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The Staying Power of Dealerships: Adapting to the Electric Vehicle Boom

The Staying Power of Dealerships: Adapting to the Electric Vehicle Boom

The digital revolution and the electric vehicle surge won’t leave dealerships behind. Instead, OEMs and dealerships can join forces to create a win-win scenario. Vietnamese EV maker VinFast exemplifies this approach. Their hybrid model is already yielding positive results, as evidenced by the sales generated through their dealerships in the U.S. market.

The rise of electric vehicles (EVs) is cruising alongside a wave of digital transformation, reshaping consumer spending habits. But industry experts say this won’t leave dealerships in the dust. In fact, EVs could be a chance for them to strengthen their position.

Why do Dealerships Still Matter in the EV Era?

Car manufacturers (OEMs) are tinkering with the dealership model, hoping for a closer bond with customers. However, as Branson Smith, EY (Ernst & Young) Americas Automotive Retail Transformation Leader, points out, EV manufacturers selling directly online (D2C-Direct to Consumer) have struggled to keep up with servicing as sales climb.

Branson Smith

Smith sees room for collaboration. OEMs and dealerships can innovate together, share future profits, and create a seamless customer experience.

“Dealerships have served as the foundation of the automotive industry since its beginning,” Smith says. “Entrepreneurs have forged lucrative brands selling and servicing vehicles and establishing themselves as economic pillars of the communities they serve.”

He adds, ” They made it possible for automakers to reach the masses, distributing financial risk, connecting with consumers on a more personal level, and building brand loyalty.”

Vietnamese Nasdaq-listed electric car maker VinFast is adopting a new approach to sales. They’re moving away from a capital-intensive direct-to-consumer model and embracing a hybrid system.

“In the fourth quarter of 2023, we made an important pivot from the capital-heavy, direct-to-consumer model to a capital-light hybrid model with a strong focus on leveraging existing distribution infrastructure by building a dealership network in the U.S. and globally,” Madam Thuy Le, Chairwoman of VinFast’s Board of Directors, said.

Madame Thuy Le 

“Our growth is highly dependent on a strong dealer network that represents the brand well and gives consumers a highly personalized experience,” Le emphasized.

The dealer network has already shown positive results. Despite economic challenges like rising interest rates, VinFast delivered a stable number of cars in the first quarter of 2024.

VinFast reports encouraging initial sales from dealerships in the U.S., validating their hybrid distribution strategy. Expanding their sales network through dealerships and showrooms is a key pillar of their goal to deliver 100,000 vehicles in 2024.

Just recently, VinFast announced partnerships with 12 new U.S. dealers. These dealership stores are expected to open in April 2024, bringing the total number of VinFast dealerships in the U.S. to 18 across seven states: North Carolina, New York, Texas, Florida, Kansas, Connecticut, and Kentucky. California, the state with the highest EV adoption rate in the US, already boasts 15 operational VinFast stores and service centers.

How a Hybrid Model Drives EV Sales

The digital age makes building brand awareness a breeze, potentially disrupting the market share of established carmakers. This is the gamble new OEMs are taking, despite lacking established dealer networks.

While franchise laws still hold power, the digital world of D2C offers quick sales growth. However, the lack of physical showrooms raises concerns. Building a service network for these vehicles is difficult to scale, forcing them to cobble together service partners.

Secondly, the importance of the in-person experience remains strong. A recent survey found that two-thirds of car buyers consider test drives “very important.” Additionally, PwC’s 2022 survey suggests 80% of car buyers prefer visiting dealerships for brand immersion, test drives, and finalizing purchases. This highlights the continued relevance of dealerships in the EV era.

The future lies in a collaborative approach – a digital dance where dealerships and new OEMs adapt together. Dealerships can leverage their existing infrastructure and customer service expertise to become vital partners for new EV brands. This collaboration allows both parties to navigate the changing automotive landscape.

Moreover, the EV transition presents dealerships with an opportunity. By incorporating EVs into their product portfolios, they can adapt and remain relevant in this evolving industry. As AutomotiveMastermind points out, a dealership’s ability to adapt quickly is key to success in a constantly changing market.

The EV market is experiencing explosive growth. According to S&P Global Mobility, by 2030, EVs are expected to account for over 25% of new car sales, a massive leap from just 4.2% in 2020. This translates to a projected market size of $70.1 billion in 2023, reaching a staggering $161.6 billion by 2028.

This shift presents dealerships with a golden opportunity. To capitalize, dealerships adapt by investing in comprehensive EV training for their staff across all departments, from sales and service to the Business Development Center (BDC). A well-equipped team fosters a smooth transition for both dealerships and customers entering the EV market.

The benefits are mutual. Dealerships prepared for the EV wave will empower OEMs in several ways.  This includes building a team with expertise in electric vehicles and crafting policies and services specifically designed for them. These specialized offerings will be much better suited to the growing number of electric vehicles on the road.

Take Holman, a New Jersey dealership company. Now that one of the nation’s largest auto dealers has closed on the acquisition of Leith Automotive Group in Raleigh, it plans to stick with VinFast. Recognizing the potential, they’ve not only committed to maintaining their existing VinFast dealership but are also expanding by opening new VinFast stores in Florida and Oregon. Gene Welsh, president of Automotive Retail at Holman, highlights VinFast’s strong backing and commitment to quality EVs as key factors in their decision.

“I think it’s their investment and the strength of the company behind it,” Welsh said when asked what attracted Holman to the VinFast brand. “I think they’re really focused on providing a quality product to support the EV market, and so far we’ve seen that.”

VinFast, backed by Vietnam’s largest private corporation, Vingroup, has rapidly established itself as a major player. They offer a diverse product range catering to various budgets, coupled with one of the longest warranties in the market. Furthermore, VinFast actively seeks feedback from dealers and customers through its dealers, ensuring continuous improvement and product development aligned with market needs.

“We’ve seen promising growth in the U.S. market following the launch of VF 8 and its continuous improvements and software updates,” Madam Thuy Le shared.

“Our dealers have been receiving positive feedback from U.S. customers. Most were surprised how well-equipped the VF 8 is as the first product from a new EV brand. Customers have particularly praised the smooth acceleration, spacious interior, with comfortable seats, well-thought-out layout, and excellent visibility.”

The inclusion of VinFast alongside established brands like Ford, Toyota, and Mercedes-Benz in Leith’s dealership portfolio further underscores the growing trend of dealerships actively seeking partnerships with pure electric car companies.