AutoNation CEO Mike Jackson has issues with the industry practice of maintaining 50 to 60 days worth of supply of new vehicles. In today’s Automotive News [sub], Jackson advocates for a 30-day benchmark, blasting the manufacturers for their complacency.
What other business accepts the same benchmark for 50, 60 years and says, ‘That’s fine”? As soon as you put the parts together in a vehicle, nobody cares if it sits there for 90 days. And how you can get those ideas together in the same head is beyond me
Disagree? Take a look at the latest Automotive News [sub] inventory report before you weigh in. One example: as of September 1, Buick had a 25-day supply of LaCrosse and a 130-day supply of Lucerne. Cadillac and Lincoln also had no models with fewer than 72 days of supply. It seems this Jackson character is on to something…
It isn’t going to happen, but I would prefer a build-to-order car buying experience much like Dell used to do such a good job of with computers.
Go to the dealer and do you test driving, looking around and catalog review. Then enter into their computer the exact configuration of the vehicle you want and plan to come back in two to four weeks to pick it up. The industry has become so focused on impulse purchasing that is it missing the opportunity to have really lean inventories.
Yet another area where the Europeans are SO far ahead of the US. Why do we need a dealer with 100 cars on the lot, some of which are in configurations that are all but sale-proof? There should just be a few cars to test drive, then you order what you want and get it in a week or two.
As John Horner said, if Dell can do it with computers (and all the Europeans manage it in Europe), no reason GM or Ford can’t do the same.
They’d all like to cut back but nobody has the ballz to be first.
It isn’t going to happen, but I would prefer a build-to-order car buying experience much like Dell used to do such a good job of with computers.
Dell used it’s system to move over stocked inventory, the whole time they were building “your” computer, all they were really doing was stearing you towards components that they had overstocked on. And yes it worked really well.
I think its a system of the UAW agreements, labor gets paid regardless, so produce, discount and hope. Hopefully all of the buyouts and closures should lessen that problem.
Problem is CUSTOMERS.
Customers want it now and will go to the dealer who will have it today. Ordering in things can easily turn into lost sales.
Lost sale is a swear word. High inventory (and it’s costs) are less of an evil than lost sales.
Moronic. At the tire shop I work at we keep a huge of slow moving inventory because if we don’t have X size tire today the customer goes accros town and buys it. Sucks for us because we have to have 100’s of wacky size tires that almost never sell. (Then the CUSTOMERS haggle about price… but I digress).
The domestics could control their inventory simply by doing what Honda does — build to demand, and limit the number of colors and options packages.
In Detroit, aggressive sales forecasts are the norm. They never hit those targets, but they build to them. I’m not sure who they’re trying to impress, but they’d be better off with less share, but with higher prices.
The one lesson about inventory control that Detroit has never learned from the Japanese is a few set option groups without endless variations. Funny how quickly the Koreans picked up on it. Detroit despite vowing to follow this model many years ago still doesn’t today. Americans have been trained by Detroit to expect the vehicle they want to purchase will be available the day they want to purchase it, the foreign manufacturers follow the same philosophy in the US they just don’t have nearly as many variations. I don’t see any manufacturer going to a build to order model, the amount of sales lost would be prohibitive.
This advise given by a guy who is with a company that buys stores, and in almost every case, under performs the previous owner.
Some automaker needs to get 21st century on this shit.
Loss of sales from going online-only? The amount of hassle involved is THE major obstacle to completing a sale. How many people just automatically buy a Camry, F150, or whatever? It’s a commodity. That’s where you could cash in on the online buying experience. No one wants to sit there for 3 hours signing paperwork over, and over, and over again.
Pick your options, the internets find your car for you, you fill out the paperwork online, they deliver it to your doorstep. What’s wrong with that?
In Europe – at least in Germany – people are willing to wait 7-8 weeks for their car to show up. Would North Americans be willing to do that? I’m not so sure….
The other issue is that for all the vaunted ‘just in time’ supply chain improvements that the Big 2.8 have made it is all predicated on long lead times with their respective Tier 1 suppliers.
Delphi, Visteon, Denso, Magna, etc. have no problem delivering exactly X number of sub-assemblies to any given final assembly factory every day, however that type and quantity is locked-in, months in advance.
Euro style ordering would entail telling these suppliers to deliver (for example) 500 dashboards a day, to any given final assy factor, starting 6 months from now, however we won’t know the exact colors until a month before you deliver the parts.
