There is a disconnect in dealerships all over America.
Many consumers cannot find the vehicles they want to buy. Automakers continue making what vehicles they can make, whether demand exists or not.
The dealer, of course, is in the middle.
The result: factory pressure on dealers to take unwanted inventory, high incentives, low dealer margins and unhappy customers.
Twenty years after the infamous Chrysler Corp. boiler rooms, which pushed cars and trucks on unwilling dealers, automakers are still building millions of vehicles that dealers do not want and that do not suit the customer.
Ron Boyer, chairman of the Ford Division National Dealer Council and managing partner of Courtesy Ford in Portland, Ore., calls it the law of the jungle.
Says Boyer: 'Look at Mustangs. They can't build enough with V-8s, but they have committed to building so many Mustangs to keep the plant going. So they build six-cylinder sticks, ship them to the dealers and hope they sell. They don't sell.
'Now they are stacked in dealer inventory for 30 or 60 days. The law of the jungle takes over and Ford says, `Let's put a special incentive on it.' '
The price tag for this disconnect is immense.
A study by PricewaterhouseCoopers found dealer and consumer incentives in 1998 amounted to an average of $2,000 per vehicle. The consulting firm says incentives cost the industry a staggering $36 billion in lost income in 1998.
The pain of this loss is not shared equally. An Automotive News survey of dealers by Dohring Co. found that General Motors dealers were the most dissatisfied with vehicle ordering and availability. Ford Motor Co.'s scores were better than GM's, but not by much. (See survey highlights on Pages 34 and 35.)
Dealers of the former Chrysler Corp. gave their manufacturer the highest marks for providing what consumers want. And Chrysler, before the merger with Daimler-Benz AG last year, had been rewarded with the highest profits in the auto industry.
The biggest frustration for dealers is that the vehicles they order take far too long to arrive - if dealers can get them at all.
Of the dealers surveyed by Dohring, 32 percent said it takes 61 to 90 days to receive a sold-order car; 60 percent said it takes over 90 days to receive a sold-order full-sized pickup. (Sold orders are those for which a dealer has taken a deposit.)
VOMS EQUALS FRUSTRATION
The frustration runs high among Chevrolet and other GM dealers.
The main problem? GM's Vehicle Order Management System, known as VOMS.
GM adopted this online, first-come, first-served method of allocating options last year. It was supposed to help GM factories build just what the market demands. Since then, dealers have spent many hours in front of computer screens trying to order chrome wheels, sunroofs and popular colors.
Under VOMS, dealers must order vehicles 60 days in advance. If those orders do not include the desired car or truck, the customer has to wait until the next order cycle.
To be fair, GM has been trying to fix VOMS this year. The Automotive News survey was conducted in July, when dealers' emotions over VOMS were high.
VOMS has been particularly brutal to Chevrolet dealers who want full-sized pickups.
Craig Tilleman, sales manager at Tilleman Motor Co. (Chevrolet-Buick-Cadillac-GMC-Oldsmobile-Pontiac) in Havre, Mont., says the company recently lost three sales because it could not get the vehicles the customers wanted.
In one case, Tilleman took a $500 deposit on a truck from a customer in December, but could not deliver it until May. Meanwhile, the customer's trade-in, on which Tilleman had made an offer on in December, continued to depreciate.
But Tilleman says most of the dealership's customers are loyal and understand the long wait is not his fault.
Consumer disconnect is not confined to hard-to-get pickups.
For example, Martin Bennett, owner of Thoroughbred Motorcars (Jaguar-Saab-Porsche-Audi) in Nashville, Tenn., says Audi of America once proposed giving him two impossible-to-get TT Coupes for every one 1998 A8 he ordered.
'Audi (is) great for ramming cars down your throat,' he says.
Even without VOMS, Ford dealers also are plagued with availability problems.
Donna Vaxelaire, inventory manager at Jerome-Duncan Ford Inc. in Sterling Heights, Mich., says 1999 is a tough year for getting trucks.
Several truck models were in short supply, she says, including the Ford F-series SuperDuty, the Ford Windstar SEL and the Ford Ranger 4x4 SuperCab.
'The SuperDuty was a real problem,' Vaxelaire says. 'There were quite a few customers that never got their 1999 model built. We had to change them over to 2000 models. Demand was so high we couldn't meet it. We had a couple of customers we lost because they just couldn't wait.'
The Ford Mustang GT also was hard to get, she says.
'They couldn't build enough of the V-8 engine for us,' Vaxelaire says. 'Our demand was so high that we could have sold a ton more if we could have gotten them.'
