By Eric Cahill and Tom Turrentine
Part 1 of this series examined recent ITS study findings in which plug-in electric vehicle (PEV) buyers rated dealers much lower in satisfaction with the purchase experience than buyers of conventional gas-powered vehicles. In Part 2, we consider how current laws intended to protect dealers and consumers may have the unintended effect of stymieing the retail innovation needed to sell more PEVs.
A key policy component is the lowering of barriers that make it difficult for key players to try new approaches for attracting and supporting customers ready to make the jump to these path-breaking new vehicles. For example, customers need help learning how to use unfamiliar charging equipment, help arranging installation of a home charger, or assistance figuring out which public incentives they qualify for and how to get them. Many dealers are ill-prepared to offer these services in the face of uncertain profits.
For technologies as different as PEVs, a deliberate retail strategy can be just as important to success as sound product design. Manufacturers like Apple perhaps best exemplify the concept of “whole product” design that reaches beyond the production line to the places in which its devices are sold. It wasn’t always that way. Only after years of watching many of its groundbreaking, but much higher-priced, products languish on the shelves of independent retailers did the company switch to a direct-sales approach featuring its now iconic factory stores. The move afforded Apple full control over the customer experience, ensuring customers were adequately supported to reap the benefits of switching from rival platforms. As Seizing the White Space author Mark Johnson explains, “Apple did something far smarter than wrap a good technology in a snazzy design; it wrapped a good technology in a great business model.”
But laws that govern the sales of automobiles may not be well-suited for introducing radically different technologies to customers. Automakers with established dealer networks, for example, are bound by franchise laws to sell all new cars through licensed, fully independent dealers who make their own decisions about which cars they sell and how they are sold. Even if automakers and dealers devised an ideal retail experience for PEV shoppers, these laws would bar them from implementing it across the entirety of the retail network.
For example, Sonic, one of the nation’s largest dealer groups, has introduced an entirely new buying experience that features no-haggle pricing and leverages technology to dramatically streamline the car buying experience in ways that could benefit PEV buyers even more, namely by giving sales people the tools needed to support PEV customers. But Sonic sells only a small fraction of the new cars sold nationwide, and automakers cannot dictate that others implement similar practices.
As a start-up with no dealer network to speak of, Tesla Motors did something established automakers could not: It borrowed a page from Apple’s playbook and chose a direct-sales model in which its vehicles are sold at set prices online or through factory-owned stores and service centers. With set prices, sales people can focus efforts on product knowledge and customer support; customers can explore and learn in a pressure-free environment with no fear of the “hard sell” from sales people. Tesla even went so far as to hire a former Apple executive to run its sales network and aggressively deployed its own charging infrastructure. Both are a testament to its commitment to the “whole product” experience. As reported in the ITS-Davis study, Tesla’s industry-high satisfaction ratings demonstrate that a much better buying experience for plug-in customers is achievable.
Tesla, however, cannot discuss price or offer test drives at factory-owned retail stores in states that have adopted California’s Zero Emission Vehicle (ZEV) program. Even in California, where Tesla’s direct sales approach is legal, dealers have moved to stop Tesla from including a host of potential “external savings” such as public incentives, gas savings, and tax savings into online monthly payment estimates. Their claim is that Tesla’s total cost of ownership pricing approach violates several sections of Federal Regulation Z, the California Vehicle Code, and the California Civil Code, to name but a few.
Yet these restrictions are entirely at odds with the ZEV program’s objectives, since it is exactly these savings that make PEVs a compelling option for new car buyers. And while franchised dealers can be an invaluable source of innovation for growing PEV sales, this may be of little consequence if automakers have no effective way to get more dealers to embrace them.
Legislators could ease these constraints by granting manufacturers a special exemption from overly restrictive rules and regulations, capped at some set number of PEVs sold. This could give automakers the degree of control needed to work out kinks with early customers, develop scalable processes for supporting PEVs, and ensure that effective dealer performance standards are in place before handing the reins over to wholly independent retailers. Several states, however, are moving in the other direction, erecting greater – rather than lesser – barriers to direct-car sales by automakers, with Michigan the latest to do so. Speaking at the Detroit Economic Club last Thursday, Mike Jackson, CEO of AutoNation, the country’s largest dealer group, called the move “unnecessary protectionism” by dealer lobbyists. Jackson added that while direct sales is the right move for Tesla, at least initially, he will be ready to sell the start-up’s PEVs when they are ready to reach more customers.
How PEVs are sold can be just as important as how well they are designed. Policymakers must acknowledge the incongruity between the pioneering innovation called for by the ZEV program and the outmoded rules that tie the hands of innovators. Only the collective efforts of car dealers, automakers and policymakers can break the retail PEV bottleneck—putting more advanced clean cars on the road and in the fast lane toward wider commercialization to meet the goals of reducing oil use, air pollution and greenhouse gas emissions.
Eric Cahill is an auto industry consultant and Ph.D. candidate in Transportation Technology and Policy at UC Davis. Tom Turrentine is the Director of the UC Davis Plug-in Hybrid & Electric Vehicle Research Center.
The ITS-Davis study, “New Car Dealers and Retail Innovation in California’s Plug-in Electric Vehicle Market,” links: