Consider this fair warning and a call to diligence: Automakers shouldering the simultaneous burdens of building battery plants, developing electric vehicles and hunting for scarce microchips are looking longingly at fat dealer profits.
Dealers must prepare at once to defend their margins — or prepare to lose them.
After years of dealers breaking even or losing money on new-vehicle sales, the business has been transformed into a veritable honey pot of profit thanks to low inventories and strong consumer demand. With consumers ordering vehicles and buying from deep within the production pipeline, dealers have been able to slash marketing expenses and pocket floorplanning subsidies as pure profit. And with supplies expected to remain tight well into next year, dealers might be tempted to bank on this level of profitability as their new normal.
That would be a mistake.
Automakers have already begun what might be considered skirmishing actions to quietly grab a larger piece of automotive retailing revenue for themselves. One example is imposing thinner margins — the difference between wholesale price and sticker price — on electric vehicles than on traditional models. Automakers have steadily increased destination charges, and dealers say that service parts costs have risen as well, squeezing fixed ops margins.
How long before automakers start removing automatic floorplan subsidies from sold consumer orders? Or scraping back Tier 2 or Tier 3 marketing funds? Or worse, taking orders directly from consumers and using dealers as simple delivery agents, with matching levels of compensation?
To be sure, automakers themselves are seeing large profits in the current market, but they are understandably concerned about the sustainability of their business models given the demands of the transition to electrified propulsion. The emergence of competitors who are unburdened by legacy costs and seemingly beloved by investors no doubt has some automakers feeling more vulnerable.
But after more than a century, one thing about this industry remains consistently true: The franchised retailing system works best when both partners are in a strong financial position, working together to provide the best service and products for their customers. A sure way to screw that up is to covet thy partner’s profits.