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| The Mirage of Built-to-Order Cars |
March 9, 2004 |
By Jason Rodham
Remember all that noise about how the Internet was going to usher in an era of mass customization and ‘anyway you want it’ shopping? By now we expected to be sitting around the computer on a Sunday night, ordering our next car with precisely the look and feel we always wanted. No more tramping around car lots dealing with slick-suited salesmen and their smooth-talking ways or driving off the lot in a yellowish car that was discounted a thousand bucks because it’s just so darn ugly. The Internet, we were promised, would eliminate the scourge of buyer’s remorse at a single stroke. Car companies would produce only those cars that were ordered, eliminating ‘lot rot’ forever and saving themselves staggering amounts of money in reduced overhead and new-found efficiency. Well, it didn’t happen.The major automotive companies, even with all their raw manufacturing power, logistical finesse and proven technological abilities, have not rolled out built-to-order (BTO) cars. And despite repeated attempts, none of them wanted to even comment on the subject. That’s probably because there are at least three major impediments to BTO: 1. DEALER CLASH“Going out to speak to dealers, we saw there was a great deal of trepidation,” said Charles Mills, senior director of the automotive consulting group at J.D. Power and Associates. That’s because the Internet, by its very nature, cuts the middleman right out of the equation. In the case of the car industry this would force manufacturers to “sell against” their long-time partners, the dealer network. Before the car companies can move forward with Web ordering they must first develop a subsidy to “incentivize” the dealer and their sales people, Mills said.
Volkswagen offered a limited number of specially coloured Beetles to Internet buyers in a recent ordering test, he said. Vehicles were stockpiled at various sites around the U.S. and dispatched to the closest dealer as soon as they were ordered. It was only a one-time test but distribution models like these would go a long way towards allaying the dealers’ innate fears. And there’s still a lot of work to do on the incentive front. For example, Mills said the average sales person only gets commission once the customer drives a new car off the lot. If custom ordering forces me as a salesperson to wait four or even eight weeks for delivery, “what (car) do you think I’m going to try and put you in?” 2. MAJOR SHIFT“Everybody wants his or her car to be unique or a little different than the others,” said Dr. Peter Fries, program leader and CEO at the University of Windsor-based AUTO21 Network of Centres of Excellence. The problem is the car industry generates the highest efficiency — and produces the best cars — when it sticks to a few versions of each model, a concept that began with Henry Ford’s formula of giving customers any colour they wanted, just as long as it was black. Variety, however, is already a reality down on the factory floor, with “vast numbers of combinations and permutations” being produced in Canadian factories everyday, Fries said. He added that manufacturers have become highly adept at making “adjustments on the fly” and in building a mix of cars at any one time. “The problem is that as the number of permutations and combinations goes up the costs go up and it becomes less and less efficient to build the vehicle.” On the consumer side, though, all of J.D. Power’s data points to the fact that many consumers will buy cars online at various points along a timeline and with various pricing options. “For me the key issue was never would the customer adopt (online automotive purchasing)?” Mills said. Instead, the question is whether the car companies are willing to undergo a fundamental shift in their business
process. 3. LITTLE INCENTIVEMills said that between eight and 12 per cent of today’s car buyers already order some custom modifications direct from a dealer — usually trucks or sports cars — and then wait several weeks to take delivery. For the majority of consumers, though, auto companies focus on ensuring they produce cars that the general population wants. “If the manufacturer does a great job of putting the right vehicle in the right place using good marketing information then they don’t really need built-to-order because they are already managing the requirements of the greatest number of consumers,” Mills said.Fries is also skeptical of the market’s real potential.
It’s fine to sell books and CDs on the Internet but cars are capital purchases that usually have to please more than one person and need to be extensively tested beforehand.
It’s possible that someday car companies will shift a portion of their business to the Web, perhaps making models available for testing at decentralized locations or on existing dealer lots. But according to Fries the “desire for people to want to go and have a look and think about it…is not going to go away.”
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