Car and Driver: Ford Moving toward Build-to-Order, Away from Packed Dealer Lots

[jimbrewer]

I think the 2008 recession helps the domestic got rid of the job banks and many labor liability, and this pandemic forces them to produce less and now they can focus on the more valuable sales instead of flooding the discount fleet sales. Good for them, hopefully we will all have better cars instead of things sitting on the lot.

Yeah, nothing like administered prices by manufacturers with market power.

 

[haggler]

Yeah sure people are used to ordering and paying sticker now or getting screwed on carvana..I'll wait until the market implodes and generous rebates off sticker are back...or never buy a new car again.

 

[JeffKeryk]

After reading a little bit more, I am confused as to what the "build to order" process even means. I first assumed it woud be similar to the Tesla direct sales model, but now I am not so sure.
Is Ford partnering with dealerships or competing with them?

If there is a combination of factory-direct and franchised dealerships that compete against each other, that could mean better deals and better experiences for the customer. But I am not sure this is what is being proposed...

Additionally, dealer discounting relies heavily on factory rebate money and financing.
If they are competing, who do you think will get priority on factory money? Manufacturing scheduling?
Ford would be in direct competition with their dealerships instead of working together.

I imagine there are contractural agreements between Ford and their dealerships. Calling all lawyers!
Another thing, isn't ordering a Ford something you could always do?

Maybe this is simply a meaningless option at your local dealership instead of some kind of direct sales.
Is so, it is a big fat nothing. Until the process is better defined, this is just noise.

 

[partspro]

Carrying costs for all that Inventory is through the roof.

 

[CheezWhiz]

That's the only color I custom ordered.

my truck is a white base model. i've had a couple white ones, I like white! but it's a very common color, i gotta admit ...

 

[partspro]

Probably because they have to. Can’t get parts. Of all the vehicles I’ve bought in my life, I’ve only ordered 2. I only took one because the dealer got one in like it and I took that one.

Specifically, computer chips, big shortage. My son has his own used Dealership and he offers ceramic coatings and MINI head work as an extra cash source. He finds cars or helps customers with their needs quite often.

 

[DuckRyder]

They ran a poll on their site in mid 2020 IIRC... It was basically asking if you'd be willing to virtually order a car/truck and things like how important the test drive was and how important it was that you drive the exact car/truck.

I'd assume this came out of that survey.

If you walk around dealer lots they tend to order pretty much the same thing on all of a model/trim. Might as well not have 150 of them sitting there and have some for test drives and viewing and perhaps some for immediate sale...

 

[CKN]

More important thing for me is buying a car that 30 morons haven’t test driven HARD for 5 miles on a cold motor.
I will have my car ordered, thank you!

You concerns are unfounded. Many buy their cars off the lot and put 200,000 miles or more on them.

 

[ammolab]

You concerns are unfounded. Many buy their cars off the lot and put 200,000 miles or more on them.

What is the highest number of miles on a “new“ car that you have purchased.. without “concern“? 50? 150? 200? 350?

And many people have Butt loads of new car issues and many smoke with no lung cancer issue. None of that reassuring to me.

 

[Averroes]

This is purely from an accounting perspective as per usual. JIT is the way to go. Why use all that raw material and labor to make a finished product that will sit on the lot and depreciate (impairment as well) if it's never sold?

Obsolence causes inventory value to go down which causes your assets to decrease in value which affects your balance sheet which can turnoff shareholders creditors and potential investors when running certain financial ratios. I hate to say it but us "bean counters" ruin many things just to get a healthy bottom line.

 

[Andrew1972]

If they can eliminate the salesman, (ask) their sales manager, and finance manager and put vehicle ordering into a nice site where you can ask for help or have them do it great! Have a few test cars on site better beyond used inventory.

Remember you can reject delivery and as long as you smart enough to put deposit on credit card it is pretty easy to get money back. With a small dealership they should be able to have a nice well lit inside delivery area where close inspection is possible.

 

[JustN89]

The online selling model is gaining popularity and just makes sense.
Who do you think pays for that big, beautiful dealership?
Who do you think pays the slaesman, manager, next manager, GM, car warsh guys, janitors, gas and electricity?
What value do they add vs cost they incur?

Direct sales is simply cutting out the middleman.

JD Power Survey

This is a few days behind, so apologies. However, the manufacturer has no administrative role in the owning and daily operations of a dealership. The vast majority of dealerships are owned by an individual, a family, or by a parent company. So, who pays the sales staff, managers, GM, etc? That would be whoever owns the dealership, not the manufacturer. They also pay for the building, any upkeep, insurance, etc. The only thing the manufacturer will provide are incentives for the sales staff (sales of certain models, certain trim levels, bonuses for hitting targets for units sold, etc). These incentives aren't paid directly to the staff, either. They go to the owner of the dealership, who then provides a percentage of that bonus down the line. The GM will get his cut, Sales Manager, any TO or Floor Manager, then the salesperson. This is why a dealership might be inclined to sell a car at a loss. The only part a manufacturer has in the dealership is the contracted agreement to sell their cars at that dealership, so long as that dealership meets certain criteria, such as: not selling any other new cars from manufacturers (unless they are on an approved list, an example being Mitsubishi being allowed to be sold at Nissan dealerships, etc), providing a service facility, selling a set minimum number of new cars per month, not posting an online price below a certain amount for new cars (this was the case at Honda), etc. With all that said, most dealership's profits are coming from Service and the F&I portion of the sale, which the manufacturer has very little part in.

