The advent of electric vehicles portends many changes ahead for dealership service departments in the coming decades. Service managers and directors will have to be agile, resilient and forward-thinking as they prepare for this disruptive technology that will likely decrease customers’ service and maintenance needs compared to internal-combustion engine vehicles. How will dealers be affected and how can they stay ahead of the curve as this new business landscape unfolds? And what new opportunities might emerge to replace slowly fading revenue streams? For insights and perspectives, Automotive News spoke with Piermichele Robazza, Global Practice Director of Aftersales at Urban Science, a global retail consulting firm.
Parts & Service: Building the Service Operation of the Future
Q: What are dealers and their partners doing now to prepare their parts and service offerings for the future?
Piermichele Robazza: Two important trends are driving how dealers are currently preparing for the future: The growth of EV sales and the proliferation of connected-vehicle services.
Trend 1 – Growth of EV Sales: Dealers are making large investments in electrification infrastructure and upgrading or replacing work bays and tools. New tools are required due to the newer technology and the presence of high-voltage currents. Because EVs are 20% to 30% heavier than internal-combustion- engine vehicles, they require modification or installation of new lifts, plus dedicated battery lifting tables — a new piece of equipment essential for the maintenance and replacement of the most expensive part of an EV, the battery pack. Service facilities in general are also being modified to provide insulation and ways to safely remove EVs due to the danger of fire or explosion. In addition to learning about the technology and the specifications of the new vehicles, salespeople are assuming a more consultative role, educating new owners on the nuances of EV ownership (trip planning, battery maintenance and vehicle charging, including support for the installation of at-home chargers, etc.). The new training for service department personnel is even more dramatic, especially for technicians who are learning new procedures to safely work on EVs and diagnose and repair vehicles driven by electrical motors instead of combustion engines. The complexity of EV electrical and electronic components is higher, requiring greater expertise on IT and software management. Technicians are also assuming a more client-facing role and honing their sales and communication skills.
Finally, dealers are introducing processes to address an important aspect of the EV life cycle — recycling EV batteries that have reached their end of life.
Trend 2 – The Proliferation of Connected-Vehicle Services: With connected vehicles, dealers are preparing to take advantage of the immense opportunities that this technology presents by ensuring that new customers are educated and make best use of all the features and functionalities offered by connectivity. They are also leveraging the technology to develop more targeted campaigns, schedule more timely service reminders and continue to support customers in the adoption. Innovative ways of delivering service are becoming more common as more dealers are embracing mobile and pick-and-delivery services, offering flexibility and convenience to a more demanding customer base. In that regard, EVs are particularly appropriate for mobile servicing because they have fewer parts, more electronic components and a higher proportion of software and diagnostic work.
Q: As future vehicles become more software-defined and powertrains shift from ICE to EV, what are some of the challenges dealers and their partners will face as they begin to modify their parts and service offerings for the future? What opportunities might emerge?
Robazza: It is an accepted belief that EVs require less ongoing maintenance and have a lower cost of ownership if we exclude the battery pack. We have objectively confirmed this in our analysis. As part of our work at Urban Science, we track and measure service key performance indicators, like service retention and customer visits, for a large number of manufacturers and thousands of dealers. And we are seeing considerably fewer visits per year and less customer-pay work from EV owners. The related loss of business is being partially offset by warranty work due to large-scale recalls and repairs caused by the newer technology. Dealers are also benefiting from a larger component of labor revenue relative to parts revenue when compared with ICE vehicle service. In aftermarket sales and servicing, the biggest area of opportunity for maintenance work is on tires. EVs are heavier and produce more torque, leading to higher degradation requiring more tire rotation and alignment. EV tires are also more expensive due to the presence of low-rolling-resistance characteristics and noise reduction features. However, tire business has traditionally been a sore area for many dealers since they lack the OEM-genuine branding appeal that other parts possess and generate lower margins due to higher competition in the marketplace. That said, many dealers are focusing on more tire services, attracting and retaining customers through creative offers like alignment subscriptions, winter tire swap and storage, and automated inspection services.
• Properly aligned tires increase the vehicle’s mileage and range, which is top-of-mind for EV drivers.
• Add-on services for buyers, such as winter tire swap and storage, can help make up for the loss of EV visits.
• Finally, automated inspection using high-resolution scanning machines has, in my opinion, the opportunity to become a profit center in itself by attracting customers for quick, regular maintenance checkups or as part of used-car sales transactions for owners to showcase their vehicle.
Dealers who have the ability to invest can aim to increase visits and revenue by making their dealership a destination point for their fast-charging capabilities while offering waiting customers amenities similar or superior to those we see at gas stations today, such as coffee shops and entertainment or food establishments — of course, in addition to the traditional display of vehicles and accessories.
Another big area of opportunity are revenue streams from software updates and connected-vehicle options. Manufacturers and dealers are still working out the specifics of their business relationships, but subscriptions and purchases of services and features using over-the-air technology are going to represent a multibillion-dollar source of revenue for the industry. I also expect new revenue streams to upgrade vehicle hardware components. Electronic equipment can have a short life span — much shorter than the 12-plus-year average age of vehicle ownerships. This will force owners of older vehicles to spend money upgrading and replacing the electronic components to stay current.
Q: As dealers transition to accommodate and service a very different assortment of vehicles, who should be managing this within the store? Is this a team effort and if so what are the roles?
