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Alex Voigt December 2020 A Volkswagen Dealer is Losing 10% Income With Every ID.4 Sold

Cars

Volkswagen Dealers Making 4.5% Margin Selling ID.4 vs. 14%+ For Fossil Fuel Vehicles — CleanTechnica Exclusive

It is my daily work to analyze the German automotive industry, attempting to understand what is truth and what is a lie. Like in life, there are always different shades of grey between the two, but if you separate the colors carefully, all that you have left is finally black and white.

It is my daily work to analyze the German automotive industry, attempting to understand what is truth and what is a lie. Like in life, there are always different shades of grey between the two, but if you separate the colors carefully, all that you have left is finally black and white.

Over the years, I realized that, unsurprisingly, there is a large gap between what automotive managers confirm in public and what they say and do internally. To figure out the difference between the two is usually work that requires “reading tea leaves” and turning every stone over to get details confirmed and a new perspective. As a hyper-sensitive person and what experts call an Asberger, I luckily have some valuable skills that help me to find some seeds of truth that others can’t find and mostly don’t even see.

Today, I don’t need my “secret superpowers” because I received an accidentally leaked internal Volkswagen document (special thanks to Antoine). It gives us interesting insights into how VW management incentivizes dealers for every ID.4 sold.

The confidential Volkswagen document on my desk has been sent to French dealers and allows me to prove some misinformation — or what some of you may want to call lies from Volkswagen. It also enables me to state that claims Greenpeace made recently about VW are correct.

Greenpeace published a Volkswagen mystery buyer study that resulted in the following findings:

  1. VW has no interest in a further acceleration of the transformation and plans sales of its electric cars only to match European requirements on fleet consumption.
  2. There are no incentives for VW dealers and salespeople to sell an electric car instead of a combustion engine to undecided customers.
  3. Other models are being pushed onto the market with attractive special conditions subsidized by VW, while no equivalent measures exist for the ID.3.

Greenpeace claimed to have talked to dealers who leaked an ID.3 sales margin of 6%, which is about 8 percentage points lower than the average petrol/diesel vehicle margin of 14%. If that information is correct, it should be no surprise that from 25 questioned dealers in Germany, 17 recommended buying a fossil fuel vehicle and only 1 dealer of the entire study recommended the ID.3. The ratio of 25:1 stands in stark contrast to what VW officially claims, which is that it pushes sales for fully electric vehicles and intends to support the transition to sustainable transportation.

The new VW dealer agency model introduced for the ID line provides a fixed commission or base margin to the dealer. Compared to fossil fuel vehicles, dealers do not need to buy and finance them upfront, which reduces costs. This makes dealers agents for VW and eliminates finance costs, but also flexibility, because ID prices are fixed and dealers can’t give discounts to push sales.

On top of that, battery electric vehicles (BEVs) have very low maintenance and service requirements, which make selling an ID less attractive for a dealer too. In addition to the commission, dealers get a bonus if they sell a certain defined number of fossil fuel vehicles that they don’t get for ID sales.

Confronted with the Greenpeace study results, in which 56 Greenpeace volunteers talked to 50 dealers out of the 865 that sell the ID.3 in Germany, VW first of all declined to comment, but shortly after released the following statement to 24auto.de:

“ID.3 sales are even disproportionately promoted in this program.

“In this context, we ask for your understanding that we cannot give any internal figures on the question of dealer margins for reasons of competition.”

The internal confidential Volkswagen document proves a base margin of only 4.5% and a 0% bonus for the ID.4. Those incentives make it unattractive for every dealer to sell ID vehicles compared to fossil fuel vehicles.

Compared to the average fossil fuel vehicle base margin of 14%, every sold ID.4 results in a margin and income loss of at least 9.5% for the dealership. Considering the unit sales threshold bonus a fossil fuel vehicle can get, the difference is even above 10%. If we add future maintenance and service profits from an internal combustion engine (ICE) vehicle, the lost income increases.

Is it surprising that dealers would rather try to sell ICE vehicles to undecided buyers, as has been proven in the Greenpeace study? No, it isn’t.

Is it surprising that VW, which claims to be going “fully electric,” incentivizes selling ICE vehicles instead of electric vehicles? Yes, it is.

A 10% income loss for a vehicle is a lot of money for a dealer that sold an ID.4 but could have sold a Tiguan instead. Although the numbers may differ slightly by country the overall results and outcome remain the same.

If we compare the leaked document with the claims and findings from the Greenpeace study, we can fairly conclude that the Volkswagen statements are wrong, and some may even call them lies.

The Volkswagen claim that “ID.3 sales are even disproportionately promoted in this program” is not true for the ID.4, and we can conservatively assume it is wrong for the ID.3 as well. The two models don’t differ much and will not differ a lot with regards to the dealership agency margin. For the ID.4 in France, it is definitely 4.5% without any bonus, and Greenpeace published a 6% margin without a bonus for the ID.3, which appears very realistic in this context.

The bad news is not only that dealerships are getting a penalty if they sell an ID instead of an ICEV. The bad news is also that VW did not stop misleading the public. Volkswagen is not selling every BEV it can. The company is trying to find the optimal vehicle mix to make the highest possible profit regardless of what that means for CO2 emissions and climate change.

Volkswagen lied in the past about true vehicle emissions in a criminal way with sophisticated cheating devices and betrayed its customers, and as a side effect accelerated climate change. The financial and reputational damage has been severe, but they declared with the start of new CEO Herbert Diess in 2015 that the company had changed.

In the last 5 years, Volkswagen, through its marketing and PR department and also through management again and again, repeated the claim that they transformed the company into one focused on sustainable transportation and were doing all they could to accelerate the broader industry transition.

The truth is that Volkswagen’s #1 priority is sustainable profit. There is nothing wrong with putting profits as the #1 priority, but it’s not honest to say sustainable transportation is on top when it’s not.

If selling as many BEVs as possible was the goal, Volkswagen would incentivize dealerships to sell as many ID.3s and ID.4s as possible. Instead, they motivate dealers to sell more ICE vehicles. 

Today, we have to realize that Volkswagen continues to cheat its customers and the public.

 
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Written By

Alex Voigt has been a supporter of the mission to transform the world to sustainable carbon free energy for 40 years. As an engineer, he is fascinated with the ability of humankind to develop a better future via the use of technology. With 30 years of experience in the stock market, he is invested in Tesla [TSLA], as well as some other tech companies, for the long term.

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