FORBES - Dealership Corridor

Contributing Author:
Eric Fifield
Chief Sales Officer
EFG Companies

Electric vehicles (EVs) are gaining traction in retail automotive. According to Forbes, the U.S. passed 1 million total EVs sold in 2018. Looking forward, consumers expect to have more choices in EVs, as automakers announce expansions of their product offering. 2019 marks the first year the average battery range for all models is greater than 200 miles. While analysts do not believe 2019 will be an inflection point for EVs, they do expect costs to continue to drop. Lithium-ion battery prices have decreased an estimated 80% since 2010, and are expected to fall another 45% by 2021. As battery prices decline, vehicle prices should decrease, especially since battery costs currently compose nearly half the price of an EV.

In the F&I office and service drive, EVs pose a different challenge. Historically, warranty administrators underwrite the risk of mechanical breakdown in automobiles so that consumers don’t have to worry about those unanticipated financial shocks. Service contracts are priced based on the likelihood of each part failing times a projected cost to replace the part. In other words, the price of the service contract implicitly includes an assumption around the probability that, say, a fuel injection pump might fail and what it would likely cost to replace it.

For traditional internal combustion engines (ICEs), administrators have decades of data on part failure specific for every vehicle model. Every time an OEM rolls out a new drive train, administrators reprice the risk in the coverage and begin building loss history. EVs are a different story, with far fewer mechanical parts and a tremendously expensive battery that can stop the vehicle in its tracks. Because ICEs are totally different technology from EVs, offering the same coverage on both really doesn’t make sense. Because of this, EFG Companies recently released a new Motorist Assistance Plan for Electric Vehicles (MAP^® Electric Vehicle Protection) to exclusively cover the unique technology of EVs.

Contributing Author:
John Stephens
Executive Vice President
EFG Companies

The economic picture has certainly looked relatively good for the last few years. Unemployment is at record low levels and companies report continued hiring. However, wages remain mostly flat and the Federal Reserve just issued a quarter-point interest rate hike. A potential trade war could also bring a serious cloud to our sunny economy.

In addition, there lies a very troubling and widening gap in wealth in this country. According to data from the Pew Research Center, the median upper-income family (those who make more than $127,600) now holds 75 times the wealth of the median low-income family (those who make less than $42,500). To give some historical perspective, in 2007 the upper-income family was worth 40 times as much as the lower income family. In 1989, the multiple was 28. To put it another way, the top 1% of US wage earners now holds 38.6% of the nation’s wealth, up from 33.7% in 2007. The bottom 90% now holds only 22.8% of the nation’s total wealth, down from 28.5% in 2007.

Some in retail automotive might perceive this widening gap as good news. More wealth can mean more auto sales, or at least more luxury vehicle sales. But, let’s add some perspective to those numbers.

According to FORBES, despite being the largest generation in the workforce today, Millennial salaries are 20 percent lower than Baby Boomers’ salaries when they were the same age. Their unemployment rate is twice the national average, and according to CNBC, their student loan monthly payment hovers just under $400.