Volvo's dealers worry EVs will dent bottom line

Volvo Cars will launch a new battery-powered model each year as it strives toward becoming an electric-only car maker globally by 2030. The Swedish automaker has pivoted to an online-first sales model for its EVs and was considering a new distribution model pre-pandemic.

At NADA, the Swedish automaker's U.S. dealers will want to hear what that ambitious electrification strategy will mean for their bottom line.

It's still early in the EV revolution, but the new technology is already disrupting the retail side of the business. Automakers are turning to their retailers to help offset the sky-high development cost of these next-generation vehicles.

But Cox Automotive senior director of new-vehicle solutions Brian Finkelmeyer said automaker margins are 30 percent lower on EVs than on combustion engine vehicles. And pricing controls and online channels erode dealerships' power to influence EV sales margins.

Volvo Retail Advisory Board Chairman Ernie Norcross said maintaining dealer profitability in a BEV-only lineup is a concern.

"We're told R&D costs are higher for BEVs and dealers must share by giving up some profits," said Norcross told Automotive News. "But as the retail advisory board, our job is to protect the network in any margin conversation."

More worrisome for dealers is the threat lower-maintenance EVs pose to their profit engine — the service department. Parts and service work can generate 60 to 80 percent of a dealership's gross profit.

But with fewer moving parts that can break, greater over-the-air software-based fixability, and less routine maintenance such as brake pads and oil replacements, EV visits to the service lane are less frequent.

McKinsey & Co. estimates EVs will generate up to 40 percent less aftermarket spending when compared with similarly aged ICE vehicles.

"How do we pick up the slack in lost fixed-ops business? What are the other channels to produce new revenue and reduce costs?" said Norcross, owner of Volvo Cars Memphis in Tennessee.

Volvo's next generation of software-first battery-powered vehicles, such as the full-size EX90 crossover, will debut advanced driver-assist technology, lidar sensors and bidirectional charging capability. That will require expensive and time-consuming work force retraining of front and back operations.

"With a brand that is aggressively evolving technologically, you're going to have to do the training and have staff capable of explaining the new technology," Norcross said. "You'll have to step it up at a premium level."

Volvo Cars' former CEO Hakan Samuelsson hatched Volvo's ambitious EV strategy. But there's a new sheriff in town. CEO Jim Rowan, a former Dyson executive, brings an outsider's perspective, and U.S. dealers want to know how he will shape the electrification strategy.

The plan is evolving, Norcross said.

"The new leadership has said that PHEVs (plug-in hybrids) have to be considered more than initially planned," he said. "Hakan was 100 percent BEVs all the way. But more balance is needed."

The market, not the industry, will be the final arbiter of the pace of change.

"When has the supply side ever decided what the demand side would do?" Norcross said. "The dealer network's message to Volvo is: We understand the goal. Let's listen to the consumer. If the customer is there, let's be there."