Dealer Lots Have Fewer Cars—and the Industry Likes It That Way https://www.wsj.com/articles/fewer-cars-bigger-profits-auto-makers-look-to-stay-lean-post-pandemic-11606068000
First, here is a non paywall link to the article
Second, the whole premise seems unlikely. It would require tremendous discipline/illegal collusion for automakers to hold the line on production in order to increase prices/profit per vehicle. They have all this production capacity to use and keeping inventory low requires not using this capacity. Long term, especially for things like pickup trucks where everyone wants to be #1 in full size pick up sales, that just doesn’t seem feasible.
They also mention that in Europe people normally order cars from factory versus buying something off the lot. This is partly because In europe few urban or suburban dealerships have the space to store 100s of cars. Also the system grew up during the post-war shortage era when making cars on spec didn’t make sense. So Europeans are just used to ordering a custom car.
Finally, long-term a big advantage for dealerships selling off lot is that a customer goes from walking in door to being stuck with car in 2-4 hours. If you custom order, in most states you can walk away prior to delivery. As customers realizes they can cancel deal if they got fleeced this becomes an issue especially since dealers make most of their boat payments on the small number of deals where they really take the customer over the coals.
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Agree. And I also think Volvo will jump on this opportunity and flood the market to grab a nice chunk of it.
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From a manufacturer perspective, this would not make sense because the car is “sold” once it hits the dealers inventory. It is off their books and the car has been paid for, so it does not matter if it sits for a day or a year. So they want to produce the maximum amount of cars the market can handle.
On the dealer perspective, this approach is a Owner’s/GM’s wet dream. Very little aged inventory with a high demand for what is in stock. Plus most of your incoming inventory is pre-sold. This is somewhat what Tesla does (2-4 weeks order time with some demos in stock).
I have only had 2 customers not pick up their custom order in 5 years (a Q7 and a M2). I would guess that I have ordered around 100-150 cars for customers (mostly BMWs). So I don’t think this is a real concern because if they do back out, you still have a demand for that vehicle.
The people who get “fleeced” will be buying the cars in stock since that is what is going to be more in demand. If you want to pay up, you can have it now. If not, see you in 4-12 weeks when your order arrives.
I don’t see many volume manufacturers doing this because it would disrupt their manufacturing process. However, I could see BMW going this route since order times are fast (2-4 weeks for a SC built models).
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I generally agree although there is the advantage for the manufacturer of not needing to spend as much in incentives. To this layman, it seems like that matters less for SUVs and pickups which have huge margins but more for sedans/small cars which are a tighter margin proposition.
As someone that is from Europe and now lives in the United States I can attest to the fact that you don’t go to a dealership there and walk out with a new car a few hours later. First off, the paperwork and financing takes days to complete and as others have mentioned most dealerships there have maybe 1-2 of each vehicle on hand since everyone does order their car from the factory and then receives it 6-8-10 weeks later.
This model would absolutely not work in the United States. We want everything and we want it right away. There are some who of course are ok with waiting in order to get the exact vehicle they want but that’s a small minority of customers.
Inventory at dealerships continues to increase. A year ago it was at 80 days supply. In October of this year it was 58 days, at the beginning of this month it was 65 days and forecasts are for supply to hit 70+ days before the end of the year.
While production has been firing on all cylinders since the slowdown this spring it’s important to note that sales are still down substantially.
For example, BMW sales in North America are down 24.1% in the 3rd quarter with cars down over 30%. At this rate you’ll see inventory levels back to normal within 2-3 months unless something drastic happens.
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Jumping into a conversation is not always a good idea, but… My impression was dealers are reluctant to give the same discount on a custom-order car b/c they’d rather get rid of a car that’s already been on the lot for awhile. But, if I’m understanding you correctly, you’re implying that this is not actually the case?
In the current market, yes dealers in general like to move what is on their lot. However if we went to a order only model, then this would be flipped. People would pay up to get a car now versus waiting 3-12 weeks. It is more of the customer changing their behavior than the dealer.
Ah, got it.
I personally wouldn’t mind at all if the car-buying culture here flipped b/c I’d love for the better deal to be on a custom order. Don’t really see that happening, though…
Auto Sales Are Expected to Hit Lowest Point in Nearly a Decade
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Great snapshot. 2021 will not be a volume year, it will be about manufacturers pushing average price up (it’s already climbed to $38,000 in US), and dealers will be looking for gross.
We may not hit the 2018 volume again for years, if ever. So much of that 18M number was rental car companies, who won’t need to ramp inventory before Q3/4 2021 at earliest.
More to come…
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2021 Car Mfg’s will feel the work from home effect. Everyone will be looking to sell or rid of their lease. My 2nd car has been collecting dust for the past year.
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As a preface, I agree with you on a personal level. Wife and I went down to one car when MDX lease ended in October since we are both teleworking. (Granted VA tax of about $150 a month on 40k highlander may have influenced this decision).
But big picture Americans don’t seem at all interested in reducing vehicle size/# to save money. People are buying cars at a pace similar to last year. The idea of having one car per driver is just engrained in American mind even for families that perhaps, temporarily, don’t could easily make due with one less car and for whom the savings for reducing # of vehicles would be significant.
Tying in to the above discussion, I rented a car at National this weekend to get some furniture since household is currently down to just one sedan. I was amazed how small the operation was. Few staff and cars and even fewer customers. If travel ever really resumes the rental car companies are going to want to expand quickly since I am guest they have aquired very few new cars in past 9 months.
Good point, or they can just expand not as quickly and demand a premium. Will be an interesting year depending how quick vaccine rolls and things open up.
I’m feeling that right now. A lot of people who would normally be trading in their cars every 2-5 years are keeping them since they aren’t driving more than a few miles a week. Obviously leasing is a little different since a replacement card is needed, but it affects the preowned inventory and subsequently customers looking for certain preowned vehicles.