The move to "Build-to-Order" isn't exactly a new concept, as it was done by Mazda in the 80's and a few other manufacturers historically. It's also the primary business model in Europe, as I understand it. Dealerships will still have their place, as the service departments are critical to the support of a manufacturer, as Tesla has discovered. There will also be units on the lot that can be purchased and driven away same day. However, it will provide the customer more options when it comes to optioning out their car, choosing their colors, etc. This will most likely come at the cost of the incentives, as Ford has already pointed to those incentives as a major cost savings that drove this move. So while the car may be optioned out to the customers liking more, it will also *potentially* cost more. That's also why dealerships are going to be fighting over this move as much as some think- they will potentially be making more per unit. There may still be some room for negotiation of price, but I'd say that the shrewd car shopper has already discovered that it's not hard to find the best price online and once it's found, it's hard to negotiate any more off of it.

 

[ryster]

Our buyers can refuse a dealer trade or ordered unit, without penalty. We've had unicorn builds refused, we just put them into service as a parts truck or service loaner. I've never seen a buyer "forced" to buy a vehicle.

Special ordered a car only once. It was such a disaster I vowed to never do it again. The car came in with damage and missing ordered options. Dealer said there were mid model year changes and my order was affected. Then asked when I wanted to take delivery. I told them I no longer wanted it and to refund my deposit. They balked and said they would not refund the deposit. Took 6 weeks and finally going to the owner of the dealership to get my deposit back. They ended up selling the car on their lot in less than 1 week, so it wasn't like they got stuck with it.

This new Ford sales model is going to be a huge hassle, unless they keep demos of every vehicle available at every dealer for people to evaluate. Then trying to convince people to wait 6-8 weeks to receive their new car will be a challenge, especially for people that get the "new car bug" and want something right then and there. I know when I get the urge for a new car I want something within a week or two, not 6-8 weeks. I've been wanting to look at the Bronco Sport for weeks now, but none of the dealers around here have any. I am quickly becoming disinterested in the Bronco Sport and getting ready to look at other makes and models.

 

[OVERKILL]

Spoke to a salesman at my FCA (now Stellantis) dealer yesterday about this. Apparently, they aren't expecting things to approach "normal" until the end of next year (Stellantis). We discussed the shift to BTO and apparently, GM is doing this already according to one of his friends that works for a GM dealership. With the chip shortage, the dealership can't order a vehicle unless there's an end customer associated with it, they are literally not allowed to order stock and GM calls the end customer and checks.

 

[JeffKeryk]

So, who pays the sales staff, managers, GM, etc? That would be whoever owns the dealership, not the manufacturer. They also pay for the building, any upkeep, insurance, etc.

Actually, my point was the customer pays for the dealership, aka middleman.
Having said that, the Ford BTO model may not be changing much. I was originally thinking they were moving towards the Tesla direct sales model, which seems not to be the case.

 

[OVERKILL]

Actually, my point was the customer pays for the dealership, aka middleman.

Sure, but as @JustN89 pointed out, that's typically by way of the service department, the cut a sales person can get from a vehicle may be tiny, depending on how close to dealer cost the dealer is willing to go and they may even sell at a loss to hit volume targets.

The presence or absence of a middleman may not have any real impact on the difference between production cost and what the consumer ultimately pays. However, it does provide some nice optics on that front that may lead one to believe otherwise.

Having said that, the Ford BTO model may not be changing much. I was originally thinking they were moving towards the Tesla direct sales model, which seems not to be the case.

No, it seems like they are just not going to crank out massive volumes of vehicles that they expect the dealers to buy and stock. This will ultimately have an impact on the efficiency of their production model, which, prior to the chip shortage, was operating in exactly that mode. This will likely lead to some significant changes on the production side of things to make it more lean in order to makeup for that loss of efficiency.

 

[JeffKeryk]

Sure, but as @JustN89 pointed out, that's typically by way of the service department, the cut a sales person can get from a vehicle may be tiny, depending on how close to dealer cost the dealer is willing to go and they may even sell at a loss to hit volume targets.

The presence or absence of a middleman may not have any real impact on the difference between production cost and what the consumer ultimately pays. However, it does provide some nice optics on that front that may lead one to believe otherwise.

No, it seems like they are just not going to crank out massive volumes of vehicles that they expect the dealers to buy and stock. This will ultimately have an impact on the efficiency of their production model, which, prior to the chip shortage, was operating in exactly that mode. This will likely lead to some significant changes on the production side of things to make it more lean in order to makeup for that loss of efficiency.