Kevin Mize, who owns Honda, Hyundai and Pontiac stores in Des Plaines, Ill., says Honda distribution has gotten a lot better, and Hyundai 'is coming around.' But with Pontiac, he says, 'VOMS is just crippling us.'
Says Mize: 'You can't satisfy sold orders, and there's no priority to sold orders. We've lost deals because they can't fulfill sold orders.'
IMPORT PROBLEMS, TOO
While most of the problem lies with GM and Ford, some dealers that sell import-brand vehicles are having a hard time getting vehicles they and their customers want.
Jimmy Jenkins, owner of Jenkins Imports (Volvo-Jaguar) in Milwaukee, says Volvo Cars of North America Inc. insists on sending him cars without Volvo's cold-weather package of options, including items such as heated seats, even though they are next to impossible to sell.
'I only sell 190 to 200 cars a year. I recently tried to refuse 10 out of 50 cars they sent me, and I was informed by Volvo Finance that they would cut me off if I did that,' Jenkins says.
'We cannot order cars. They are simply shipping us cars.'
Peter Butterfield, a Volvo regional vice president, admitted Volvo's dealer ordering computer system has been down temporarily from time to time, and region by region, as the company switches to a new ordering system. Butterfield said that the new system is based much more closely on dealer and customer orders, more like the system Volvo uses in Europe.
'Volvo in Europe is one of those companies that is close to 100 percent customer orders. In the new system, the dealer has tremendous discretion to order cars the way the dealer and/or the customer want them. Naturally, it is within an allocation framework (controlled by Volvo), like all allocation systems,' Butterfield said.
He said the new system should be fully in place next year.
A TOUGH JOB
In the automakers' defense, the task of building what consumers want is immense. Designing a vehicle takes two to three years, so automakers have to divine years in advance what increasingly fickle consumers desire.
Plus, investments are huge. Bringing a new vehicle to market often can cost $1 billion or more, and that kind of spending often begets conservative, safe designs that consumers may end up rejecting.
And because manufacturers are struggling to meet corporate average fuel economy standards, the factories often send dealers vehicles with small, harder-to-sell engines.
WHAT CUSTOMERS WANT
Even after the industry does figure out what consumers want, it can take months of lead time for products to catch up with demand.
For instance, Ford Motor Co. has had a hard time keeping up with demand for V-8 engines used in the Mustang, Expedition, SuperCrew and other vehicles. As a result, the company is increasing V-8 output by 100,000 units in the second half of 2000.
James Womack, a professor at the Massachusetts Institute of Technology and co-author of The Machine That Changed the World, says the challenge facing the auto industry is simple: shorten order-to-delivery times.
Womack's industry best-seller, published in 1990, outlined how Japan's use of lean production eroded America's automotive supremacy.
Womack says compressed order-to-delivery cannot happen unless auto companies adopt lean production methods. With lean production, automakers and suppliers keep inventory low and use advanced, versatile machine tools that can perform a variety of tasks in order to build what customers are ordering.
Some companies took initial steps toward lean production in the late 1980s and early 1990s, says Womack, but the current level of achievement is not good enough for the next decade - especially if there is a recession.
'Nobody's done the hard stuff we recommended,' he says. 'It's a shame that the real heavy lifting only happens in a crisis. In good times when you have the resources (is when you should make changes), but that's when its least likely to happen.'
THE `I' WORD
The auto industry has developed its own method - factory incentives - to 'push' vehicles through a reluctant distribution system.
'Measuring the Automotive Retail Revolution,' a study by PricewaterhouseCoopers, concludes that auto retailing became less efficient and more costly in the 1990s. That inefficiency has institutionalized incentives, costing the industry plenty, the study says.
Incentives - to dealers and to consumers - averaged $2,000 per new vehicle retailed in 1998, says the PricewaterhouseCoopers study.
'Incentives have been institutionalized as a result of business processes designed to push vehicles through distribution systems that cannot properly read market demand, thereby supporting a cycle' of wrong orders and faulty forecasts, the PricewaterhouseCoopers study states.
'These inventory management deficiencies slow progress toward an effective market `pull' system by impairing the very changes needed to improve customer relationships and engender customer loyalty.'
Manufacturers deny that they pressure dealers to take slow-selling vehicles, but dealers say that is not the case.
One-fourth of the dealers surveyed agreed strongly that the factory pressures them to take vehicles that are not moving well.
Still, dealers say there is a lot less pressure now than 20 years ago.