Sure, it can be done it just costs more.
What John, krhodes and sean said.
Car makers (all of em) who operate here need to wake up and see the biggest impediment to their sales is the actual buying experience.
But, they pretty much stick their fingers in their ears and go LALALALALALALA.
This ain’t just a Big 2.8 issue either, it’s everybody selling here.
Tell me I’m mistaken, but it seems to me that Detroit did a fair amount of build-to-order in the not too distant past. I don’t remember it following the Honda model until the mid-Eighties or so.
Before that, most people I knew who bought U.S. brands were happy to wait awhile to get the colors/options they wanted, unless the old jalopy had just died or been wrecked.
Not only does Jackson makes sense, he’s espousing an idea that GM and Ford understood 40 years ago; Chrysler, of course, used the “sales bank” model.
Apropos of this subject, do any of you know someone qualified in Internet sales who lives near Westchester County, NY? A big Ford dealer there needs an Internet specialist.
Some of the reasons online only sales won’t work are; 1) customers want to see and drive the vehicles, this includes actually seeing the color selection not just the online representation 2) if a trade in is involved the vehicle must be physically inspected by the dealership to affix a value, you can’t tell that a vehicle has been repaired or the quality of the repair online 3) many senior citizens are simply not comfortable using a computer or don’t use one-how would they buy? 4) the same paperwork would have to be completed online as at the dealership-how is that easier? I could go on but I think you get the idea. Car sales will never be only online.
In Europe – at least in Germany – people are willing to wait 7-8 weeks for their car to show up. Would North Americans be willing to do that? I’m not so sure….
It would really take a lot of retraining of the customers…. and of the dealers. Anybody else here who has had the dealer try to tell them that the trade in depreciated in value during the 8 weeks that the new car was in route?
I do believe that the current system goes back to the Henry Ford days where economy of scale from mass production was the driving force in pricing.
Build to demand meant a lot of idle workforce time. It’s cheaper with fixed labor costs to run the line, park the product and wait for some one to order than to fire up the line, make 100 cars and then shut her down again.
The manufacturers are driving the days supply by offering allocations of hot or desirable product (if there is such a thing now)as long as you take some “dogs” too. Either that or special discounts, anything to offload product to the dealer. The technology is in place to run with a 30 day supply, but would either require dealer cooperation through trades, or a “stockpile” of units funded by the manufacturer and dealer. The rule of thumb for parts departments used to be 90 days as well, but an ideal situation now is less than 20 days, which is easily attainable with daily stock orders.
In the schmata trade, they mark it down if it doesn’t move, and mark it down some more if they have to. The auto dealers seem to be willing to let stuff sit forever. Why don’t we see real mark downs, Aveoes at 60% off?
Having some popular trim combinations in stock for test-drives and impulse buying makes the best sense, but otherwise it should be build-to-order.
I once went looking for a high performance car (that shall remain nameless to avoid a charge of bias or bashing) and demanded a manual. When I finally found it, I saw that it was in the most god-awful color.
I can understand a bad rental car color on an Impala, and people that buy cheap cars with manuals aren’t likely to quibble over the color, but when it is a high-performance car with a manual (which screams enthusiast), it should at least be painted in a good or neutral color (black, red, silver, etc.).
Honestly, who the hell thinks copper is a good color? Did PPG give ’em a really good deal?
Robert Schwartz :
October 8th, 2009 at 3:47 pm
In the schmata trade, they mark it down if it doesn’t move, and mark it down some more if they have to. The auto dealers seem to be willing to let stuff sit forever. Why don’t we see real mark downs, Aveoes at 60% off?
The reason is volume. There’s a big difference between losing a few bucks on a pair of jeans and five grand on an Aveo…
Just curious…were you in the rag biz?
I think a lot of that industry practice of keeping high inventories had to do with the old days, when strikes could shut down the factory for months.
Not much chance of that happening now, I’d say.
But I think Jackson’s right. If dealers can reduce their inventories, they can reduce floorplan and carrying costs. Won’t do much for the maker, though – they get paid whether the car sits on the lot or not.
John Horner :
October 8th, 2009 at 2:28 pm
It isn’t going to happen, but I would prefer a build-to-order car buying experience much like Dell used to do such a good job of with computers.
Go to the dealer and do you test driving, looking around and catalog review. Then enter into their computer the exact configuration of the vehicle you want and plan to come back in two to four weeks to pick it up. The industry has become so focused on impulse purchasing that is it missing the opportunity to have really lean inventories.
