BEYOND THE LOT (SEPTEMBER 2022): AN ELECTRIC VEHICLE ARGUMENT IN FAVOR OF FRANCHISED DEALERS, BY WAY OF THE BOOK INDUSTRY
Warning: this article offers no discussion of legal issues, just my commentary on the continued viability of automotive dealerships in the face of franchisors looking to insert themselves more directly into the electric vehicle (EV) customer sales model.
It is a pivotal time for franchised dealers, who are responding to a fresh wave of changes to their business model – from Ford significantly altering its relationship with dealers, to GM offering buyouts to Buick dealers to OEM’s more aggressively marketing “over-the-air” updates to drivers. Many dealers are concerned that their franchisors may push them out of the EV sales process entirely, while others are skeptical that electric vehicles will take a long time for most vehicles owners to adopt. What factors will help EV’s go mainstream in the US market? Will franchised dealerships still play a major role in selling motor vehicles?
My response to these questions starts with a look at the book industry.
The Rocket E-Book Reader, model circa 1997-2003
The Rocket and the Printer
Earlier in my career, I had worked in strategic planning for a major printing company that produced a large portion of the world’s books, including best-selling novels, children’s books, high school textbooks and various editions of the Bible. For more than one hundred and forty years, that company, RR Donnelley, was successful because printed books never had any direct competition for readers. Fast forward to the early 2000’s and Internet-based books (“e-books”) slowly and methodically expanded into the consumer and education markets. Each year, our senior executives considered the threat of e-books when authorizing capital budgets to purchase multimillion-dollar presses and binding lines in our locations across the world. With each annual budget request, these executives always asked my strategic planning team the same question: when will customers start regularly adopting e-books instead of printed books?
To answer this question, we read dozens of outside studies and surveys from consultants and experts, attended many publishing industry forums that asked the same question and perused year-to-year global market data to estimate when consumers would start moving en masse to e-books. We even purchased a Rocket, a state-of-the-art e-book reader. The Rocket weighed several pounds, had poor readability in sunlight and was too bulky to conveniently carry around. When I heard the president of a national book publishing association state that the printed book would always dominate because it was easy to use at the “three B’s” (beach, bedroom and bathroom), I thought about the Rocket and readily agreed. During the years I was at RR Donnelley, my planning team told our senior executives to keep the presses going and buy a few more for good measure.
Of course, better e-book readers came out that made a much bigger impact on the number of books printed globally, but it took many years for these products to have such an impact. During that time, the death of the printed book was predicted regularly. While the number of printed books consumed is down significantly from the same amount in peak demand years, we are still waiting for the death of the printed word to come.
What Could Happen with EV Adoption Among Mainstream Vehicle Owners?
So what did my e-book experience teach me about how future consumer EV adoption could compare to e-book adoption?
- Convenience should fuel consumer EV adoption –The Rocket was not convenient, but game-changing products like Amazon’s Kindle and Apple’s iPad came later and addressed most if not all of the concerns that consumers had with early e-readers. They also offered some features that printed books could not, like instant access to millions of titles. Similarly, there will be electric vehicles still to come out that will be game-changers, solving enough inconveniences to get consumers to adopt electric vehicles en masse.
- “Network” growth should also fuel EV adoption – One of the biggest problems with early e-readers was that slow Internet speeds over copper wires prevented new titles from being uploaded or stored “in the cloud.” Downloads were also tethered to a few static locations where users could connect to the Internet because there were no widespread networks offering wireless Internet access. We are at a similar point now with EV charging networks. There are not enough high-speed charging stations around the country to support mainstream EV adoption. Most EV owners are tethered to their charging stations at home, where charging typically occurs overnight rather than instantaneously. While charging times have dropped significantly with Level 3 chargers, there still is no EV equivalent to drivers “filling up” at gas stations in under a minute. However, as chargers improve in power transmission times and charger networks grow to reach more places where consumers are driving, mainstream EV adoption will follow quickly.
- Adoption will not come without surprise for manufacturers – The time between the introduction of new technologies and full-on consumer adoption is often a difficult time for most manufacturers, retailers and consumers. Such a time of change often lasts longer than expected because there are always some surprises that will drastically change the business models needed to support consumer adoption. Many years had passed since that time when I first saw the Rocket to when consumers became really enthusiastic about e-books. During that period, whole businesses were created and bankrupted. Major manufacturers, distributors and retailers changed their business plans and strategies regularly, expecting technological change that did not occur or that came too late. The mood during this time for businesses looking to monetize new technology could best be described as “hurry up and wait.” Plans were made and carefully considered, then abandoned or significantly revised when consumer expectations did not support the assumptions upon which these plans were originally based. Similarly, we see OEM’s, dealerships and other automotive market participants making significant commitments without the certainty of knowing when most consumers will buy electric vehicles, let alone what those vehicles will look like and how they will be sold, charged and repaired. While it is important to take all proposed EV initiatives from manufacturers seriously, franchised dealers should also realize that these manufacturers do not have all the answers on EV adoption. They may in fact have less than they need to succeed going forward. This gives dealers the opportunity to share their experiences with manufacturers about engaging customers and make their opinions known to manufacturers in meaningful ways that will help dealerships play important roles in EV adoption.
What Could Happen to Franchise Dealerships as EV’s Go Mainstream?
While several parallels between e-book and electric vehicle adoption do exist, there are important distinctions between the two consumer products. Most important is the price point – a consumer can spend two dollars for a novel at a used bookstore or several hundred dollars for a college textbook, but these prices pale in comparison to the cost of buying an automobile. Consumers can purchase books on a whim because they don’t cost much, but most consumers cannot say the same about motor vehicles. Outside of buying a home or going to college, buying an automobile is often the largest financial commitment that most individuals will make. Even for other high-priced items that are viewed as lower financial commitments (e.g., appliances), most people need to touch and feel what they are buying, ask lots of questions, look at product demonstrations and consider the many important product options that come with purchasing the product. Such a process involves a substantially greater amount of one-on-one time between a consumer and retailer than the steps someone takes to purchase the latest Stephen King novel on their iPhone. Franchised dealerships across the country have custom-built and refined their stores, business models and approach to local customers over the past one-hundred years with a singular focus on this intimate interaction, of which they experience with hundreds of thousands of vehicle buyers each day. Accordingly, it is difficult to see how manufacturers could either entirely replace or significantly diminish the role of franchised dealerships and succeed in getting consumers to adopt electric en masse in a profitable manner for both manufacturers and dealerships.
Mr. Timson is an experienced attorney focused on franchised automobile dealerships. He is a member of Greater New York Auto Dealers Association and the National Association of Dealer Counsel. He can be reached at firstname.lastname@example.org or 631-777-2401.
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