At the dawn of the automotive age, manufacturers needed local dealers to sell and service their products. Those dealers also provided an important barrier between customers and the factories. Owners had no “privity of contract” with the manufacturers, which meant if they were injured because something went wrong with their newfangled motor car, they could sue the dealer but not the factory.
That all changed on March 14, 1916, when the New York Court of Appeals, in an opinion written by future US Supreme Court justice Benjamin Cardozo, invalidated the privity of contract defense and held Buick liable for injuries to Donald McPherson. One of the wooden spoke wheels on his car collapsed, causing him to lose control and crash. In a decision that would change personal injury law in America forever, Cardozo wrote:
“If the nature of a thing is such that it is reasonably certain to place life and limb in peril when negligently made, it is then a thing of danger. Its nature gives warning of the consequence to be expected. If to the element of danger there is added knowledge that the thing will be used by persons other than the purchaser, and used without new tests, then, irrespective of contract, the manufacturer of this thing of danger is under a duty to make it carefully. That is as far as we need to go for the decision of this case…. If he is negligent, where danger is to be foreseen, a liability will follow.”
As time went on, the automobile became the dominant form of transportation in America and car companies used their newfound power to browbeat their dealers into doing whatever they asked of them. If they refused, the companies would simply buy a piece of land across the street or on the next block, then issue a new franchise to a competitor. Often, they would sell their cars to the new dealer for less than the old dealer could buy them for. Many existing dealers were driven out of business by such predatory practices.
It happened so often that state legislatures stepped in to protect local business by passing dealer franchise laws. Today, of course, the shoe is on the other foot, as dealers have so much power they can dictate to manufacturers instead of the other way around.
That’s where the EV revolution comes in. Ford, General Motors, Volkswagen, Hyundai, Kia, among others all have ambitious plans to manufacture and sell electric cars and trucks. But because of those dealer franchise laws, they can’t force their dealers to make the investment needed to train their sales staff how to sell EVs or their service departments how to maintain them. The situation is so bad that when Cadillac recently asked its dealers to commit to selling electric cars, 17% said “No, thank you” and agreed to give up their Cadillac franchises instead.
Not all car dealers are greedy thugs who enjoy slapping their customers and the factories around (despite what you might think about dealers in general). The Wall Street Journal tells the story of Brad Sowers, a Chevrolet dealer near St. Louis. Last year, his dealership sold over 4,000 new Chevrolets. Only 9 of them were Chevy Bolts. Even assuming Sowers’ heart is in the right place, it’s easy to understand why he might be unwilling to spend tens of thousands of dollars to amp up (pun intended) sales of electric cars at his dealership.
Why Do We Need Dealers?
When Elon Musk unleashed the first Teslas on the world, he sent shockwaves through the world of automobiles that reverberated across America and around the world. Yes, Musk caught a break as many national governments began tightening exhaust emissions rules, making his electric cars appealing to a whole new segment of car buyers. Money Tesla earned from selling zero-emissions credits to other carmakers played a significant part in keeping Tesla afloat financially in the early going.
But Musk also disrupted the traditional system of selling automobiles through franchise dealers. He decided his cars would be sold mostly online or through dedicated stores the way Apple sells its iPads, iMacs, and iPhones. Selling online eliminates the core sales strategies that have defined the car business for generations. Dealers make deals 12 hours a day, 7 days a week. They have a series of tried and true strategies they have perfected over the past 100 years. Do we really think we are going to march in, arm wrestle with trained professionals, and beat them at their own game?
A conventional car with an infernal combustion engine has about 10,000 moving parts in its drivetrain. An electric car has less than a dozen. Today’s cars are as much computers as they are automobiles. Acceleration, braking, steering, climate controls, navigation systems, and infotainment options are all controlled digitally. Add a link to the cloud and they can be updated or repaired over the air without ever visiting a dealer, leaving all those service departments with nothing to do.
Be Careful What You Wish For
There is an old expression that says, “Be careful what you wish for, you just might get it.” Many of us have wished for a long time to see the power of car dealers curtailed. Yet power never really goes away; it just gets transferred somewhere else. If dealers lose some of their power because of the EV revolution, might manufacturers gain more power? And would that be a good thing?
Dealers could be an important ally in the push to make electric cars more appealing to consumers. They could park their electric car inventory out front or on the showroom floor where people could see them rather than relegating them to the back lot next to the dumpster. They could make sure they are charged and ready for test drives. They could educate customers about how to install a home charger and where public chargers are available in the area.
They could form alliances with local companies to promote group buys. They could work with local city governments to offer ride and drive events in the community to help people learn more about driving an electric car. They could feature them prominently on the homepage of their websites. Most of all they could stop thinking of them as unwanted party crashers and show a modicum of enthusiasm when someone on the showroom floor ask about them.
When it comes to electric cars, too many dealers are like King Canute, sitting on the side of the ocean and commanding the tide not to rise. They will either adapt or be swept away in the coming flood of electric vehicles — maybe not today or even next week, but soon. Make that very soon.
I had lunch today with a friend who has been a businessman for more than 50 years. He is very successful and can afford any car sold in America today. His wife is getting ready to trade in her car and is thinking about buying an electric car. Outside the restaurant was a Tesla destination charger. He was curious so he went over to look at it. “So I just plug this in to recharge my car?” he asked. I had to tell him only if his car was a Tesla. Other cars need a different charger. He was shocked.
He thought every EV has at least 400 miles of range and can recharge the battery in a few minutes. We had quite a conversation about charging power, charging speeds, temperature, humidity, highway miles versus city miles. My friend was a blank slate, thirsty for knowledge. From my sales experience, I know that people don’t make buying decisions if they have questions about the product. My friend had a boatload of questions that no one has ever made an attempt to answer. He’s not buying an EV until he gets answers to those questions.
The dealers are not entirely to blame because so many people are confused about owning an electric car. The profit margin on EVs at present is pretty slim compared to what it is for conventional cars. The manufacturers could do a much better job of providing financial incentives to dealers to host ride & drive events. They could work with local utilities to make it simple for people to get home charging equipment. They could also pay to educate the sales and service staff about what makes electric cars different so they could then educate customers.
It’s all well and good for companies to come up with amusing ads like the one starring Will Farrell for the Super Bowl this year, but silliness is not the same as education. All in all, the manufacturers have done an awful job of helping customers understand why an electric car makes sense for them.
Most dealers are doing a rotten job of promoting electric cars. My local Nissan dealer has an ad for a new LEAF Plus on its website, which lists a bewildering array of features and options — floor mats, Bluetooth, cargo compartment cover, heated seats, et cetera — but never mentions the size of the battery or the EPA range of the car. Nor is there anything about assisting the customer with getting a home charger installed. The car is a 2020 model that the dealer has had in inventory for 15 months. Is it any wonder it hasn’t sold?
Dealers need to get on board the bus to the EV revolution PDQ. Changes are coming fast to the car business and dealers will need to adapt or die. Just ask Nokia what happens when new technology disrupts an established business. America’s car dealers need to be more than order takers. They need to be professional sales organizations and that starts with educating consumers. State laws may protect the power of the dealers but there is no power on Earth that can force customers to buy an electric car until until all of their questions have been answered. That’s the bottom line.