This YouTube clip (How EV's Will TANK Service Department Profits) is a conversation between Chris Collins and Scott about how electric vehicles will change dealership service economics. Key claims: EVs require far less traditional engine maintenance but accelerate tire wear (due to weight and torque), creating a potential shift toward more tire and suspension work; dealers currently capture a small share of tire sales (about 9.5% penetration, up ~1 percentage point in five years) and face intense outside competition from low-margin tire sellers (e.g., many local tire shops). Scott argues dealer economics are distorted by OEM incentives (he states ~90% of net profit comes from manufacturer incentives) and low operating margins (he cites ~10% operating profit), flat RO counts, staffing/managerial constraints, and regional examples (Houston has ~1,365 tire-replacement advertisers). Closing includes subscription prompt and contact/offers (8333 Ask SDR; offers.chriscollinsinc.com).
Questions this video answers
Approximately 9.5% (up about 1 percentage point in the last five years).
He states about 90% of their net profit comes from manufacturer incentives.
Around 10% operating profit.
About 1,365 advertisers (in the Houston market example).
So we're going to talk about selling tires, Scott.
Right up my alley. So think about going forward. What's a service department and who knows what the answer to this is? When an electric car takes over, right, you've got a 3,000 moving part combustion engine vehicle that has all sorts of things that can break. A lot of stuff can break. And when the mileage bands start to pile up on a car, and you know this. I'm not. This is just conversation. You're going to have big ticket items at 100,000 plus miles. But you look at the data coming back on some of these Tesla 400, 500,000 mile runs, not much breaks now. They go through tires like breakfast cereal. Because of the weight, because of the torque in the engine, those sorts of things. The tires are going to wear out quickly. So the tire manufacturers are licking their chops because. Because they're going to sell, I don't know, 100% more tires on electric vehicles than they do on a regular passenger car that weighs 3,500 4,000 pounds instead of 6 or 7,000 pounds. I don't know. But then what is this service department really going to end up having to sell? They're going to have to sell a lot of suspension work because that's going to also take a hit with the extra weight. Brakes are going to go quickly until they maybe change the components that can last longer. But I don't know how you make a tire handle that weight without changing completely the ride quality. Because you could put a solid rubber tire on the thing and it would last longer, but who wants that? So it'll be interesting to see what happens in the next. And you know, I'm bumping up against 60. I hope I'm out of this by then. Right. Because.
I think one of the components that you will have to be in is tires. And that's sort of a good segue into what we're really trying to talk about here. Because the data should make every dealer mad and terrified at the same time. You know, they're slowly creeping up on the market penetration for tires sold in the dealership, but they're still terrible.
What is it, less than 10%?
9.5%? It's up a full percentage point in the last five years. So they've gained 1 percentage point in five years of the market penetration.
That's terrible.
I think part of it is the whole incentive plans that the OEMs have come up with. When you look at a dealer, 90% of their net profit comes from the incentives from the manufacturer. And those are geared around CSI and short term retention of the customer and other things, obviously volume of car sales, etc. But when you're only at 10% operating profit, something's really broken with that model. So dealer needs to look at his fixed ops and say, am I really optimizing my department? Not one of them can say yes. I don't care who you are. Whether you're Longo with 150 technicians or you're the guy up the street with five technicians. If you held on to your customers, you should have growth in your RO accounts. You just don't. We've looked at this for years and the RO counts are flat. And when you talk to a service manager, most of them don't want growth in the ros. Why? Hard to find tax, more people to manage. I've got a revolving door of service advisors. I can't grow my RO count by 20% a year because I can't handle the work. Now I'm booked six months out. So they have a flat RO count and simply replace the VINs that defect with new cars delivered over the curb. It's a terrible strategy, but for the most part, not many of them. Think strategically. How do I get like a Canadian dealer, right? They sell 100 cars a month. Some of them have 35 technicians. How's that possible? Chris, guy that sells 100 cars here might have 10 technicians and think he's doing a great job. Their metrics are all screwed up. And when it comes to tires, you say you could sell more tires. I don't want to sell tires. I don't make any money at it. That's the number one thing you hear. And it's true. Why? Because you look at a market like pick one, Dallas, Houston, Louisiana. Go to the yellow pages and put in tire replacement and that zip code. It's unbelievable. Houston has 1365.
Companies that advertise in the yellow pages for tire replacement. 1300. Maybe those guys do 10 ros a day. 20 ros a day. That's 26,000 ros a day in that market. Think about that for a minute. No wonder they can't make any money. The tire companies like Goodyear and Costco and those guys, they give the tire away. They don't give a crap. There's no margin in tires. Let's all admit that. It's just a fact. They've used it as a loss leader since day one.
Thanks so much for watching this clip of Service Driving Revolution. We're uploading new stuff every day so make sure you subscribe and click the bell icon. Subscribe so you don't miss out. If you have a question you'd like us to answer on the show, call 8333 Ask SDR and we'll answer your question on the show. That's 8333 Ask SDR. For special deals on our books and training, head over to offers.chriscollinsinc.com now that's offers.chriscollinsInc.com I'm Chris Collins, and I'll see you in the next video sa.