I wouldn’t say it’s impulse buying – the fact is that it costs a lot less money for the carmaker to build one model in a pre-set number of configurations, versus mix-and-matching options to order.
That’s a lesson they learned courtesy of Japan, Inc.
However, European makers still do this. BMW offers a ton of customization options in particular.
An automaker that builds cars that people want and manages inventory effectively can hit a 30-45 day target without building to order.
During a normal economy, BMW and Lexus inventories are typically about 3-4 weeks, while Honda and Toyota keep about 45 days.
It has been the domestics that have the inventory problem. That’s what happens to companies that make stuff that nobody wants. And when they try to sell that same stuff that nobody wants with a variety of unnecessary color and options packages, it only gets worse.
When I started selling cars in 1976 about half my sales were orders and half in stock units. As I recall about the late 80’s people no longer ordered cars, everything was in stock or dealer traded. One of the dealerships I worked for was the 2nd largest Ford store in the country and with an inventory of 1500-2000 new vehicles we constantly dealer traded to obtain the combinations of model, color and equipment customers wanted. That is the difference between the Japanese model and the domestic. The only thing I know for certain about a 30 day supply is it would reduce the dealers inventory finance costs but at the same time I don’t know how you could operate under it because it normally takes more than thirty days from factory order to dealership delivery.
It worked on Jim Rockford’s Firebird. Otherwise, meh.
Adub :
October 8th, 2009 at 3:50 pm
Honestly, who the hell thinks copper is a good color? Did PPG give ‘em a really good deal?
@FreedMike: “The reason is volume. There’s a big difference between losing a few bucks on a pair of jeans and five grand on an Aveo… Just curious…were you in the rag biz?”
Only vicariously, but, the moment you are billed for the inventory you are out the money. Those Aveoes, PT Cruisers, and Lucernes are not getting more valuable in storage. Unlike wine, cars do not grow in value as they age. Adding interest to your cost does not mean you will eventually be paid more. So why not mark it until it moves?
In Europe – at least in Germany – people are willing to wait 7-8 weeks for their car to show up. Would North Americans be willing to do that? I’m not so sure….
The last and only time I factory ordered was in 1993, a Chevy pickup. It took 13 weeks! Never again.
Dealers receive holdback, a secret discount paid to the dealer by most manufacturers after the retail sale typically 3-percent of base MSRP, to defray inventory costs. Are they prepared to relinquish it?
Didn’t think so.
We were like that once, maybe a generation ago. In the texting/Twittering era, not so much….
nikita :
October 8th, 2009 at 4:48 pm
In Europe – at least in Germany – people are willing to wait 7-8 weeks for their car to show up. Would North Americans be willing to do that? I’m not so sure….
The last and only time I factory ordered was in 1993, a Chevy pickup. It took 13 weeks! Never again.
I ordered my GTI (because it was impossible to find the color I wanted with the proper number of doors and base interior w/ rear torso airbags). It took nearly 4 months due to sitting at the port for 2 months waiting on a backordered “factory” aero kit. My wife’s ordered MINI came in 9 weeks.
On to answering Mr. Jackson’s question: TV advertising is based on a 50 year old system too
the days of supply have historically been high because of the way the manufactures (at least the domestics)book revenue.
Revune is booked as the car is Produced – not as it is sold to the customer – keep the factories running and more “revenue” is generated.
Doesn’t make it right, but it takes a day and 1/2 to make a Camaro, so considering the order/production/shipping process, 60 days of supply is not a terrible standard.
In Europe – at least in Germany – people are willing to wait 7-8 weeks for their car to show up. Would North Americans be willing to do that? I’m not so sure…
That’s about how long it took, did it in 2001 and 2004. As cars are better equipped nowadays, I wouldn’t have to do it again.
A 30-day inventory goal is great as long as it was the RIGHT 30-DAY INVENTORY in the right location. What are the chances that will happen? As others have posted above, dealer trading is necessary to find exactly what the customer want. Or, go to the Dell assembly model which cannot be easily modified to the car industry.
My idea is car “dealerships” should have only one or two of each model on small lots. These would be demo units for test drives. Regional warehouses would stock the bulk of the inventory to be transported to the buyer’s location. After the test drive, the customer and sales person would look at vehicles in stock on line, make the sale and arrange for delivery.
Any auto industry insiders know if this would work or not?
