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ITS study suggests hastening consumer adoption of PEVs will require sales side innovation

Cahill

A study by researchers at the Institute of Transportation Studies, UC Davis finds that buyers of plug-in vehicles (PEVs) are substantially less satisfied with the dealer purchase experience than buyers of conventional vehicles—with the notable exception of Tesla buyers. A fundamental problem appears to be divergent expectations regarding the level of support buyers receive from dealerships.

In a new working paper, the team contends that PEVs require innovation in how these products are retailed to customers as well as demanding changes in consumer behavior and relying on new support infrastructure. While the diversity of the dealer community could foster innovation in retail activities, the same diversity could also hinder the quality and pace of diffusion amongst dealers. This, in turn, the team suggests, could—through a sub-par purchase experience—hinder the quality and pace of the adoption of plug-in vehicles by customers. This dynamic may have repercussions for achieving
ZEV targets and potentially other regulatory objectives, they note.

Presently, 19 different models of PEVs from 10 different manufacturers are available for purchase in California, but only three of these models are available nationally. Although automakers have made PEVs available for purchase by private consumers in California since late 2010, only a minority of dealers in core PEV markets currently offer them. Further, the quality of the purchase experience has come under scrutiny. An April 2014 Consumer Reports investigation, in which it dispatched 19 mystery shoppers to 85 dealers across four states, found many dealers knew little about the PEVs they sold. In some cases, dealers outright discouraged PEV purchases. In a number of states, dealer groups have moved to block start-up EV automaker Tesla from introducing its direct-to-consumer retail model. Limited engagement by dealers, poor purchase experience, or efforts to block innovations in the automotive retail sector could adversely impact sales and slow the growth of the nascent PEV market.

Policies and incentive programs do not currently account for the key role dealers play in new vehicle transactions. There is also little available information that describes the extent to which new car dealers are embracing PEVs or that examine the quality of the purchase experience witnessed by PEV buyers. Data is needed to compare the purchase experience for plug-in and conventional vehicle buyers and consider whether differences may impact PEV adoption.

In the working paper, they present preliminary findings from a study of the retail market for PEVs in which they conducted 43 interviews with six automakers and 20 new car dealers in California’s major metro markets for PEVs. They also analyzed national and state-level J.D. Power 2013 Sales Satisfaction Index (SSI) study data on customer satisfaction with new car dealerships and Tesla stores.

The SSI study captures 12 different PEV models from eight vehicle manufacturers, including GM (Chevrolet Volt); Nissan (LEAF); Tesla (Model S); Ford (Focus EV, C-Max Energi and Fusion Energi); Honda (Fit EV and Accord PHEV); Toyota (Prius Plug-in and RAV4 EV); Mitsubishi (i-MiEV); and Daimler (Smart Fortwo ED). It did not include CODA and Fisker nor models introduced after the survey period such as the Chevy Spark; Fiat 500e; BMW i3 and i8, or the Cadillac ELR. While Tesla Motors was 23 part of the study, California data was unavailable since Tesla opted out of providing data in the state of California.

The ITS team also examined exploratory data from survey questions co-developed with the Center for Sustainable 28 Energy (CSE) and incorporated in the PEV Demographic and Diffusion questionnaire disseminated to PEV
purchase rebate applicants.

Among their initial findings:

  • PEV buyers universally report lower satisfaction with the dealer purchase experience than buyers of conventional vehicles.

    We found that on average, plug-in vehicle buyers rated dealers much lower in sales satisfaction than conventional vehicle buyers. In contrast, buyers ranked Tesla much more favorably. The magnitude of these disparities is extraordinary by industry standards and indicate the problem is likely systemic. … Tesla’s industry-high marks suggest new retail approaches could lift satisfaction scores, engendering positive word of mouth that could hasten consumer adoption.

