A 2018 report by Bloomberg New Energy Finance
shows that worldwide electric vehicle (EV) sales will grow from 1.1
million in 2017 to 11 million in 2025, and then surge to 30 million in
2030. By 2040, a full third of the planet’s vehicles will be electric.
While
the rising wave of vehicular electrification may be good news for
proponents of clean air, it has dealerships worried about the future of
the bottom line. Currently, as much as 44 percent of dealer income can be generated by the service department. As an industry, vehicle service generates an estimated $247 billion per year.
Service
is so profitable, in fact, that dealerships will often accept a lower
initial vehicle price for future potential revenue. Customers can haggle
over heated seats or an upgraded stereo, but hourly labor charges and
parts costs are non-negotiable.
Electric propulsion systems are
mechanically much simpler than internal combustion ones, however, and
will require fewer service visits.
“No doubt service revenue will
go down, because EVs contain about 40 percent fewer parts,” said
Frederiek Toney, President of Global Customer Service Division at Ford.
Toney was speaking at J.D. Power’s 2019 Auto Summit in Las Vegas.
With no transmissions to maintain, no mufflers to replace, and no engine oil to be changed, future revenue from EV service will depend on brakes, tires, wheel alignments, and battery refurbishment.
Even more important to the bottom line in the future world of EVs, however, will be the service department’s ability to capture and maintain client relationships. “It all rests with great customer satisfaction,” said Toney. “It is the key to keeping customers coming back. If we can hang on to market share, we can make up for (fewer repair orders).”
Even more important to the bottom line in the future world of EVs, however, will be the service department’s ability to capture and maintain client relationships. “It all rests with great customer satisfaction,” said Toney. “It is the key to keeping customers coming back. If we can hang on to market share, we can make up for (fewer repair orders).”
One of the most prominent new ways dealerships retain customers and
create opportunities for service upsells is through prepaid maintenance
programs (PPM). A widely quoted white paper indicates that PPMs are currently increasing service revenue by 15 percent and customer retention by 60 percent. A related study
found that buyers with a PPM visited their service department more
frequently than those without, every 2.87 months instead of every 5.95
months. PPM buyers spent more, too: $982.34 annually compared to
$384.55.
For both the dealer and the manufacturer, PPMs (and other
loyalty programs) present an even greater opportunity that initial
sales revenue: brand loyalty.
“The dealership service staff
essentially acts as a second salesperson to the customer after they have
purchased the vehicle,” said Ryan Robinson of J.D. Power and
Associates. “The interactions they have with customers after the sale is
critical to ensuring that customers not only purchase the same make of
vehicle in the future, but also do so at the same dealership. The link
between service satisfaction and future vehicle purchase intent is a
critical one.”
Very critical.
J.D. Power found that 42 percent
of customers who rate their dealer service experience 10 out of 10
indicated they “definitely will” buy the same make again. For customers
who rate their service experience between one and five, the “definitely
will” percentage number drops to just seven.
Manufacturers are already looking ahead. Ford, Mercedes-Benz, Chevrolet,
Kia, Alfa Romeo, Volvo and seemingly all others offer OEM-branded
dealership PPMs. This partnership creates more than just initial
revenue; it creates an opportunity to carry customers from the old world
of internal combustion to the new world of battery power. Most
importantly, it creates loyal customers—and continuing profits—for
decades to come.