Robazza: Generally speaking, we still see silos between departments at both dealerships and OEMs. But because electrification and connected-vehicle services have such a wide impact on operations, it behooves them to implement transition plans with coordinated efforts across all departments. As far as roles are concerned, the teams should include representatives from each department but centrally coordinated by two leaders, with one focused on electrification and the second on connected-vehicle services. The main focus for the electrification lead should be on training, infrastructure and charging networks. For connected vehicles, it makes sense to accelerate the trend that we are seeing to better integrate F&I specialists in both variable and fixed operations. In my opinion, a leadership function from the F&I department to coordinate the training and sales of connected-vehicle services across the departments is ideal.
Q: Envision the typical vehicle sold in 2023. How will the service schedule – and customer interaction with the service department – be different?
Robazza: The key word here is convenience. Given that battery-electric vehicles still account for less than 10% of total U.S. new-vehicle sales, the typical 2023 buyer will see differences in interactions with dealers that are more the consequence of changes introduced to improve the customer experience rather than the mass adoption of EVs. Many of these changes were already happening before COVID, but the pandemic accelerated their adoption. Initially, these initiatives were driven by a desire to provide a better customer experience aligned with the aspects of our everyday purchasing experience. However, the pandemic-driven social-distancing regulations forced dealers to invest in technology sooner rather than later to improve all aspects of vehicle servicing, from the moment a repair is scheduled to the final payment and delivery.
Online schedulers and automated phone systems are now common ways to set up service appointments. Convenient service options are also made available to customers, such as mobile service or pickup and delivery. Some dealers are reporting millions of dollars of additional revenue from these services alone.
However, the more impactful change in my opinion is experienced during the service event itself when dealers are using advanced diagnostic technology to readily capture high-res pictures of the vehicles and communicate with customers through pictures and videos to share any additional service needed, ultimately increasing same-day sales and building trust by adding transparency. Finally, automated-payment options are becoming the norm to streamline and speed up delivery and payment.
Q: Dealership design standards are developed by automakers many years before they are actually implemented. How are automakers and dealerships thinking about making changes now to better serve the typical vehicle in 2030?
Robazza: 2030 is the year when many industry experts expect BEV sales to surpass ICE ones. To support that, I expect that manufacturers and dealers will continue to invest in electrification infrastructure and personnel training and hiring. DC fast chargers speed up charging but are also expensive, costing up to $140,000 per station for high-capacity models, compared with $6,000 for the average Level 2 charger. Although they will become more affordable thanks to incentives and economies of scale, it will be a big area of continual investment for dealers. The makeup of the service personnel staff will also change, with more technicians with expertise in electrical, electronics and computer science. Some will be capable of remotely diagnosing and servicing vehicles using OTA technology, which will add convenience to vehicle service.
Development of autonomous driving will continue, and by 2030 we might begin to see manufacturers introducing vehicles that approach Level 5 capabilities. When that happens, it will cause a profound effect on car ownership. OEMs and dealers will really need to think of themselves more as mobility providers rather than sellers and servicers of vehicles, since fewer customers will “own” a vehicle because it will make more financial sense to hire driverless ones. OEMs will need to plan for a network of driverless-taxi providers, and thanks to the capillary distribution of their dealer networks, they will be in a good position to do so. I expect that in 20 to 30 years, dealerships will generate more revenue from taxilike services than traditional vehicle sales.
Q: Let’s talk about personnel: Who is a critical member of a dealership service team in 2030? Where do dealerships need to reskill and restaff?
Robazza: I don’t see much changing in terms of roles for managers, advisers and techs, but their skill set will become different. EVs have a proportionally much higher share of electronic parts to mechanical ones compared with ICE vehicles. And when you add more sophisticated software elements, it is clear that the technicians of the future will look more like an IT professional than a traditional mechanic. As I mentioned before, connected-vehicle technology will transform the profile of technicians, both for the ones working on the shop floor and the ones working remotely. Remote servicing will be a new area of growth. In fact, I predict there is going to be an emergence of service techs that will support customers remotely using OTA technology. It will be interesting to see how this trend evolves since customers will expect 24/7 access, and dealers will have to staff accordingly, or this service will be provided by OEM representatives. Outsourcing this activity, perhaps for outside normal business hours, will also be an option and could lead to the rise of third-party providers, similar to what many companies already do with business development centers for direct marketing.
I also believe that more OEMs and dealers will staff dedicated software consultants to support and advise new owners about software upgrades and the evolving offerings of connected vehicles. They could be part of a second delivery team and aid in strengthening the relationship with the customers in a more relaxed setting and offset the reduced visits associated with EVs, not to mention the revenue-generating opportunity they will have.
Q: The fixed operations components of a dealership are critical profit centers for dealerships. How do these expected changes affect the importance of fixed operations to the overall business of a typical dealership?
Robazza: Historically, service and parts have accounted for the lion’s share of dealership earnings. However, this has shifted in the past few years, and now more vehicles are sold at or above MSRP due to tighter supply and inventory shortages caused by the microchip crisis. Inventory levels are expected to normalize in 2023, but the industry is working hard to not go back to the days of high incentive-fueled sales that were the norm before the pandemic.
We expect a reduction in revenue from servicing vehicles as EVs become more mainstream. That will be partially offset by new service offerings, especially those associated with connectivity. However, I think OEMs and dealers should have a mindset to maintain the current, more balanced approach to profit generation between variable and fixed operations.
ABOUT THE PANELIST
Piermichele Robazza, Global Practice Director, Aftersales, Urban Science Piermichele Robazza is responsible for setting the direction of the aftersales practice worldwide and developing the next generation of Urban Science solutions in the service and parts space. During his 30-year career at Urban Science, he has filled multiple roles throughout the company and around the world, which has added to his expertise in automotive innovation, dealership operations and product strategy. His specialized talent delivers some of the automotive industry’s leading points-of-view regarding optimization, profitability, disruptive trends and future planning for many regions around the globe. www.urbanscience.com