  • The highly decentralized nature of the current automative sales franchise model, in which contractual arrangements and franchise laws confer a great degree of operating freedom to new car dealers, translates into divergent processes across the dealer community. Franchise laws bar automakers from setting uniform processes for its retail networks. In its place, automakers establish customer satisfaction performance criteria and reward those dealers that meet or exceed these standards.Franchise laws also constrain automaker discretion over which dealers offer PEVs; i.e., automakers cannot withhold product from some dealers to the exclusion of others. Automakers can and do establish “reasonable” threshold criteria for dealer participation in PEV sales, however.

    In most states, franchise laws require automakers to offer new vehicle models and other products to all dealers within a fixed period after initial introduction to one or a limited number of dealers, typically six months. Such rules beg the need to adroitly develop new competencies that can be shared across broader segments of the dealer base.

  • Plug-in vehicles returned higher gross profits but place greater demands on dealers and salespeople, including the provision of support services beyond traditional offerings.
  • PEVs involve a much longer sales process than conventional vehicles. Dealers described early adopter PEV customers as particularly discriminating, requiring more time from sales staff to answer questions, provide test drives, and cultivate relationships that result in a sale. From a salesperson’s perspective, this additional time represents a cost of doing business that detracts from time spent closing another potentially more lucrative transaction.However, industry average transaction times for conventional vehicles run in excess of four hours. For plug-in vehicle buyers, total transaction times at dealerships average 251 minutes (4 hours and 11 minutes), slightly less than the average for conventional car buyers at 255 minutes (4 hours and 15 minutes). In contrast, Tesla buyers on average spent half as long (at just over two hours) interacting with retail representatives.
  • New retail approaches, including new methods for building dealer competence, could improve the PEV buying experience. Traditional training and certification methods inadequately equip sales staff to sell more complex PEV technologies, for example, and sales staff need to contend with an ever-growing amount of technology content across a broad array of products.

    Where PEVs may represent a small portion of dealer sales or where initial demand for PEVs is low, retention and recall of PEV-specific information becomes challenging. Dealers emphasized that salesperson competence, as well as salesperson confidence, is a by-product of hands-on learning achieved through regular exposure and repetition that builds on one success after another. As one dealer aptly stated, “A salesperson is never more confident about selling a car then the day he sold one”. Weak initial demand, or demand that is shared across a pool of sales representatives, translates into fewer interactions for individual sales personnel, undermining repetition and retention of PEV-specific information. Extraordinarily high employee turnover in the new car business, running upwards of 50% or more annually for some dealerships, further undercuts learning and retention.

  • Public incentives could better align with established dealer practices and business drivers to improve program effectiveness.

    A dealer’s primary interest is to close a sale. Anything that introduces uncertainty into the customer’s buying calculus reduces the likelihood of that outcome. For example, eligibility for all or a portion of the federal tax credit is based on the customer’s tax liability, a consideration that is typically unknowable until tax time. Moreover, consumer protection laws loom large in the retail automotive space. These expose dealers to legal liability for misstatements or for communicating misleading information to customers. Consequently, dealers face a choice: use carefully-worded qualifying statements when discussing these topics (e.g. by referring customers to their individual accountants for guidance) or eschewing mention of these incentives altogether. Lease deals obviate this tap dance by allowing dealers to capture the full amount of the credit as a capital cost reduction at the point of purchase, thereby eliminating uncertainty (i.e. risk). Not surprisingly, we found that 61 percent of California PEV buyers favor leasing over other forms of vehicle financing as compared to just 22 percent of the state’s conventional vehicle buyers.

    Much like the federal tax credit, California’s state rebate introduces multiple levels of uncertainty and risk into the
    retail transaction. … Other incentive-related uncertainties abound.

This study was supported by a grant from the California Energy Commission and through contributions from the NextSTEPS research arm of the UC Davis Institute of Transportation Studies. Partners in the research included the California New Car Dealers Association, J.D. Power & Associates, and the Center for Sustainable Energy.