Dealers' plea: You send it, we'll sell it
SAN FRANCISCO -- "We want cars, and we want them now."
That was the unofficial theme of this year's National Automobile Dealers Association convention. Dealers are delighted by demand but frustrated by their inability to get the vehicles they want.
Automakers are having trouble ramping up to meet surging desire for vehicles and have been hurt by shortages of key parts. Those problems and a switch to a pull system -- whereby dealers keep fewer vehicles on their lots and place orders based on customers' preferences -- have exposed the deficiencies of automakers' distribution systems.
When dealers held huge inventories, it mattered less if some of the cars were the wrong trim levels. But with far fewer vehicles on the lot, it's critical that the ordering and distribution systems get the right vehicles to the right markets.
That's not happening.
"It's a matter of not getting enough of the right cars," said Bob Edwards, a multibrand dealer in Council Bluffs, Iowa. "Who knows how many Hyundais I could sell if I could get the right inventory? Who knows how many diesel trucks I could sell if I could get the right inventory?"
Linda Walston, business manager for Napa Ford-Lincoln, in Napa, Calif., said her dealership is having a hard time getting Ford Mustangs, F-150 pickups and the redesigned Explorer crossover. The store trades with other Ford dealerships to get enough of those vehicles to satisfy customer demand.
"The other dealers around us have 10 or 12, and we just have one," Walston said. "You have to sell them in order to earn more, and you can't sell them if you don't have them."
Some of the difficulty stems from shortages of crucial parts. Suppliers who barely survived the recession can't ramp up fast enough to meet resurgent demand. Ford Motor Co., for example, has plenty of V-8 F-150s, but a parts shortage has limited its supply of V-6s.
Hyundai can't keep up with demand for all-wheel-drive and Limited versions of its Santa Fe crossover. The main culprit: not enough 18-inch wheels, standard on those versions.
"It's been very frustrating for dealers," said John Krafcik, CEO of Hyundai Motor America.
"Dealers used to have massive stocks of port inventory to choose from because we've been production-push," he said. "But now we have demand-pull, and our stocks are low, and dealers can't pull the cars they want. Now they have to wait. One dealer said he hadn't seen an Elantra in three weeks."
Jim Farley, Ford's group vice president of global marketing, sales and service, says: "We were launching so much new product that in parts of the country certain product was sold faster than the allocation could catch up. Through the crisis, when everyone wanted to cut their expenses, it was great to have half your lot empty. It was less flooring expense. But as the market is increasing, there is a tendency to test us."
Even if they have enough parts, automakers are struggling with ordering systems launched in the 1990s from software created in the 1980s.
Toyota's ordering system is considered one of the most flexible. While dealers typically order a car two or three months before it appears on the lot, Toyota's allocation software lets dealers make changes to their orders up until two weeks before delivery. A black Camry SE can be changed to a beige Camry LE if a dealer sees a last-minute spike in demand.
"We want to reduce complexity with fewer build combinations, but consumers want selection. How do we keep pace with retailing and consumer research tools?" said Randy Pflughaupt, group vice president of sales administration for Toyota Motor Sales U.S.A. Inc.
Sophisticated used-car inventory software tools have raised the bar for inventory selection. Those tools can predict demand based on recent sales history for the dealership as well as the broader market. That enables used-car managers to stock the right vehicles for a given market.
But those tools rely on data that are not publicly available for new-vehicle sales. So automakers are tweaking their allocation systems to get closer to the used-car standards.
Last summer, Mazda North American Operations launched a software tool that assists dealers in ordering vehicles, pre-loading orders based on what a dealer has been selling, including trim and color. Mazda dealers can override the system, say, if a specific vehicle sold very quickly because of incentives that no longer are in play.
General Motors Co. told dealers at the NADA convention that it would overhaul its allocation system to alleviate tight inventories on high-demand models.
GM allocates vehicles based on a month-end snapshot of its dealers' inventory and their recent sales histories.
A dealer might order five Denali versions of the GMC Acadia and sell out in a week. He then must wait three weeks until he gets credit from the factory for those sales. It might take several more weeks to produce and ship those vehicles, forcing the dealer to scrounge for popular models and trim levels from other dealerships until the shipment arrives.
Later this year, GM will update the 30-day interval to twice monthly.
With distribution out of sync with demand, dealers have to rely on third parties to adjust. Ellis Disch, a former dealer and founder of Ideal Inventory Solutions, which arranges dealer trades, said his business, open less than a year, is growing. Disch is arranging hundreds of dealer trades a month, at $199 a pop, but he expects that to grow into the thousands by year end.
"Dealers are asked to forecast their market in three months' time," Disch said. "Who can do that in any business 100 percent of the time? Even if you have a small error rate, there are going to need to be adjustments."
Ryan Beene, Jamie LaReau, Mike Colias, Arlena Sawyers, Diana T. Kurylko, Neil Roland and Jim Henry contributed to this report
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