Dealers face EV hurdle

As dealers get ready for a surge of older electric vehicles arriving in the used-vehicle market in coming years, one challenge many of them face now is simply that there isn't enough supply to meet current consumer demand.

"We can't keep them," said Danny Papakalos, director of pre-owned operations at dealership group #1 Cochran, based in Pittsburgh. "When they're on our lot, we sell them quite quickly."

With more automakers charting electric paths, dealers are readying their sales and service operations to handle the influx of used EVs that will eventually arrive when all those new models age and permeate auction lanes or return to dealerships as trade-ins. They also are fielding increased interest from shoppers in buying used vehicles with alternative powertrains even as they try to understand the potential impact of federal tax credits made available for the purchase of used EVs as part of the Inflation Reduction Act. With the pool of used EVs qualifying for that tax credit likely to be slim in the near term, experts expect it will take time for the use of the provision to gain traction.

For the time being, getting enough EV inventory onto dealership lots could be more of a "slow burn" process, said Brett Morgan, CEO of Morgan Automotive Group in Tampa, Fla.

"We still live in a universe where a disproportionate amount of EV consumption is still in a handful of models," Morgan said.

About 29 of Morgan Automotive's 61 stores have new EVs to sell, and half of the 25 brands the group represents have EVs in the marketplace, he said. Still, Morgan sold just 700 used EVs in 2022, about 1 percent of all used vehicles it retailed. The majority — 500 — were used Teslas, he said.

But that tilt could soon change, he said, because consumer preferences are changing rapidly.

"As you see the further proliferation of popular EV models by the traditional manufacturers, then things tend to get really exciting for the consumer, for the dealer and for the used-car marketplace because I think people want choice," Morgan said.

Other dealers have a positive outlook, too.

"There's no buildup of EV inventory," Papakalos said late last year. "I look at that as a signal that there's a future of used-vehicle sales with EVs."

Indeed, the used-vehicle market stands to become rife with EV options through 2030 as one automaker after another races to push their new battery-electric or plug-in hybrid vehicles into their lineups.

Dealers should "strap in" for that explosion of options, David Greene, principal of industry and marketplace analytics at Cars.com, said. "Incredible fragmentation" will occur when those vehicles age and flow back into the market, Greene said.

Just as consumers interested in buying their first luxury vehicles often seek used cars as an entry point, many who are interested in trying EVs also are likely to buy used first, said Ben Bartosch, manager of CPO solutions at J.D. Power.

Used EVs can give consumers "the ability to test out the water without feeling like they've invested a significant amount of money into purchasing an EV, just knowing that the price of EVs has risen significantly," Bartosch told Automotive News.

Used-EV sales by franchised dealerships participating in J.D. Power's Power Information Network+ soared 43 percent over the last 13 months, far outpacing sales of used vehicles with other kinds of powertrains. The average transaction price for a used EV during that period was $50,700, compared with $30,200 for a vehicle with an internal combustion engine, Bartosch said.

Some cautious buyers view a used EV as something of a "litmus test," said Mike Law, a multi-store general manager for LaFontaine Automotive Group of Highland, Mich. He oversees LaFontaine dealerships in Ypsilanti, Livonia and Dearborn, Mich.

Since the late 2010s, Law's dealerships have emphasized stocking more used electric and hybrid vehicles — plug-in Chevrolet Sparks and Kia Soul EVs, for instance.

Having a used EV selection is helpful, Law said, for two reasons: Some new EVs are difficult to get in Michigan and the Midwest, and an EV-interested consumer who is not ready to commit to paying $52,000 for a brand-new Kia EV6 then has the option to buy a used Kia Soul EV for about $20,000 less.

"They get comfortable with that, and then they then grow into that next step, whatever that might be," Law said.

Consumers' interest is also growing as anxiety over EV battery ranges are being eased by range gains, Law said.

"Being able to get vehicles that are upward of 250, 300 miles per full charge, you're starting to see more and more people start to consider and move toward going to an EV," Law said.

As the nameplate count and volume of pure EVs expands, interest also is on the rise for certified pre-owned programs for when those vehicles return to the market, said Bartosch of J.D. Power.

Overall gross profit and transaction prices for EVs, plug-in hybrid, hybrid and fuel cell vehicles in a CPO program are "significantly higher than their non-certified counterparts," Bartosch said.

He anticipates demand for certified EVs will grow — especially for that "prime" CPO category of 2-, 3- and 4-year-old vehicles.

The issue, though, remains that meager availability.

"We're finding there aren't as many of them in the market as consumers would hope," Bartosch said.

2022 saw the EV adoption curve get steeper, according to Scott Case, CEO of Recurrent, an electric vehicle battery and range analytics company.

Consumers increasingly have done their homework on used EVs, Case told Automotive News. In some instances, they might even know more about the specs of an available used EV than the dealership employee does, he said.

Franchised dealerships that sell an automaker's new EVs will get more training, including how to handle repair and maintenance of the cars, Case said. But for used-vehicle-only dealers selling whichever used EVs a customer trades in or is discovered at auction, it can be "really hard" to know all the different systems and batteries and how to look after them, he said.

In addition to investing in EV training for dealership sales and service employees, dealers must pay careful attention to unique components and not overlook special care of their software-based features, said Greene of Cars.com.

For Brett Morgan and Morgan Automotive Group, it means continual education as employees go through written internal training programs on EV maintenance and charging. And EV education can't be limited to just the service drive — it should also be conducted for frontline workers selling the vehicles in the first place, he said.

"We're just not getting enough repetition," said Morgan, noting that EVs make up about 2 percent of all new cars the dealership group sells right now.

"At the end of the day, consumers want to know that on the service side, we're confident in our abilities to handle any manner of repairs with an EV," Morgan said.

"But I really think it starts at the front of the house."