VW Prepping Dealers For Profitability In EV-Heavy Future

1 month ago by Steven Loveday 26

Volkswagen

Volkswagen I.D. Crozz

Though Volkswagen says it will be years before its dealerships feel the impact of electric vehicles, the automaker is already well underway with plans to revamp its dealer business model.

Sadly, Volkswagen of America CEO Hinrich Woebcken admitted that even by 2025, 85-90 percent of the automaker’s sales will still be conventional vehicles. So, dealers don’t have anything to worry about just yet. However, the automaker is well aware that with over-the-air updates and lower-maintenance EVs, dealerships will surely see change.

Volkswagen

Volkswagen I.D. BUZZ

In order to assure that VW’s dealers are still engaged, compelled to sell electric cars, and seeing notable profitability, the automaker is initiating talks to get the ball moving in a positive direction ahead of any issues.

For the most part, VW has been communicating potential adjustments to dealers in Europe, but now, discussions have begun on our shores. Starting in 2020, Volkswagen aims to begin releasing its new I.D. family of plug-ins in the U.S.

The first will be the I.D. Crozz (AWD crossover), followed by the I.D. Buzz (retro mini-bus) around 2022. The original I.D. hatch and at least one sedan are supposed to appear after the two initial offerings.

Global head of sales and marketing for Volkswagen, Jurgen Stackmann, says the current dealership business model must change in order to facilitate future success. He told Automotive News:

“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]. The current operating model does not allow us to create this loyalty and this link in the future.”

Interestingly, however, VW has a lower average dealer profitability margin in the U.S. than most competing automakers. According to the National Automobile Dealers Association, while most non-luxury OEMs are at 2.5 percent, Volkswagen sits between 1 and 2 percent. Stackmann continued:

Volkswagen I.D.

Volkswagen I.D. (hatch)

“You have to touch every element of your business model, but you have to do it together to find a solution that allows dealers to have sustainable profitability, and our customers to have much better service than today going forward.”

VW’s plan of attack will be to decrease overhead costs at dealerships by allowing customers to follow a simple online ordering and purchasing process. The entire transaction will be completed in five steps or less. Then, the buyer simply makes a quick visit to the dealership to take delivery.

This should lessen the demand placed on dealership employees while creating a somewhat unique, seamless experience for EV buyers. Woebcken shared:

“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.”

As dealer profits decline due to cars needing less maintenance, profitability will increase as part of this new process. There’s obviously a whole lot more to iron out, and VW has years to do so. However, Michael DiFeo, chairman of the Volkswagen National Dealer Advisory Council and dealer principal of Linden Volkswagen in Roselle, N.J. gives Volkswagen much credit for being proactive. He said:

“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. Any successful relationship between a franchiser and a franchisee works best when their goals are aligned.”

Source: Automotive News

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26 responses to "VW Prepping Dealers For Profitability In EV-Heavy Future"

  1. Paul Stoller says:

    Dealerships should take a page from Tesla’s playbook and offer solar panels, battery storage and other renewable tech. I think this could provide another good profit center for the dealers. I don’t know that the auto OEMs need to produce the products as I think there is room for the dealerships to partner with renewable OEMs to provide products. That being said I’m sure the auto OEMs could setup the various needed partnerships.

    1. Lon says:

      I’d accept taking the page from Tesla of not having a dealership full of sales people who are compensated solely by how much incremental margin they can take from custoemrs without causing them to run away or call the police…

    2. Peter says:

      After 4 years as a Tesla owner with no visit to a dealership to buy or for service or other problems, not even a visit to a petrol station I am so great full to Tesla. Tesla has saved me loads of time and money In so many ways.
      The old model selling and service is dead in my case and I am so great full. Going to a dealership was worse then going to the dentist.

  2. pjwood1 says:

    Captain Obvious already told me this, but so good to hear straight from VW’s mouth. Dealers thrive on customer miss-fortune, and the maker isn’t doing poorly when it can sell a muffler for $2,900. They can do even better, when they only make you think it works. That last part has probably stopped. Baby steps.

  3. Brian says:

    Maybe – just maybe – this means that the I.D. concepts will become more than simply empty talk from VW.

  4. Will says:

    VW cars are well built thats way thier dealerships have low profits

    1. MikeG says:

      You left out the tag.

      1. MikeG says:

        sarcasm tag, that is. Ironic, it was left out of my reply. 🙂

        1. Bill Howland says:

          I dunno about current reliability, but from going from very high reliability back when they only made a few air-cooled models to the 70’s – 90’s when the reliability was God-Awful, I would hope they’d get at least ‘middle of the road’ reliability with their electrics.

          The current head of Vw of America yesterday was wondering how VW could go from being the Import Leader 50-60 years ago, and now just getting a few % points of the market.

          Can the dude really be this dumb?

  5. Erwin says:

    Of course, also Volkswagen saying it will be years before its dealerships feel the impact of electric vehicles is part of the strategy to keep dealers calm, after they saw what happened to Smart ones last year.

    1. Brian says:

      It will be years from now, like two.

  6. James P Heartney says:

    Obvious niche for dealers is to create fast charge points. It’ll create 24/7 customer traffic (including from non-VW owners) and can become a new profit center.

    Should include universal fast chargers that exclude ICE from charge slots, plus pleasant waiting area with food/internet. Should be open 24/7. Charger use status should be posted online. VW can offer discounts for VW charging, encouraging brand sales.

  7. G2 says:

    The ‘Stealership’ economic model is about to implode. Fire the (commission) sales staff; reduce the powertrain staff by two thirds; bring on 24/7 charging and coffee; have cars cleaned inside and out while charging. Fail in making big changes and you risk being the Kodak of car companies.