The service department is paid by the customer as well, right? That big shiny beautiful showroom and all the people are not required for pulling wrenches.

The middleman adds cost. The customer utlimately pays that cost unless the dealership and ultimately manufacturer are willing to reduce GM. I think you know Tesla margins are about 29%, which is far better than most manufacturers.

My question about BTO is, just what does that mean? Is it option groups or custom detailed configurations? Detailed configurations are a procurement and manufacturing line nightmare. It forces inventory size increases along the supply chain. Hardly optimized... What about purchased subassemblies? Does build customization push this far?
Some configurations may be difficult to build, if one part requires another. Just think about BOM complexity, operations and resulting cost...
The other issue is the slowing of delivery due to order process. Dealers want to move cars as quickly as possible. They don't want to wait either, and fickle buyers may never actually buy the car they ordered any number of reasons. Who knows?
Until this BTO model is better defined, it is impossible to say.

 

[DuckRyder]

…GM is doing this already according to one of his friends that works for a GM dealership. With the chip shortage, the dealership can't order a vehicle unless there's an end customer associated with it, they are literally not allowed to order stock and GM calls the end customer and checks.

Recognizing that the US and Canada may be on different programs, a US dealer can most assuredly order for stock … Assuming they have Been doing so.

I have a good friend at a GM dealer, they have been ordering and selling 800 -1000 cars and trucks a mont the whole time They have stock they get cars and trucks nearly every day sometimes more than one truck load. My friend knows as one of his responsibilities is to make sure they get stocked in and pdi’ed as well as matched up with the LPO’s (options on the sticker that are shipped separately). The way he understands it is that dealers who have been ordering and selling are priority for stock allocation. They are one of the highest volume dealers in the southeast and due to this a high percentage of sales are out of state (which is a problem with some of the LPOs) . They are adding on to the dealer and service departments to make room for all this as well as medium duty trucks.

 

[Silver]

You won't be able to order a stripped down model, and if you could they'd jack up the price on that as well some how. They'd add back in some "package discount" or some BS like when you only want internet but the internet alone is $90 and the TV/Internet package is $105.

And they won't get cheaper just because they're eliminating or downsizing dealerships.

Remember - STEALERSHIP.

Yeah it's a cliche, but seriously. They're not going to lower margins at all. They're just going to lower costs. No, not your costs. Their costs.

 

[OVERKILL]

The service department is paid by the customer as well, right? That big shiny beautiful showroom and all the people are not required for pulling wrenches.

Of course, just like at the Tesla service centres. The showroom and stuff certainly add cost, but depending on the cashflow of the dealership, it may or may not be a big part of OPEX. Sales staff don't stick around if they can't move product (and make money).

The middleman adds cost. The customer utlimately pays that cost unless the dealership and ultimately manufacturer are willing to reduce GM. I think you know Tesla margins are about 29%, which is far better than most manufacturers.

Of course the middleman adds cost, but you've highlighted why eliminating that may not result in any sort of better deal for the consumer with the mention of Tesla's margin. Ultimately, if the cost of the middleman is primarily borne by Service, then the sales department can operate on a razor thin profit margin, so even if we eliminated it, the cost of the product is unlikely to change and in fact, may become more expensive due to a loss of efficiency on the production side.

My question about BTO is, just what does that mean? Is it option groups or custom detailed configurations? Detailed configurations are a procurement and manufacturing line nightmare. It forces inventory size increases along the supply chain. Hardly optimized... What about purchased subassemblies? Does build customization push this far?
Some configurations may be difficult to build, if one part requires another. Just think about BOM complexity, operations and resulting cost...

Currently, it simply means that each vehicle is ordered for a customer. The list of options is expectedly long (look at how many Grand Cherokee models, configurations and options are available for example). How that changes, if it does, going forward will be interesting to see. Tesla understandably provides very little in the way of options/configuration due to how the product was designed to be sold, and that's both a blessing and a curse. The low rent interior, one of my biggest gripes, is something that can be dealt with by checking an option on other vehicles in the same price bracket, which of course adds complexity and increases parts inventory count, vs Tesla's cookie cutter "no options for you!" approach.

In terms of subassemblies and the like, the unibody, doors and stuff is all standard. Differentials, t-case, subframe, engine, cooling system, interior panels, infotainment vary wildly depending on configuration ordered. A base 2WD GC with the V6 is going to be wildly different in terms of equipment than a TrackHawk for example.

The other issue is the slowing of delivery due to order process. Dealers want to move cars as quickly as possible. They don't want to wait either, and fickle buyers may never actually buy the car they ordered any number of reasons. Who knows?
Until this BTO model is better defined, it is impossible to say.

Yes, dealers usually order a ton of what they know will move (typical configurations) because most people want to be able to see it, drive it and then buy it. This is going to totally bugger that up.

My current SRT took two months to receive if that gives any indication on timing.