NEW YORK -- Audi of America Inc. plans to test a vehicle inventory system this fall that is aimed at reducing dealer floorplanning costs while giving the company more control of its stock.
In a pilot program involving up to eight retailers, Audi plans to hold dealer-ordered vehicles for 30 days at a storage center in the New England area and not invoice dealers for the stock during that period.
Other dealers won't be able to acquire the vehicles. They won't show up in the computer system that all Audi dealers use to search for available inventory.
After 30 days, the dealer will be invoiced for the vehicle. Dealers with storage limitations also can opt to leave a car at the Audi-controlled warehouse until they have a customer or choose to swap the car with a dealer that has a firm order for a similarly equipped vehicle.
As a result, the often costly practice of swapping and shipping cars between dealers will be avoided.
"The idea is that the dealers would order the cars, and they would still belong to the dealer, but we would keep them in storage on the dealer's behalf," says Johan de Nysschen, executive vice president in charge of Audi of America.
The trial is expected to last four to six months. Ultimately, the plan is to roll it out nationwide. At that time Audi would have a storage location for each of its four U.S. regions.
"Logically, we may keep them at the ports where we bring them in," says de Nysschen, who became Audi's top U.S. executive in 2004. "We have the warehouses, space, people and the maintenance."
Dealers sound enthusiastic about the proposal. Jerry Nelson, owner of Schneider + Nelson Audi in West Long Branch, N.J., says rising interest rates have caused his floorplanning costs to nearly double in the past year.
"This is the kind of positive, proactive approach by a manufacturer which helps the dealers dramatically," Nelson says. "The cars are still available, we can get them in a short period of time, and we won't get floorplan costs.
"Cars do not come evenly each month, and sometimes we physically run out of space. So we rent a lot now for our three dealerships."
Audi's dealer council supports the program, says Thomas Harper, chairman of the council and owner of Harper's Porsche-Audi-Jaguar-Volkswagen-Infiniti-Acura in Knoxville, Tenn. But Harper isn't sure it would work for the entire nation. He says it may be best suited for major metropolitan areas.
Tested in Japan
Centralized storage is similar to a plan de Nysschen established for Audi in Japan. The 44-year-old native of South Africa headed Audi Japan for five years and set up an exclusive Audi dealer network before taking the U.S. job.
The strategy is part of Audi's plan to break even in North America this year. It also goes hand in hand with programs to boost the average return on sales of the company's 269 dealers from the current 2.1 percent, de Nysschen says. Audi executives decided that cutting floorplanning costs was a key element of that strategy.
"That seems to be the first place where we can put some efficiency to work," de Nysschen says. "Probably, with the exception of some of our dealers who are extremely wealthy, we can borrow money at a little bit lower interest rate than the dealer can."
Audi would recover some of its cost by charging dealers a fee.
De Nysschen also says Audi can better control how cars are maintained - key for a brand that is crawling back up the customer-satisfaction and reliability charts.
Went too far
De Nysschen says that keeping the days supply of vehicles low is important to Audi's brand image and strategy.
If a brand has a large inventory, "you have a sales guy developing a move-the-metal mind-set," he says. "You end up negotiating on the basis of price rather than brand substance. Those are not things you do if you want to be a premium brand."
But when Audi lowered its days supply last year, he says, stock levels were not consistent throughout the network. He says Audi's supplies went from 87 days early in the year to as low as 40 days.
"What we discovered is that our organization, Audi of America, and our dealer body can't live with a 40-day supply," de Nysschen says.
Audi abandoned the 40-day target last year. The supply of vehicles in the pipeline April 1 was at 68 days.
"The slow-moving stuff was getting counted in the days supply, but the hot-moving stuff was getting down to a 10-day supply," de Nysschen says. "There was the added problem that you weren't getting a uniform distribution across the country. Some dealers were still sitting on 60 days, and others were down to 10 days.
"If you bring your days supply down to this very low level, then the statistical probability of a dealer having the right car at any given time is very low. You may lose some sales. In some areas in particular, people are looking for instant gratification."
De Nysschen says that means dealers end up swapping cars and bearing the cost of trucking vehicles across the country.
You may e-mail Diana T. Kurylko at [email protected]