Automobile executives say that consumers--at least impatient Americans--aren't interested in custom-built cars and trucks.
Apparently so. And it's all your fault.
Automobile executives have long boasted they have been close to perfecting the so-called build-to-order manufacturing process, in which a consumer custom-orders a vehicle and returns to the dealership within about a week to pick up the vehicle fresh from the assembly line.
Automakers promised that the Internet would revolutionize the entire process of building vehicles, creating a more direct link between customers and assembly lines that would result in a plethora of custom-built cars, deeply satisfied consumers, and fatter profits.
But now industry executives say that consumers--at least impatient Americans--aren't interested in build-to-order cars and trucks. They say shoppers in the United States, the world's biggest automobile market, are instead satisfied with picking out any old four-wheeler sitting on the lot on any given day.
They also say that Americans' unwillingness to wait even a week or two for a custom-built car has bogged down implementation of the build-to-order manufacturing process--a way to streamline the production process and save thousands of dollars per vehicle in reduced inventory and rebate costs. In numerous interviews with CNET News.com this week at the 2001 North American International Auto Show, industry executives said they weren't rushing to fulfill their build-to-order promises because customers weren't demanding they do so.
"We've done build-to-order for 100 years with the Mercedes brand in Europe, where 80 percent of the customers are more interested in custom products and are willing to wait," said Deiter Zetsche, a DaimlerChrysler senior executive from Germany now presiding over the Chrysler unit. "But I don't see the American customer interested in waiting."
It's true that Americans thus far have shown little willingness to wait for vehicles equipped with the specific option packages in the colors and configurations they want--unlike European consumers.
Only 12 percent of cars are specially ordered in the United States, compared with 49 percent in Germany and 32 percent in France, according to the Boston Consulting Group. Likewise, Americans purchase 76 percent of their vehicles from existing dealer stocks, compared with 41 percent in Germany and 43 percent in France.
But industry researchers say build-to-order would be a boon in the United States, where automakers routinely have to slap on big discounts, or rebates, on slow-selling models. Instead of building cars that sit on the lot, experts say, automakers could build only those cars that people are willing to buy.
The Internet has made it easier to switch to a build-to-order model--and many industries have shown that model to be vastly more profitable than the stockpiling method. Instead of waiting for vehicle orders to flow from the customer through the dealership to the automaker to the assembly line, the Internet can link customers directly to the factory.
Supply-chain experts say that if the automobile industry could switch to a build-to-order process on par with that of Dell Computer, it could save several thousands of dollars per vehicle. Goldman Sachs estimates that taking slack out of the supply chain through build-to-order manufacturing would trim an average of $3,600 from the cost of a $25,000 car.
According to a new report from Forrester Research, unwanted vehicles sit on dealer lots an average of more than 45 days and cost dealers at least $300 each in carrying costs. To unload the stockpiled vehicles, dealers must discount the vehicles--with incentives that reduce the average vehicle profit by 30 percent, Forrester found.
Forrester also determined that by failing to switch to a build-to-order model the U.S. auto industry loses as much as 2 percent of sales per year, for a total of $7 billion per year, because disgruntled customers walk away from the lot rather than compromise on their ideal vehicle.
Some experts say that the auto industry's reluctance to switch to a true build-to-order model is not due to a lack of desire among consumers but to a lack of ability among manufacturers. Others blame it on a broader inflexibility among automakers and suppliers to adopt an e-business model that encourages build-to-order manufacturing.
The average custom-built vehicle takes six weeks to six months to be delivered to the dealership, according to researchers at Ford Motor. Forrester estimates that the switch to an authentic build-to-order system, which delivers a custom car within about a week, will not happen for a decade.
"Today's automakers focus on maximizing asset productivity, often at the expense of customer satisfaction and industry profitability," the Forrester report stated. "With very little direct information about customer demand, manufacturers push wave after wave of new cars out to dealers."
Auto executives argue that they could do it now--but customers don't want it.
"The question is when will the consumer have the confidence to push the button on a $25,000 purchase...on a product they have never seen?" asked Gary Dilts, head of e-commerce operations at DaimlerChrysler. "Right now the customer wants to get close to the car and do the finance online, but ultimately they want to see how the color looks in the sunlight and sit inside before they commit."
To be sure, there is something of a Catch-22 with build-to-order: If customers don't want it, automakers won't deliver it. In addition, it's far more complex to switch over to such a model in the auto industry than in the computer or electronics industry, where cycle times are short, and the manufacturer can rely on airmail to ship products.
"People don't buy cars uniformly across the calendar year," said Dave Cole, director of the Ann Arbor, Mich.-based Center for Automotive Research. "So the manufacturers have to create some inventory because they can't have idle factories. It's not as easy as Dell switching to (a build-to-order model) and pushing back inventory to its suppliers."