Thomas Pappert, who retired in 1998 from the former Chrysler Corp. as vice president of dealer relations, recalls 1980 and 1981 as being the 'darkest days' in the company's history.
To keep the factories running, the company would continue to build cars and trucks long after it had run out of dealer orders, Pappert says. Then the company would bring in members of its field organization and direct them to get on the phone and persuade dealers to take the vehicles.
'If the day rate minimum was 2,000 (vehicles) a day and we had 1,000 orders, we'd build 2,000 and put 1,000 in our storage lot,' says Pappert, who was with the company 36 years.
Dealers say that the strong-arm tactics of the past are long gone. But they say they feel subtle nudges every so often.
Steven Wolf, vice president of River Oaks Chrysler-Plymouth-Jeep Co. in Houston, says there has been some pressure from the factory on certain models, but it is not threatening in nature.
'They've been trying to push the Sebring coupe like crazy,' he says. 'I have a feeling they are building cars without orders. I've never heard Chrysler say, `If you want this vehicle, you have to take that.' It is more like, `I need you to do a favor for me.' So I took two or three.'
Dan Frost, owner of Southfield Chrysler-Plymouth-Jeep, in Southfield, Mich., and Genesee Valley Dodge in Flint, Mich., says, 'There's always a little jamming going on, but that practice has moderated quite a bit - not in the hundreds like in previous years. Now it's only in the fives and tens. It was rough when they used to do it at 100 a clip.
DaimlerChrysler dealers in the Automotive News survey rated their experience with the factory more positively than other dealer groups in the survey.
'I can honestly say I never have to take a vehicle I don't want,' says Wes Lutz, owner of Extreme Dodge in Jackson, Mich. He sells about 900 new vehicles annually.
D/C: NEW ATTITUDE
The former Chrysler Corp. changed its philosophy a number of years ago, says Paul Berrigan, director of distribution at DaimlerChrysler.
'We took the field force out of the order gathering process and decided to give that responsibility to dealers. We treat every dealer the same way,' he says.
While GM scored poorly on the dealer survey, not all GM news is bad.
Randy Hiley, who owns five Saturn stores in Dallas and Fort Worth and a Mazda-VW dual in Arlington, Texas, says Saturn definitely does not push cars down its dealers' throats.
'They come down with an allocation number and ask if you want that many. Then you order the cars on computer. They're the best I've ever dealt with,' he says.
TURN ONE, EARN ONE
Many manufacturers allocate vehicles to dealers using the so-called turn-and-earn system. This means that dealers are allocated vehicles based on how many vehicles they have sold and how quickly they sold them.
Manufacturers see their allocation systems as fair. They argue that dealers are allocated the vehicles they earn. (See story on Page 34.)
Despite reassurances from factory representatives, dealers are suspicious about the way manufacturers allocate vehicles.
Most manufacturers have adopted computerized ordering systems that they say give dealers a chance to see what vehicles they have been allocated, what vehicles are being built, and when to expect the vehicles.
But even with the computers, dealers say vehicle ordering has become more complex and convoluted in recent years, and they still don't get what they want.
Says Barb Wright, new-car sales manager at Dahl Ford, a mid-sized store in Davenport, Iowa: 'I have been ordering cars here for 18 years, and it is a lot more work than it used to be.'
Wright estimates she changes 80 to 90 percent of the vehicle orders that Ford's computer system creates for her dealership. When she submits her own order, she gives it numerical priority over the factory order. While she can change a vehicle's color or add some equipment, she cannot change a body code or package equipment order.
'If you agree to take 10 Tauruses in the next month, you have to stay on top of it to make sure they are what you want,' she says.
'If they order me a Taurus LX, I am in trouble because I can't change it to (a more upscale) SE model. So I will put in an SE order and hope they pull mine. Nine times out of 10 they will pull my order. But you need to go in and make sure it is green and five passenger if that is what you want. But if they are building SE models that week, that is what you get.'
Boyer, the chairman of the Ford Division dealer council, says untangling the problems in Ford's order-to-delivery system is one of the council's top jobs.
Ford is plagued by component shortages and often is unable to fill dealer orders. Instead, the factory builds vehicles with what it has on hand, creating vehicles dealers do not want, Boyer says.
In addition, rail shipping demand has compounded delivery problems for the auto industry.
'Ford has been working on OTD (order-to-delivery) for two or three years,' he says. 'It is not meeting the objectives. Ford dealers are frustrated with it. I think Ford is a little frustrated with it.'