U.S. Customers Insist on Buying Cars off the Lot, and It’s Costing Dealers

About half of vehicles sold in Europe last year were built to customer order. But that’s not the case in the U.S., where less than 5 percent of vehicles were sold in the same manner, says the National Automobile Dealers Association. Almost everyone on our shores buys a car off the lot, and it’s costing dealerships across the nation a lot of money.

A new report from Automotive News highlights what seems to be a major problem in this business model. Just like any product, cars require precious floor space that costs money. Pile on the advertising dollars and incentives needed to make sure vehicles move off the lot, and it’s quite an expensive proposition.

Around 11 to 12 percent of a vehicle’s sticker price is needed to cover costs related to stocking and selling a vehicle, says Ben Waller, associate director of ICDP, an automotive distribution research group in the U.K. Given there were 3.9 million vehicles on dealer lots last month, costing dealers an average of $27,000 per vehicle, more than $100 billion in inventory is affected by the “lot rot” problem.

Switching to a build-to-order system isn’t as easy as it may seem. It would require a lean supply chain and more flexibility in the delivery of parts to assembly plants. But automakers have certainly made an effort to change. Mini has done well in delivering vehicles directly to customers, with about 25 percent of its sales achieved this way. Customers only have to wait an average of four to eight weeks for their Mini vehicles. Meanwhile, General Motors has dropped its delivery wait time down significantly from the 78 days it often took in 2000, former GM purchasing boss Harold Kutner told AN. Now, it’s as low as 28 days, GM says.

Source: Automotive News (Subscription Required)

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