VW Preps Dealers for Tough EV Economics
Larry P. Vellequette
LOS ANGELES — Volkswagen is in global discussions with its worldwide dealer networks to figure out some way to keep dealers profitable as the automaker shifts hard toward lower-maintenance electric vehicles.
Volkswagen plans to bring at least four plug-in electric vehicles to the U.S., beginning in 2020 with the I.D. Crozz all-wheel-drive crossover followed in 2022 by the I.D. Buzz microbus. An electrically powered sedan and hatchback are also coming to give VW a full range of electric offerings for U.S. consumers.
But there's an exposed wire in the brand's electrification strategy: Electrically powered vehicles generally need less maintenance than those powered by internal combustion engines. When coupled with planned over-the-air software updates, VW customers with EVs are likely to have fewer reasons to return to dealerships for service, harming dealership profitability.
The answer: Change the business model among the factory, dealerships and consumers, said Jurgen Stackmann, global head of sales and marketing for the Volks- wagen brand.
Stackmann told Automotive News that discussions with dealers in Europe have been ongoing for about a year, and are just beginning in the U.S.
"The only way to offset the fewer parts, the fewer service [visits] per car in the time period is to extend the time period and keep cars and customers longer" into the vehicle life cycle, Stackmann said. "The current operating model does not allow us to create this loyalty and this link in the future."
The average profitability margin for Volkswagen's U.S. dealers is already only 1 to 2 percent, Volkswagen of America CEO Hinrich Woebcken said.
That is significantly less than the 2.5 percent national average profit margin among nonluxury dealers, according to data from the National Automobile Dealers Association.
"I believe dealers have to have a profitable business," Woebcken said.
As it introduces the Crozz and other electrics, VW plans to simplify its ordering and purchasing processes to allow consumers to choose their vehicle in no more than five online steps. Consumers will still have to visit a dealership to complete the transaction, but the brand hopes that an online process could ease demands on dealership employees.
Hinrich Woebcken, Volkswagen of America CEO: "I believe dealers have to have a profitable business."
Woebcken said there are a number of opportunities for dealers and the factory to improve dealer profitability.
"If we reduce standards, if we reduce complexity, if we reduce overhead costs in the dealerships, and getting a higher throughput, there are already some major opportunities which will pay into a positive business case for the dealer in the future," Woebcken said.
Michael DiFeo, chairman of the Volkswagen National Dealer Advisory Council and dealer principal of Linden Volkswagen in Roselle, N.J., said VW's leadership has been inclusive and cooperative during preliminary discussions so far.
DiFeo: VW has been inclusie.
And he credited the brand for jumping ahead of the issue.
"They've explained that they want strong dealerships, and that's going to mean new revenue streams, perhaps from things like mobility and car sharing" coming into dealerships, DiFeo said. "Any successful relationship between a franchiser and a franchisee works best when their goals are aligned."
Though discussions in Europe are further along, Stackmann said the results there won't translate "one-to-one" to North America because of the different legal requirements between the factory and the respective dealer bodies.