Twotone
Ford has taken some big steps towards simplifying the number of ways a model can come. It’s important to strike a balance between the Honda extreme (where you basically have a trim level and dealer installed extras) and the previous ala carte system that made it possible to order something like a sedan with the big V6, leather, crank windows, and hubcaps – bastard units that no one but the demented would want.
I work for a big dealership and having a nice selection is important for a lot of our customers. They want to see the color in person, want to see the difference in headroom with or without a moonroof, be able to drive a 4 cylinder and a V6 back to back, and then be able to choose between a few colors when they have narrowed the options down. We also do quite a few dealer trades, and do sometimes order units when the customer has very specific wants and doesn’t mind waiting.
Oddly enough the model with the most configuration options, the F150, is the one we least often have issues with regarding inventory.
Why would they (GM/Chrysler/Ford) listen to the largest retailer of cars?
It would be interesting to review Jackson’s pre-Ch11 comments from earlier this year. How’d that work out?
This limited color thing a few of youall keep talking about is one of the things that is ruining the automotive landscape.
When I picked out my car, I wanted one of these “unsaleable” configurations: full optioning, manual transmission, optional engine, ducktail and… hubcaps.
I hate alloy wheels. If my car is going to ride on painted plastic, it’s going to be $15.00 to replace when I rub a curb, not $150.00.
I specified to the dealership a first, second and third color choice. The car they delivered was purple– not one of my choices at all. After 12 years, I’ve grown to love being able to find my car in a parking lot(I wanted metal-flake silver,) but this limited palette thing is silliness.
MORE COLORS!!!!
iNeon – I can understand where you are coming from, and there are certain options that I wish were packaged differently (such as being able to get the track pack on an automatic Mustang, or being able to get the Sport Appearance package (which is the only way to get body color instead of chrome door handles) on a MKZ without having to take metal interior trim instead of wood) but I realize that I am in a minority on both of those, so, I accept that I can’t.
As far as colors go, I agree that they have become pretty stale lately, you don’t get as many exciting colors as you used to, just the obligatory pearlescent white, silver, some sort of beige/gold/tan, some muted or dark blue, some shade of red, and perhaps one experimental new color. With Ford at least the experimental colors tend to come out on the cheapest cars first, such as the Focus or Escape, or on the F150 where they figure it will sell no matter what color, and if it does well enough it moves throughout the line.
Right now a new mint green color (with the worst possible name for a color ever – Natural Neutral) has been introduced on the Focus and has been hugely popular (at least at my dealership) so I fully expect it to appear across the line for 2011. Other less successful colors such as Amber Gold and Kiwi Green have either been kept in the more youth centered models, or dropped entirely.
I’d personally love to see a nice robust metallic purple, or a medium hued metallic green enter rotation, but it appears as far as colors go, for mainstream cars, you are at the whim of the masses.
In my experience truck buyers are a lot less particular than car buyers. As long as a truck has the right drivetrain the buyer wants and possibly a tow package they’re good to go. Not nearly as particular about color either.
One thing to keep in mind about Mike Jackson is his background prior to Auto Nation did not involve high volume domestic manufacturers. Obviously the only reason he suggests a 30 day inventory is to improve his bottom line. When the domestics all had captive finance arms dealers usually floorplanned their inventory with them hence the manufacturer profited from the dealer’s inventory. Also, online viewing of colors doesn’t do it for most buyers, they want to see the actual car in person. In fact, many want to see the actual car they are buying before they buy it.
coming from Germany I do like the not having to wait in the US. In Germany the cars come in 8 different engines etc. that makes it hard to stock it. In addition the old laws prevented dealers from selling other brands etc. and all dealers are pretty small compared to US dealers. In addition german companies charge extra for everything (even here, Mercedes, any color but white cost extra…)
Just another reason why cars in Germany are so expensive compared to the US.
If manufacturers (and Honda does a nice job), equipped their cars with just one engine (maybe one sport option with more hp) and have all safety features standard, have all basic comfort standard (AC etc.) it would be much cheaper to keep inventory, produce and make costumers happy.
that also would eliminate the problem of manufacturers producing options no one wants. Like cars without AC etc.
I vote for online shopping, or at least online buying and test driving and picking up at dealership.
I once toured the Munich BMW factory and they bragged that every single BMW is unique. Of course, when you make every basic feature an expensive option!
