EV Dynamics Whithering Dealerships

Another trend is emerging in the automotive sector involving EVs and dealerships. As manufacturers accelerate development and release of EVs (and likely more hybrids as well), they are putting pressure on dealers to either ante up to handle the unique needs of the new platforms in their shops or stop being a dealer for the make.

A story out of Detroit found that GM has arranged buyouts of 47% of its Buick dealers during 2023. That’s not saying 47% of dealerships CLOSED during 2023, only that arrangements and timing have been agreed upon for them to stop selling Buicks. That might be an interesting data point because currently GM offers no EVs under the Buick brand so those dealers (assuming they dont carry any other make that HAS EVs) have not to date had to ante up. The fact that 47% opted to fold their Buick hand could reflect insight they have from watching their competition struggle with the dynamics of this new environment. Similarly, Ford announced roughly 50% of its dealers will be selling EVs in 2024 with the other half opting out.

These stories are a good excuse for some fun with math.

What’s the investment like for dealers that is triggering the exodus? Roughly $300,000 to $400,000 in the case of GM. That money goes to building out charging station infrastructure at the dealer and flashy things customers see but also additional tooling for the shop and training for mechanics. On one hand, that sounds like a lot of money but with a car dealership sitting on a lot with 100 cars in inventory averaging $38,000 who turns the lot every 3 months, that’s $15.2 million in new car sales yearly. Assuming margins on new cars after discounting are near zero – say 3% in the non-luxury segments – $15.2 million in sales is about $456,000 in profit per year, just from new cars.

One way to look at the financial decision facing dealers is that given the low margins made on new car sales, dealers opting to remain in franchise agreements are essentially absorbing the cost and risk of being trapped in a low-margin business as a loss-leader for remaining in a lucrative business doing “authorized dealer” repair and maintenance work. Is it worth it?

To some extent, this same decision process is being faced by independent repair shops across the country as well. Anecdotally, the family-owned independent shop my family has used since the late 1970s for Beetles and Toyotas has yet to invest in working on Toyota hybrids. And the Prius has been on the market selling millions for twenty years. I still have to take my Highlander hybrid to a dealer for any engine work beyond fluid changes.

This dynamic raises another question about the assumed benefits of EVs versus ICE platforms. EVs are presumed to have fewer parts and it would seem that the key parts that differ in an EV aren’t exactly repair-friendly. As one example, I would assume failures of electric motors are pretty much unfixable. No one will remove a motor, take out the rotor and stator and rewind them if something fails. The entire motor will be treated as a sub-assembly and swapped out whole. That work would not appear to require vastly different training than the training required to swap an alternator or water pump. EVs still have suspensions so all of that expertise and shop equipment carries over from ICE vehicles. Obviously, the voltages and currents within EVs are a vastly different SAFETY training issue but even current 12v DC wiring in cars is no small safety concern when driven by a battery that can put out 400 amps at 12 volts.

So where is the tipping point for dealers and independent repair shops? Will mass adoption of EVs trigger a massive consolidation in the dealership and repair businesses? Or will the consolidation be temporary as a lot of “old-school” owners decide they’ve hit for too many cycles in the industry and just want to get out, only for customers to find wait times for repairs skyrocket and encourage a different set of entrepreneurs back into the dealership and repair business solely focused on EVs?

I’m not sure what the answer is but from a local economy standpoint, I would expect a lot more closures over the next five years before any bottom is reached.



I’m guessing that “Buick dealers” are mostly old school car dealer guys, and they see the increasing competition all over - from “the Big 3” now to include Toyota, Honda, Nissan (and their “up” brands) to the plethora of EU metal and now Korea, and oops, here comes an entirely new platform of EV or Hybrid that we know nothing about, and somebody’s offering me an off ramp?

Where do I sign?

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It would be interesting to know how these opted-out dealers are spread around. Are they mostly in certain geographical areas or are they interspersed more evenly in metro areas where there are lots of dealers and these are the weaker ones?
Even if EVs grow and grow to near 100% of new sales over the next 10-20 years for a long time they will be a fraction of new ICE sales and a much much smaller fraction of service, repairs, parts. A metro area with a dozen Buick dealers doesn’t need and probably can’t support all of them shifting to EVs this year or next year.

This may be the start of a legacy dealer death spiral. Once a weaker dealer opts out of EVs it will be difficult to opt back in in 5 or 10 years.



It would be interesting to know how these opted-out dealers are spread around.

As both you and Goofy suspect, I believe it is a combination of two factors. The Buick brand is, uh, rather stodgy so there probably aren’t a lot of 30- and 40-year olds wanting to take over a Buick dealership (even if in the family). From one of the articles I saw, the other factor kicking in is geography. If you are a Buick dealer in a bustling metro area and the brand says it will be predominately EV by 2030, then maybe you stay on the horse. If you’re in the middle of rural America with less likelihood for rapid EV charging infrastructure buildout, your demand is going to be lower and for a $50,000 car, the yocals are more than willing to drive to a metro dealer with more volume to get a better price so the picture looks rather bleak.



Or maybe they are looking at how the Buick line has shrunk over recent years, and questioned the ROI of the required investment, vs the probability that GM will snuff the brand as redundant.