Auto Manufacturers Shouldn’t Eliminate Inventory From Car Buying
An article I came across a couple weeks ago in FreightWaves got me to thinking (a dangerous pastime, I know) about how changes in the automotive industry are affecting customers. Sometimes, it’s easy to focus on the whole industry, dealers, and whether the EV transition will accelerate or get bogged down. But, we can’t forget the individual driver who actually buys the car. And, one of these individual buyers is my mom (and you don’t mess with people’s moms).
The Industry Trend
The trend I want to highlight (which was highlighted in the article that inspired this article) is the reduced levels of inventory at automotive dealers. Initially, the low inventory was caused by the pandemic, and the chaos it caused in automotive supply chains, especially semiconductors. But, as time went on, it became pretty clear to automotive manufacturers that this wasn’t a bad arrangement.
As we reported last year, Ford announced that it wanted to move to a minimal inventory model for good with EVs, instead having customers order cars in and have them built specifically for that customer.
As my colleague Steve pointed out, the “build to order” approach runs counter to a fundamental concept of sales — the idea that it’s difficult to sell something that you don’t have. When customers shop for goods like clothing or food, they typically expect to see a wide array of products readily available to buy. They enjoy the experience of interacting with the products, whether that means feeling the texture of a fabric or inspecting a piece of fruit before purchasing it. Conversely, asking people to place an order for a car and then wait for it to be built goes against the norm of showcasing available products and may conflict with established sales strategies.
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This comes at a cost in the automotive industry, though. Unsold cars and other vehicles have to be insured and maintained, incurring costs that are passed on to the manufacturer or dealer. Most of these unsold vehicles are financed through “floor planning,” which involves using them as collateral for an ongoing line of credit. This means that loans are taken out to finance these vehicles, which, in turn, incur financing charges — fees that are paid to banks and other financial institutions. While these charges help keep bankers employed and their families fed and educated, they also make up a portion of the overall cost of the vehicles.
For companies like Ford and its network of dealers to stay competitive in the age of Tesla, they have to find ways to cut back on margins. So, this is a somewhat natural area where it can cut costs back. But, there are still questions about whether this can succeed.
This Trend Continues To Hold
The FreightWaves article I linked to earlier (here’s another link, just in case your scroll wheel or fingertip is busted) indicates that this trend is continuing in 2023.
There has always been an interesting relationship between inventory and freight. When dealers have little inventory, they order a lot of cars to keep them on the lot (at least before the pandemic, when they couldn’t order any). But, when lots were full, car-hauling truck drivers just didn’t get a lot of work, because dealers wanted to burn through some inventory before ordering more cars.
One expert they spoke to said that dealers are mostly focusing on different kinds of shipping than they have in the past during inventory lows. Instead of putting orders in for spec sales, they’re instead aiming for premium fast services to get cars in and out the door quickly to keep customers who ordered a car happier.
Another expert says that dealers are quite happy with the way things are, and that many of them don’t want to go back to a business model where they keep a bunch of inventory on hand. This may be because it’s more profitable for them, both in terms of reduced costs and being able to extract more money from customers’ wallets.
The Big Problem With No Inventory
While I think it stinks that you can’t shop multiple dealers and get a deal much below MSRP these days (and even getting a deal at MSRP is almost impossible), there’s a bigger problem that I think we need to think about: the people who need a car quickly.
Normally, it’s easy to say that people who aren’t responsible end up getting hosed. If you’re not doing maintenance on your car, or it’s ancient and has one foot in the junkyard, you should probably plan ahead better to keep yourself from being in a position where you suddenly need a car. Those who fail to plan, plan to fail, and they deserve to get ripped off, right?
But, it’s really not that simple. My mom had a car that was almost new, had been treated to excellent maintenance, and was very well insured. She pays her bills, keeps savings in the bank, and drives responsibly. She’s one of the most responsible people I know.
But, no matter how responsible you are, there are irresponsible people out there who share the world with you. A man with uncontrolled diabetes got in his car at a local store and proceeded to stomp on the accelerator in reverse, ultimately crashing into five parked vehicles before coming to a rest. Among them was my mom’s Ford Bronco Sport, and it was mangled beyond repair.
Ford’s people both at the manufacturer and the dealer were nice people, but she needed a car and couldn’t wait months for a special order to get the one she really wanted. Ultimately, she went for something else just to have wheels.
Honestly, this whole situation frightens me. If some moron crashes out my Bolt EUV, it won’t matter whether it was my fault or theirs (but, given my very clean driving record, it’ll probably be theirs). No dealer within 100 miles stocks a Bolt EUV, so I’m in for either going without an EV for months or having to switch to something else out of desperation if that were to happen. I’m fortunate to have another vehicle I could drive for a few months, and would probably wait, but not everybody can do that.
What Manufacturers & Dealers Should Do
Instead of worrying about their margins so much, these companies should really think about their customers a little more. They’re fat and happy with their low-inventory model, but when a customer gets shafted out of a car they like (through absolutely no fault of their own), that leaves a bitter taste in their mouth.
Sure, they might not need customers that badly today, but who knows about tomorrow? If they could keep a few cars on hand, even if it’s just a couple of each configuration at the factory ready to ship for people who got creamed out, it could go a long way toward keeping customers happy and ready for a repeat sale.
If they can’t get their greed just a little under control, somebody else is going to do right by the customers and take them. Without customers, there won’t be any margins for these short-sighted, bean-counting, “you’ll own nothing and be happy,” elitist bastards to fret over.
Featured image by Electrify America.
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