Auto makers are speeding up the trend of making their mass-market vehicles nearly to order, one of the many ways that the pandemic and accompanying supply shortages and increased demand for one’s own wheels may have changed the industry for years to come.
The changes sweeping the industry may also transform the century-old car dealership model, with some envisioning dealers as primarily service centers rather than car depots, and even as potential electric-vehicle charging stations of the future.
Ford Motor Co. /zigman2/quotes/208911460/composite F -5.54% surprised Wall Street recently with its move toward an “order book,” even as executives took pains to say that dealerships will remain the company’s partners in the foreseeable future.
Dealerships are, of course, not going away, not in the least because car-buying runs into intricate franchise laws that vary from state to state and, for the most part, either bar direct sales altogether or limit them.
Tesla Inc. /zigman2/quotes/203558040/composite TSLA -6.80% famously eschewed the dealership model from the outset, running into years-long and in some cases still ongoing fights in some states to sell its cars directly to consumers at its own stores. And the customers of Tesla and several other luxury auto makers have long been able to order and configure cars online down to the smallest detail.
Dealers have long said their model protects consumers from price fluctuations and other ills by offering competition, in addition to providing reliable service to what is often a person’s second largest purchase, after real estate.
According to the National Automobile Dealers Association, more than 8,000 dealership companies operate nearly 18,000 dealerships across the U.S., with more than half of those companies owning only one store.
But it doesn’t mean dealerships can’t be reimagined, especially as car buying itself is already looking much different that it was just a few short years ago.
‘Massive’ benefit for auto maker
Going the order book way is a “massive” benefit for Ford and all its stakeholders, Ford executives said at the company’s recent call following second-quarter earnings. They are expanding the model after putting it in place for high-demand vehicles such as the Mach-E and the new Bronco, they said.
It reduces dealers’ costs and allows the company to “significantly” cut down on discounts and other sales incentives and stop wasting money on them, the executives said.
The company is aiming for a 50- to 60-day inventory, with inventories of pickup trucks and other best sellers a little higher, and supplies at urban and suburban dealers likely less than that range, the Ford executives said.
It’s not something entirely new, they said. Ford did it for a few years after the 2008 financial crisis, then over time “lost discipline,” the executives said.
Dealers will still be the main connection to customers as cars become more complex and over-the-air updates and other features become even more prevalent than they are now, they said.
And they’d still be service centers, providing in-person service and analyzing vehicle data, prognostics, parts ordering, and other variables, which is especially important for commercial fleets.
General Motors Co. /zigman2/quotes/205226835/composite GM -5.96% struck a more cautious tone, with Chief Executive Mary Barra saying on the company’s second-quarter call with analysts that GM has “optimized” its inventories and is taking orders in some cases.
GM knows that “there’s a customer who wants to go to the dealer and drive off with a new vehicle,” Barra said. “We want to service them as well. And that’s why I think some of the tools we’ve put in place to help our dealers have the vehicles that they want is going to be very important.”
In the built-to-order model, “everything benefits the auto maker,” said Karl Brauer, an analyst with iSeeCars.com. There are no guesses about what customers want, and therefore fewer discounts on cars, bringing up margins, he said.