2024 North American Dealership Survey: Mixed Thoughts on EVs

BMO Dealer Finance is pleased to share the results of our second annual North American Dealership Survey. You may recall that last year’s findings, based on responses from over 130 dealer principals and senior leaders, focused on the transition to net-zero within the automotive industry. This year the response from clients was equally impressive, with representation from dealers owning and managing more than 800 rooftops across Canada and the U.S., with coverage across brands, and dealers ranging from single-point rooftops to organizations with over 50 locations. We have some interesting perspectives to share.

Our focus was twofold: to dig deeper into the impact of carbon-reduction efforts across dealerships, and to understand what has and what has not been working for dealers regarding electric vehicles (EVs). This time last year the story around a transition to net-zero was just that—a transition. At that time, OEMs were full steam ahead on their commitment to EVs with less talk around hybrids. Now the tone has changed slightly as there is a shift in production and investments, but the progress toward more environmentally friendly options has not suffered any loss of momentum.

Now, over a year later with sustained higher interest rates and inventory back to pre-COVID levels, some pain points have emerged that many saw coming as production ramped up when demand dynamics began to shift. While some issues are more brand specific, we do note the amount of EV inventory is more elevated than dealers would like in the current environment.

Let’s dig into the results a bit further.

It’s clear that government incentives (federal, state, and provincial) are a major force for selling EVs by way of rebates. Over 63% of responses from Canadian dealerships indicated this was the largest contributor to the success of EV sales, while the U.S. saw 44% of respondents agree. What surprised us was the next benefit to support the sale of EVs—training and product knowledge. Canadian dealerships indicated this was a successful point (47% of respondents) while 56% of U.S. dealers had this as their top reason. Given the amount of new offerings coming to market, it makes sense that these products are supported with stronger product knowledge to equip the front line.

During the pandemic there was less pressure to train sales staff as vehicles were moving faster than dealers could secure the inventory. However, with higher inventory, higher costs of ownership, and consumers hanging on to their vehicles longer, the training component is incredibly important to ensure value is expressed in a way that resonates with potential buyers.

Now let’s get into the areas that represent barriers to success with EVs for dealerships. High MSRPs tops the list, which is reinforced when we are also in an environment of higher consumer financing costs. However, not all brands are experiencing the same challenges. We’ve also heard dealers suggest EVs need better leasing options to support stronger velocity on the units. We continue to hear that the price of new and used remains an issue as well, given some of the downward pressure on some of the new EV prices and the resulting impact on used prices. For some dealers, not knowing if they’ll be in negative equity is a trade-off they aren’t willing to accept.

Another stumbling block is that EV supply has outpaced demand. Some respondents commented that early EV adopters often traded in their vehicles, but trade values are not particularly strong. Combined with aggressive sales targets, EV inventory is significantly higher than the industry average. Some dealerships will delay reimaging or find ways to avoid absorbing more EV inventory than the market can bear.

Judging from their commentary, dealer sentiment indicates that they believe EV production and demand needs to be market driven. Dealers also believe that hybrid options are gaining more traction on the consumer side by way of demand. In the month of May, the US saw the best month of HEV sales as they outsold BEVs and PHEVs. Meanwhile in Canada, demand for motor gasoline has yet to eclipse it's December 2019 total as of March 2024 (12-month total basis). That shows how the rising share of alternative fuel vehicles is starting to put downward pressure on road-based gasoline demand.

Finally, the market with the lower electricity cost (Quebec), is now also the Canadian leader in BEVs. Quebec is seeing a healthy start to the year with strong sales in both BEVs and PHEVs while conventional hybrids are not selling at the same pace, albeit still improved year over year.

Last year our survey showed a positive response with 40% of dealers having plans to decarbonize their real estate footprint over the next 18 months. The response rate was exactly the same this time around, which continues to be promising for various reasons. Some of those changes have already taken place, with a solid focus on LED lighting (in some cases equipped with motion sensors), upgraded showrooms, solar installations, and some building retrofit work. However, the most overwhelming response involved the installation of charging stations, with 50% of respondents from last year’s survey indicating said investments had recently taken place.

This year, however, we wanted to get a sense of what could be preventing some dealerships from decarbonizing, and the response was clear. Dealers are worried about the cost and return on investment. Where actions make sense, such as installing LED lighting or taking advantage of local utility company rebates, the decisions are easy to make as the outcomes are known. Dealers need certainty over the benefit of spending hundreds of thousands or millions of dollars. And while many dealers want to support environmental stewardship, they need to weigh the economic considerations to do so. Very few dispute the benefits of sustainability and the stewardship principle. However, some worry that some brands are pushing too far too often.

The second most common stressor is the existing power grid and infrastructure, which is a concern on both sides of the border. Finding solutions through way of rebates, shared costs with other real estate owners, or innovative charging solutions that optimize and store power in off-peak hours can help bring clarity to the question of investment returns.

As a result of this survey, dealer feedback, and subsequent conversations with clients, it’s becoming increasingly clear that while dealers are moving forward with their decarbonization efforts, they are taking a balanced approach when it comes to EVs.

Decarbonization is clearly important to dealers. There’s a commitment to reducing operational costs through initiatives that are good for the environment, usually through infrastructure improvements across their footprints. That includes retrofits to their existing facilities, and there appears to be an openness to finding solutions to help maximize the energy savings for these projects.

Regarding EVs in their inventory mixes, dealers are trying to pace appropriately. With EVs, the task moving forward will be finding a way to find the right balance to manage these priorities in a way that’s profitable and customer centric.

Of course, conditions might change and end up altering the equation. Lower-priced EV models that appeal to consumer tastes could emerge; gas prices could remain elevated for a prolonged period. For now, though, the challenge for dealers is to manage the inventory mix and ensure their after-sales service is optimized to continue capturing healthy and sustainable margins in the years ahead.

To continue learning more about related topics listen to our Sustainability Leaders podcast episode with special guest Colin McKerracher.

Adam Doran, Managing Director, Dealer Finance, contributed to this article.