In September Tesla registered over 1000 cars. That might not sound a large number, but for over 12 months, Model 3 has outsold BMW 3 and 4 series, Merecedes-Benz C-Class and Audi A4. Combined. Last month’s sales of 1066 units made Model 3 the best-selling passenger car, outselling Toyota Corolla and claiming 6.5% of a disrupted month. It also outsold all SUVs. You read that right.
While September’s market wasn’t strong overall, and sales results were variable at best, the market was still up 51% on September 2020, and Tesla’s volume has grown by 345% YTD.
Tesla is neatly foreshadowing the changes in the industry. As BEV business grows, ICE volumes will decline. With that decline comes a marked decline in after-sales revenue.
Admittedly gone are the days of engine rebuilds for franchised dealers, however, it is clear that with BEV motors only having around 20 moving parts and no fluids versus 2000 in an ICE motor there is going to be a sizeable impact on workshop revenue and margin over time. If you know how much revenue and GP you make on transmission and engine oils, then you’ll be able to work out what revenue is at risk. That’s before you factor in less frequent service intervals, shorter service times, and loss of spark plug margin. You might well face additional high-voltage training costs and specialist BEV workshop equipment.
To add salt to the wound, Mercedes-Benz in Europe, MG in New Zealand both have tighter margins on their EV products in an attempt to keep them more competitive. It would be a safe bet to say that others will follow suit. While your businesses bottom line isn’t going to be challenged today, you can guarantee that the pace of change is going to be a lot quicker than most of us anticipate. The industry isn’t used to dramatic change and the tsunami of disruption that is coming towards it is coming a lot faster than we think.
In late 2018 and early 2019, I was looking for the very first MG dealers in the country. For every seven or eight dealers I spoke to, one was interested. More than one or two told me we were wrong, we wouldn’t make it, and frankly, the opportunity wasn’t worth their investment in time or money. This year, MG will achieve 3400-3500 units, surpassing Skoda (overtaken in 2020), Subaru, BMW, Mercedes-Benz, and possibly Honda (it will be very close). This story is shared because I had trouble initially understanding SAIC’s huge growth ambition because nobody else had achieved the volume they were seeking in such a short timeframe (even Kia had a bumpy transition from a local distributor to NSC before their sales took off). Yet in less than three years, it has achieved volumes that no one in New Zealand predicted and for most dealers that have the brand, it is their number one or number two brand for volume.
We are rational and we struggle to predict what is unproven. And so it is with electrification. Tesla’s results for September are an anomaly, but they were an anomaly when they outsold the traditional luxury sedans for the first time. And so was MG’s result when last year they arrived in the Top 10 for the first time last year.
The dealers I have spoken with, talk about 2030 as if that is when the industry will change and BEV will become mainstream. But the rate of adoption will be very quick. If we look at the bell curve that describes the Diffusion of Innovation, we are at the shallow growth stage that represents the Innovators. The next stage, Early Adopters will see rapid growth as BEV starts to become mainstream before we reach the Early Majority.
Boost Auto’s predictions are that the accelerating climate crisis, and focus on net zero will shift taxation and attitudes towards BEV much faster than we can imagine today. Consumers are already on board. It’s just price and choice that holds many back, especially in LCVs.
BEV volume will also explode because nearly all the main brands will have a BEV here next year, battery prices are coming down, fleets and small businesses will demand BEVs to meet emissions targets and CSR goals, and consumers will want them because they have greater choice, are cool, green, affordable and cheap to run. Imagine what might happen to BEV adoption rates if solar panels become subsidised. For many consumers, their next ICE car might well be their last ICE car.
Then there is Polestar, Ora, and BYD to consider. These brands might adopt a similar retail strategy and therefore margin structure to the legacy brands. Or they might be innovative. And next year’s best-selling EV is unlikely to be from a brand that is here in the market today because today even the cheapest BEV is $50,000. BEV volume will explode when the first BEV arrives with a $34,990 price tag or less. Because at current rebate levels, that car will really be $26,625.
Which brings us back to the start. If your new vehicle margins are going to be squeezed (and let’s face it, margin squeeze is inevitable for multiple reasons), and service volumes and GP is under pressure, how do you protect your businesses profitability? In a buoyant market, you might turn a blind eye to flab or underperforming departments. But precisely now is the time to get fighting fit, because you can’t afford to miss the weigh-in. It is time to proactively think about what tomorrow might be for your dealership.
Here are Boost Auto’s suggestions to stimulate thought and actions for your dealership of the future.
Get department heads to create, review, and own department monthly and quarterly KPIs and benchmarks.
Make them visual.
Formalise monthly review meetings with your management team, if you don’t already. Use them as a deeper dive into performance variations, and a time to get departments heads to discuss how to make the business perform better.
Task your managers to come up with a customer first strategic margin improvement plan, ensuring that excellent customer care and retention is at the heart of your work.
Look for additional revenue streams. Start with outwork, and investigate whether wheels and tyres, smart repairs, canopies, screen repairs can be brought in house. Then look at other automotive related income streams that complement your core business (for example motorcycles, scooters, rental, caravans).
How robust is your days to retail condition KPI, and recon cost management? Its time to review, and supercharge your used car business.
Look at your service fall off rate. Could you do more to retain 3-6 year old servicing, even at a lower hourly rate? What would be the impact of a 20% increase in retention?
Have you got a technician apprenticeship and training plan in place? If you think techs are expensive now, wait until you see what it costs to employ a High Voltage trained tech in 2 years time.
Can you utilise your existing footprint better? Stacked parking, two shifts in the service department, pick up and drop off? PD centre off site?
If you need a helping hand to think about tomorrow’s business, give Boost Auto a call. Today.
Boost Auto is an automotive consultancy working in six main areas.
• Sales and Marketing effectiveness for brands and dealers
• Green fleet facilitation for large corporates
• Go To Market strategies for emerging brands
• Market Insights & Trends
• Business Planning and facilitation
• Operational Effectiveness
You can contact us at hello@boostauto.co.nz
This blog was originally published in AutoTalk in October 2021