the University of Michigan who studies the laws and economics of car dealerships.

That could also discourage dealers from selling EVs. Gas cars have 100 times more moving parts than electric vehicles do, and studies show that EVs have lower maintenance costs. An average gas-powered car, for example, needs an oil change about every six months, or every 5,000 to 7,500 miles. But many electric cars don't require a major service until around 150,000 miles.

"They're all terrified of that loss of maintenance," Smith said.

But EVs are still new enough, Smith said, that customers will return to dealers because they don't want their neighborhood mechanic to try to service their car.

Some dealers are working to embrace the new technology. Claire McDonald, the president of a Ford dealership in Waco, Tex., said her salespeople were excited to do the training that the automaker offered on how to sell EVs. "It's a part of our future," she said.

They've only sold a dozen or so electric cars so far, she said, but she sees it as a key part of the business model going forward. "I'm not here to push EVs, for or against," she added. "I'm here to help our customers understand their needs."

Mike Stanton, the president and CEO of the National Automobile Dealers Association, says dealerships have invested around $6 billion in preparing to sell and service electric vehicles. "Dealers have stepped up and done what is needed," he said.

But Stanton said the EV transition - especially with the Biden administration's aggressive goals on electric car sales - is moving too quickly. "This is going way too far," Stanton said. "We've got to consider the mainstream market, or bad things are going to happen."

Others - like Crane, who has submitted legal briefs supporting direct-to-consumer sales - say that the dealership-only model simply isn't suited for the electric future - and may add to a car's price tag.

"Dealers don't want to change the model," he said. "They want to be the gatekeepers."