Electric vehicles and the future of auto service

Electric vehicles (EV) account for just six of every 1,000 new cars and trucks sold in the U.S. But it won't stay that way much longer: In 2017, hardly a month passed without a major global auto maker announcing plans to boost its production of EVs.

If the factories follow through, the number of nameplates of battery-powered vehicles in the U.S. will increase from 14 this year to 85 by 2025, according to WardsAuto. And by 2030, depending on the projection, battery electric vehicles will represent anywhere from 10 percent to half of new-vehicle sales.

The potential for EVs to alter the service business model of franchised new-vehicle dealerships is huge. Experts say everything in the back of the store — vehicle repair, parts, body shops, service customer retention — will be disrupted if the coming armada of electric vehicles, which require less maintenance than traditional cars and trucks, sells in high volume.

And the time for dealers and fixed operations managers to start preparing for that basic change, industry executives warn, is now.

"With EVs, there will be less dollars available to the dealer," says Wally Burchfield, vice president of U.S. aftersales for Nissan North America.

Service revenue from regular maintenance of wear items on EVs would amount to "probably two-thirds to three-quarters of what an internal-combustion engine vehicle would be," Mr. Burchfield told Fixed Ops Journal.

Nissan isn't the only manufacturer to prepare for the changes that electric vehicles will bring. Volkswagen says it is talking to its dealers worldwide about how to keep them profitable as the auto maker ramps up its production of EVs.

How will these changes affect operations in dealership service departments?

Required service will be greatly reduced for electric vehicles: no oil and filter to change, no fluids in the radiator to check or flush, no transmission to service, no drive belts to replace, no air or fuel filters or spark plugs to change, and regenerative braking systems indefinitely extending the life of brake pads and rotors.

This year, the consulting firm UBS Research tore down two similar-sized hatchbacks, a Chevrolet Bolt and a VW Golf. UBS counted 24 moving parts in the Bolt, compared with 149 in the Golf.

UBS analysts estimate that aftersales revenue for the Bolt, for such things as replacement parts, will be 60 percent less — about $400 a year — than such revenue for a traditional car.

"This should generate a major challenge for dealerships, which typically generate 40 percent of their gross profit in service and maintenance," UBS says. The UBS report is available at autonews.com/ubsreport.

Nissan's experience similarly foreshadows how EVs are likely to change service departments when electric vehicles sell in high volume.

Since 2010, Nissan has sold 300,000 Leafs worldwide, including more than 113,000 in the United States.

"You will certainly lose your oil and filter" work, Mr. Burchfield says. "You won't have the mechanical breakdowns of an internal-combustion engine. We don't know yet how much we will do in battery repair and module replacements."

Less shop revenue

The maintenance sections of the owner's manuals for the Nissan Altima and Leaf illustrate how service department revenue takes a hit from electric cars.

Nissan recommends at least two oil and filter changes each year for the 2017 Altima, regardless of miles driven. These two services cost about $80 at most Nissan dealerships.

The Leaf's service schedule calls for annual replacement of the cabin air filter at a cost of $31.67, and a tire rotation that costs about $20 — two items that drivers often ignore. So even if a Leaf owner followed the recommended maintenance schedule, dealerships would see 35 percent less service revenue per vehicle than from the Altima.

Ford has sold an electric version of the Focus since 2012. Its service schedule for the EV calls for a new cabin air filter, at a cost of $25.44, every 20,000 miles. No powertrain maintenance is required until the car reaches 150,000 miles.

Over the same 150,000 miles, the recommended service schedule for the gasoline-powered Focus calls for 15 oil changes, five new engine air filters, two new drive belts, four new spark plugs and probably three brake jobs — roughly $1,500 worth of work.

With fewer moving parts, the electric Focus also is more reliable. "The Focus Electric has required fewer overall repairs compared with its internal combustion counterpart," Ford says.

Tesla's influence

Tesla, with three models, sells more electric cars than Nissan. Through November, Tesla sold 49,820 vehicles in the U.S. in 2017, according to an Automotive News Data Center extrapolation from the automaker's quarterly global sales figures. In the same period, there were 11,128 U.S. sales of the Leaf, Nissan's sole EV.

Tesla doesn't operate a nationwide network of franchised dealers and has a different business model for service than other auto makers. Many Tesla cars are repaired with over-the-air software updates that don't require service visits. For other repairs, Tesla retrieves vehicles on flatbed trucks.

Maintenance costs for Tesla owners could be significantly less than those for other luxury cars. Tesloop, a transportation company in Culver City, Calif., tracked maintenance costs for a Model S that accumulated 300,000 miles.

Tesloop says it spent $6,900 on scheduled maintenance for the swoopy electric sedan. Had the same mileage accrued on a Mercedes S class, Tesloop says, scheduled maintenance costs would have been $52,000. A Lincoln Town Car driven 300,000 miles would have needed $28,000 worth of maintenance, it adds.

Window of opportunity

Nate Chenenko is head of the mobility practice at Carlisle & Co., a consulting firm in Concord, Mass., that focuses on transportation. If dealership service departments lose oil changes and tire and wheel services, he says, customer retention rates will decrease.

"That regularity of visits is not happening with electric vehicles," Mr. Chenenko says. "Dealers will have to rethink retention metrics."

But even as electric vehicles mean longer maintenance intervals and fewer regular wear items to replace, Chenenko says, dealers still can persuade EV owners that the dealership is the best place for service after the factory warranty expires.

"We estimate a two- to four-year time horizon where dealers can capitalize on their expertise with these vehicles," Mr. Chenenko says. "Customers are not as trusting of the aftermarket with new technology for full electric vehicles."

Nissan's Mr. Burchfield predicts EV owners will buy service the way today's consumers maintain high-tech electronics.

"Much like an Apple product, you are going to take it to an Apple store," he says. "You are not going to go to the local guy who's good with a computer."

Dealership service departments still will perform tire and wheel replacements and sell suspension parts for EVs, Mr. Burchfield notes. They also can make collision repairs and sell repair parts to independent body shops, he adds.

But that window of opportunity won't stay open long, says Mr. Chenenko, who cites his experience with a gasoline-electric 2005 Toyota Prius he has owned for a dozen years.

"In 2006-07, I couldn't walk into an independent repair facility and get the same level of care because the technology was so new," he says. "Now, the entire aftermarket can fix a Prius."

The future is now

At Autocom Nissan East Bay in San Leandro, Calif., Service Manager Bob Nannetti is on the front lines of a battle that other dealerships are likely to face as the brands they sell go electric.

"Sixty-five percent of the cars in my drive are coming in for an oil change, and that builds long-term retention," Mr. Nannetti says.

But the Leaf has changed the equation, he concedes.

"Many of the early adopters were religious about doing the maintenance because they embraced the technology," he says. "But the [Leaf] is maintenance-free and many drivers know it. Now that the car is getting into second hands, there's really been no reason for people to return to the dealer."

At Motorcars Honda in Cleveland Heights, Ohio, dealer Chuck Gile is revamping his service department to offer extremely speedy oil changes.

He's betting that his fast lane will encourage customers to get other service products, such as wheel alignments, brake repairs and tire sales.

But the battery-powered Honda Clarity that Mr. Gile will eventually sell — the EV is on sale only in California and Oregon, and Honda has yet to announce plans for a nationwide launch — won't need oil changes.

Mr. Gile worries that when electric vehicles arrive in volume, he'll lose the opportunity to inspect vehicles and find service items that customers don't even know they need.

"Back in the late '70s, you didn't want to do oil changes," Mr. Gile says. "Now, that's the most important thing. You have to keep adapting and changing."