Built-to-Order Cars Delivered in 10-15 Days? They're On the Way

The Internet was supposed to make old-fashioned car salesmen an endangered species. Technology futurists predicted consumers would stampede away from dealerships that practiced strong-arm sales tactics by buying cars online.

The new sales method also promised to cut costs for manufacturers who would "build to order" instead of the current process that floods dealers with expensive inventory that typically takes 45 days or more to sell.

The Net has indeed become an important tool for consumers, auto dealers and manufacturers --- but not in the way the visionaries foresaw, according to a March 26 story by Dave Hirschman in the Atlanta Journal-Constitution.

Rather than buying online, consumers use the Net to arm themselves with accurate information about the true cost and availability of the car models and options they want. Then they go to traditional dealers and haggle.

Ironically, industry experts say technology is making car salesmen more important --- not less.

"The Internet speeds transactions and makes car sales people more productive," said Randy Nelson, education director at the Metro Atlanta Automobile Dealers Association, which has trained 12,000 car salesmen since 1995. "It's a useful tool for us, too. It's not a threat at all."

In the 1990s, a booming national economy fueled record U.S. car sales. Manufacturers produced new vehicles at near peak capacity. Now that the economy and new car sales have slowed, however, auto manufacturers are under more pressure than ever to sell directly to consumers via the Internet, to speed deliveries, pare inventory and cut costs.

Consumer-based "pull" system is here

So will the predictions of tech futurists finally come true? Will dealerships be transformed into futuristic boutiques where employees earn salaries instead of sales commissions and compete on customer service instead of sales volume?

Daniel Garretson, an analyst at Forrester Research Inc., a Massachusetts consulting firm, told Hirschman the auto industry's long-awaited transformation from a capacity-based "push" production model to a consumer-based "pull" system has finally begun.

"In the next four years, automakers will create customer ordering, supply-chain management and logistics capabilities and integrate these systems into a comprehensive build-to-order information platform," Garretson said. "This infrastructure will enable manufacturers and dealers to overhaul their business practices, shifting the industry to a customer-centric 'pull' manufacturing."

About 60 percent of U.S. car shoppers educate themselves online before visiting dealerships, according to a recent Forrester study. But of those who troll the Net for information, only one in three visits a car-buying Web site, and only one in 20 consummates a purchase online. By 2005, however, Forrester expects online auto sales to surge to $33 billion from $2.8 billion last year. In 2010, the firm estimates 21 percent of new car purchases will be built-to-order, up from less than 5 percent today.

Groundwork is being laid. In Europe and Brazil, General Motors allows customers to configure, pay for and track their new car deliveries online. Domestically, all major automakers have developed regional Internet sales tools that they hope to expand nationally. FordDirect.com is linking buyers and inventory in New Jersey. GM has a pilot program under way in Minneapolis. Toyota has pooled its dealers online in Seattle.

And unlike the last decade when record sales made change less urgent, auto industry experts say lean times will accelerate the move toward direct sales.

The U.S. auto industry enjoyed its best volume year ever in 2000, but sales slowed dramatically in the fourth quarter amid a flurry of earnings warnings, layoffs and plant closures. After operating at near capacity for several years, GM and DaimlerChrysler announced this year they will shut 20 of their combined 41 manufacturing plants.

Inventory backlogs also put pressure on manufacturers to sweeten sales incentives for dealers. In January, Chrysler's incentive costs jumped to $2,600 per vehicle, up from $1,200 in 1998. And Forrester's Garretson blames the auto industry's old "push" manufacturing methods for its inability to cope with rapid economic shifts.

"The (push model) limits automakers' ability to respond to changes in customer demand so that record profits quickly swing to deep losses when vehicle purchasing slows," he said. "The push model is past its prime."

Building cars to order promises a reduction of up to $2,400 in the cost of producing individual cars, transporting them to dealerships, offering rebates and waiting until they are sold, according to Hirschman. David Simchi-Levy, an engineering professor at the Massachusetts Institute of Technology, estimates a build-to-order system would allow automakers to lower costs and increase margins another 5 to 7 percent by more closely matching inventory with demand.

The main obstacle, Simchi-Levy said, is production lead times at companies like GM can stretch more than 50 days. "That's obviously not acceptable to consumers," he said.

GM has set a goal of cutting lead time to a maximum of 10 days --- and its competitors have set similar goals.

In Atlanta, the "Autogistics" unit of United Parcel Service's Logistics Group has been working with Ford for a year to cut new car deliveries to eight days from 15 when the project began. If the project is successful, faster deliveries will save the world's second-largest automaker more than $1 billion a year in inventory and hundreds of millions of dollars in carrying costs. Perhaps more significantly, the move also could boost Internet sales, according to Hirschman's story.

Most U.S. car dealers have Web sites

More than 90 percent of U.S. auto dealers have Web sites, and most are linked to "locate-to-order" systems. CarsDirect.com, Autobytel.com, AutoTrader.com and other networks allow car buyers to search for the makes, models and prices they want in specific geographic areas.

But industry experts say those new tools are just precursors of more radical moves manufacturers must make to create real "pull" systems.

"Build-to-order will require the industry to fundamentally shift its business practices," said Garretson. "Moving from maximizing volume to maximizing profitability will require plant managers to increase flexibility at the expense of productivity and dealers to shift their focus from high-pressure sales to customer consultation and service. . . Some dealer groups will shift to a salaried work force that manages customer relationships and enhances after-sale revenue streams."

Frank M. Taylor, Ford Motor Company vice president for planning and logistics, said Ford intends to blend its current "push" manufacturing with a "pull" system in which consumers buy online and manufacturers build to order.

"We'll always sell cars off dealer lots --- and we'll always custom build," Taylor said. "The challenge is creating the logistics infrastructure to support both. It's not an either-or scenario. It's a both-and scenario.

"A large percentage of our customers want to see the car, touch it, smell it and feel what it's like before they buy," he said. "For them, a virtual tour won't do."

Technology and changing consumer habits eventually will transform the role of car salesmen, too, industry analysts note. As consumer Web sites give more buyers timely price information, car salesmen won't be able to bluff. Rather than trying to convince buyers the cars on the dealer lots are the ones they really need, salesmen will start acting more like agents skilled at locating the exact models customers want at prices they are willing to pay.