—Adub :
October 8th, 2009 at 3:50 pm
Honestly, who the hell thinks copper is a good color? Did PPG give ‘em a really good deal?—
Actually, if my experience (at Honda with DuPont/Kansai) is any guide, they paid through the nose for it. Honda used a similar shade for some of the second-gen Acura CL type S (that’s a small run right there, “maybe” 1,000 out of 5,000 cars). Said shade was an absolute bitch to store, and just as hard to apply right. Cost per gallon was about 3 times normal, although some of that was because neither supplier really wanted that color.
People that buy “special” cars want to feel “special” and they often want everyone to know it. That’s where you get some of the odder shades, which would never appear on a “normal” car (heck, for years only Accord Coupes came in Red in the US, exports were a different story).
I agree completely. As Taiichi Ohno said, overproduction is the worst of all wastes.
However, I don’t agree that everyone is simply ok with having a 90 day supply. This problem is being worked on. One reason the domestics struggle is because their assembly plants typically can only produce 1 model per line (or badge engineered bretheren).
Having flexible assembly plants goes a long way to being able to shift output to match demand. Toyota and Honda are quite good at this.
But, Ford, GM, and probably Chrysler have been working on making their plants more flexible over the last 10 years.
I believe that the future of car buying is internet based, as the generations who only know online shopping are beginning to be of car buying age. It will also necessarily involve less inventory. All that wasted money is clearly not sustainable. I also believe the future is more options, not less.
@iNeon: You can have any color you want as long as it is gray.
the future is more options, not less
Most definitely.
A very limited range of “standard” models, just above “fleet grade”, maybe in stock, maybe in the colour you want, but everything else is configure-to-order driven by options. Inventory problems solved.
It will take one manufacturer to commit to a CTO model and the rest will follow. They’ll need good systems.
That and some extra marketing work to rid buyers of “impulse” shopping for cars (madness).
The car buying public is simply not ready for 100% online car buying. Dealers with millions invested in facilities aren’t either and with individual state franchise laws they will prevail. I still don’t understand why anyone would think doing all the paperwork online by yourself is easier or less time consuming than doing it at the dealership with the help of dealership personal. Those that think the 100% online scenario is viable haven’t sold cars. You can’t drive, sit in or inspect a vehicle online. Many car buyers want to do these things. In my case I need to sit in a vehicle to make sure I fit, I want to drive it, I want to see the actual car in several colors and I want to see the actual vehicle I’m buying before I buy it. 100% online car buying is not an option for me. This is an idea whose time if it ever comes is still a long way from reality. How do you propose people that aren’t comfortable with or don’t use computers buy cars? This is a large number of car buyers. How many people purchase furniture without seeing and sitting on it and seeing fabric swatches? Sorry but this idea doesn’t fly, it’s a completely different kind of purchase from anything else sold online. You can’t appraise a trade in online either.
Buying a car is not even close to the same as buying a computer on line.
People want to see the car, hear it, drive it smell it. They want to be excited about this 2nd largest purchase of many people’s lives.
Sorry. That sort of primal, emotional, involvement just does not happen when purchasing a computer over the internet. Or with buying a computer at all.
Getting a new car is exciting.The purchase will be your partner in crime,commuting,a ticket to new places, a vessel for memories over the years, carry you and your loved ones to holidays and distant places. It will basically be at the core of your life for many years, it will share it’s life with you.
Buying a computer is as exciting as buying a washing machine. Not the same thing.Perhaps Toyota could sell Camrys and Corollas that way, but one would be the sort that really didn’t get that much involved with their cars or trucks.
“Somewhere west of Laramie…..”
Can’t you still go to a Detroit dealer and order a car direct from the factory, built to your specs? I know the Japanese and Korean don’t do it, but I thought the Detroit Three still do. I think you might be able to do this with some of the Europeans, too.
Robert Schwartz: “@iNeon: You can have any color you want as long as it is gray.”
Amen, brother, amen! Darkest gray (black), dark gray, light gray and lightest gray (silver).
NulloModo, I’m glad to hear Ford is trying mint green. (But “natural neutral”? Are they nuts?) Any shade of green is rare nowadays. Toyota offers an attractive light green on Avalon and Sienna, but not on mass-market models.
Then there are interiors: beige, gray or black. Gone are the sumptuous and beautiful dark blue, burgundy red or tobacco brown interiors of yesteryear.
I like Twotones idea of the central warehouse.
I want to know why tan has become the primary interior color. If I buy a black car I want a black interior. In fact, I don’t care what color I buy, I want a black interior. At least for me that would work because I prefer dark colors.