The highly decentralized nature of the current automative sales franchise model, in which contractual arrangements and franchise laws confer a great degree of operating freedom to new car dealers, translates into divergent processes across the dealer community. Franchise laws bar automakers from setting uniform processes for its retail networks. In its place, automakers establish customer satisfaction performance criteria and reward those dealers that meet or exceed these standards.

Franchise laws also constrain automaker discretion over which dealers offer PEVs; i.e., automakers cannot withhold product from some dealers to the exclusion of others. Automakers can and do establish “reasonable” threshold criteria for dealer participation in PEV sales, however.

In most states, franchise laws require automakers to offer new vehicle models and other products to all dealers within a fixed period after initial introduction to one or a limited number of dealers, typically six months. Such rules beg the need to adroitly develop new competencies that can be shared across broader segments of the dealer base.

—Cahill et al.

Plug-in vehicles returned higher gross profits but place greater demands on dealers and salespeople, including the provision of support services beyond traditional offerings.

PEVs involve a much longer sales process than conventional vehicles. Dealers described early adopter PEV customers as particularly discriminating, requiring more time from sales staff to answer questions, provide test drives, and cultivate relationships that result in a sale. From a salesperson’s perspective, this additional time represents a cost of doing business that detracts from time spent closing another potentially more lucrative transaction.

However, industry average transaction times for conventional vehicles run in excess of four hours. For plug-in vehicle buyers, total transaction times at dealerships average 251 minutes (4 hours and 11 minutes), slightly less than the average for conventional car buyers at 255 minutes (4 hours and 15 minutes). In contrast, Tesla buyers on average spent half as long (at just over two hours) interacting with retail representatives.

New retail approaches, including new methods for building dealer competence, could improve the PEV buying experience. Traditional training and certification methods inadequately equip sales staff to sell more complex PEV technologies, for example, and sales staff need to contend with an ever-growing amount of technology content across a broad array of products.

Where PEVs may represent a small portion of dealer sales or where initial demand for PEVs is low, retention and recall of PEV-specific information becomes challenging. Dealers emphasized that salesperson competence, as well as salesperson confidence, is a by-product of hands-on learning achieved through regular exposure and repetition that builds on one success after another. As one dealer aptly stated, “A salesperson is never more confident about selling a car then the day he sold one”. Weak initial demand, or demand that is shared across a pool of sales representatives, translates into fewer interactions for individual sales personnel, undermining repetition and retention of PEV-specific information. Extraordinarily high employee turnover in the new car business, running upwards of 50% or more annually for some dealerships, further undercuts learning and retention.

—Cahill et al.

Public incentives could better align with established dealer practices and business drivers to improve program effectiveness.

A dealer’s primary interest is to close a sale. Anything that introduces uncertainty into the customer’s buying calculus reduces the likelihood of that outcome. For example, eligibility for all or a portion of the federal tax credit is based on the customer’s tax liability, a consideration that is typically unknowable until tax time. Moreover, consumer protection laws loom large in the retail automotive space. These expose dealers to legal liability for misstatements or for communicating misleading information to customers. Consequently, dealers face a choice: use carefully-worded qualifying statements when discussing these topics (e.g. by referring customers to their individual accountants for guidance) or eschewing mention of these incentives altogether. Lease deals obviate this tap dance by allowing dealers to capture the full amount of the credit as a capital cost reduction at the point of purchase, thereby eliminating uncertainty (i.e. risk). Not surprisingly, we found that 61 percent of California PEV buyers favor leasing over other forms of vehicle financing as compared to just 22 percent of the state’s conventional vehicle buyers.

Much like the federal tax credit, California’s state rebate introduces multiple levels of uncertainty and risk into the retail transaction. … Other incentive-related uncertainties abound.

—Cahill et al.