Volkswagen Group deserves praise for pre-emptively engaging with its dealers globally to ensure that they are prepared and protected as the industry moves further toward electric vehicles.
EVs likely will require fewer regular service visits than vehicles powered by internal combustion engines. Analysts estimate that parts sales in stores could shrink by as much as 60 percent from current levels in the transition to a wholly electrified fleet. They also say dealership visits are likely to drop precipitously when there is no longer a need to change engine oil.
Like other large automakers, Volkswagen has ambitious plans for EVs. It plans to bring at least four electrified nameplates to the U.S., beginning with the I.D. Crozz crossover in 2020, and aims to sell a million electric vehicles a year globally by 2025. But the VW brand also has a problem with dealer profitability: the profit margins of its U.S. stores are about a full percentage point below the average of other volume brands operating here.
True, the shift toward lower-maintenance EVs is a long-term proposition, but VW executives believe it is not too early to address the impact on its retailers. They are right.
In Europe, Volkswagen has been negotiating with dealers for more than a year on how to keep dealers profitable. It will now begin the process in the U.S.
VW sees opportunity in reducing dealer standards, trimming dealer overhead and increasing throughput.
All in all, it is a refreshing attitude and one that others should follow. Every automaker will eventually have to deal with how to protect the financial strength of its dealer network as the industry evolves.