  8. MikeG says:

    Shouldn’t the headline read “VW Prepping Dealers for Unprofitability in EV-Heavy Future”?

  9. William L. says:

    There is no need to panic for VW dealers, VW cars are build with low quality, there are plenty of things to fix other than regular maintenance.

  10. mxs says:

    I have had a couple of cars in last 10 years and can say that this “keep cars and customers longer” will strictly depend on whether the cars can stay good AFTER warranty expires and whether VW customer service improves. Neither one has been good in my own experience.

    Yes they can build cars good looking and well driving cars, no question …. mechanically wise mostly solid, but electrically wise it is whole different story. Anything to do with electrical systems has always been their Achilles heel in my opinion.

    Customer service from VW of North America? Don’t get me started … LOL

    Having said that, I feel for their dealers. Often left on no-man’s land without any info.

    Just recently, was trying to buy e-Golf … willing to sign. Poor dealership knew nothing about delivery date nor leasing rates. I am still waiting for the promised call back they gave me about 35 days ago ….

    Yes, they need to change, but I am not sure that the German VW management understands why ….

    1. Tom says:

      You mean the electronics that have all reliability of an overloaded frayed extension cord wrapped around a real Christmas tree? Yeah I think I owned that car.

  11. Pushmi-Pullyu says:

    “VW’s plan of attack will be to decrease overhead costs at dealerships by allowing customers to follow a simple online ordering and purchasing process. The entire transaction will be completed in five steps or less. Then, the buyer simply makes a quick visit to the dealership to take delivery.”

    This is about as “forward thinking” as the idea that introducing desktop computers to the office will let the secretarial pool use more fonts. No, the impact of the desktop computer on the office was to get rid of the secretarial pool entirely!

    The customer can order online from any device that can access the internet, and can order the item for home delivery. A visit to the dealership is entirely unnecessary. Sooner or later, legacy auto makers are going to figure out that their dealerships are as outdated as secretarial pools, and get rid of them.

    1. James P Heartney says:

      It’s kind of an automatic response from management these days – increase profitability by pushing unpaid work onto customers. (See “Shadow Work” by Chris Lambert for more details on this generally bad idea.) Not likely to help much. They either need to end the idea of dealerships as separate profit centers (the Tesla model), or give the dealerships some new reason for being (above, I suggested making dealerships into quick charge destinations).

  12. HVACman says:

    Every EV owners’ online forum, whether it be for Tesla, Nissan, GM, BMW, or others, is FULL of posts about this or that or the other breaking and having to get it serviced – usually by the dealer or manufacturer. Been that way since I started following them in 2010 and the posts and lists of problems only keep growing as the 1st gen vehicles get older and 2nd gen vehicles find whole new ways to break.

    I’ll believe the EV movement is antithetical to service dept. profits when most of the top vehicles in Consumer Reports’ reliability ratings are EVs. Reliability for vehicles more than 3 years old and out-of-warranty is probably the truest measure of vehicle service requirements.

    So far It’s been a mixed bag.

    On the other hand, OTA updates, which in the future will become common for both new EVs and ICE vehicles, could eliminate one common reason for a trip to the shop – re-flashing a module to fix a bug. Half my Volt’s shop visits involved a re-flash. And if it weren’t for fixes via OTA’s, Teslas would be considered the LEAST reliable vehicle in history.

    I would bet dealer shop managers are more concerned about the coming OTA tech revolution than EVs. EVs don’t have an IC engine, but they are very, very complicated machines.

    1. earl colby pottinger says:

      I have a ten year old truck. Lately a number of maintenance items are cause by age, for example I replace the windscreen because of all the scratches from all the dirt and stones kicked up from car and trucks I have driven behind.

      Electric cars will need the same type of maintenance.

      However, the dealers have made money with oil changes, fluid checks, replacing filters, a fan belt etc. That is the money they will not make.

      1. Djoni says:

        This is a type of maintenance that tier shop can do also.
        So not a sure gain for dealer.

  13. Some Guy says:

    Ordering a car online and only picking it up at a nearby location?
    What a marvellous, revolutionary new idea!
    Oh, wait, Tesla already did that 10 years ago.
    Except Tesla also offered delivery to a place of your choosing.
    Well, better late than never, VW, welcome to the 21st century.

  14. Bob Wilson says:

    I suspect the VW dealers are still pissed about the diesel fiasco.

  15. Peter says:

    After 4 years as a Tesla owner with no visit to a dealership to buy or for service or other problems, not even a visit to a petrol station I am so great full to Tesla. Tesla has saved me loads of time and money In so many ways.
    The old model selling and service is dead in my case and I am so great full. Going to a dealership was worse then going to the dentist.

    1. Bill Howland says:

      Nothing against Tesla’s model, but to my knowledge if you want a Brand New Tesla you will pay 100% of the Brand New Price.

      This is not the case at most Dealerships where you can save hundreds or in some cases thousands – which is why I always thought price comparisons between the Tesla 3 and the Chevy Bolt ev were wrongheaded, as MOST people are not going to care about the listed price – they are going to care about the size of the cheque they had to to write, and by this REAL pricing the Bolt has always been and still is the lowest cost electric car – only losing to the Model 3 long range when comparing MSRP’s which is realistic for the ‘3’ but almost no-one these days pays for the Bolt ev.

      And, occassionally, you run into a really EXCELLENT dealership as I have with my Caddy ELR. Far and above a Superior experience in Every way as compared to the Tesla (Columbus, ohio) service center. Its been replaced (for my locale) by the new Cleveland one, but judging by complaints on TMC I would stick with Columbus if I could.

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