Revamping the Car Ordering and Allocation Process
Table of Contents
- Introduction
- Broken Vehicle Ordering and Allocation System
- The Two Main Ways of Getting Cars: Allocation and Ordering
- Car Allocation: Pros and Cons
- 4.1 Pros of Car Allocation
- 4.2 Cons of Car Allocation
- Car Ordering: Pros and Cons
- 5.1 Pros of Car Ordering
- 5.2 Cons of Car Ordering
- Tesla's Ordering Method
- The Best Approach for Manufacturers
- 7.1 Standardized Manufacturers and Allocation
- 7.2 Manufacturers with Optional Equipment and Ordering
- The Situation with American Manufacturers
- Stalantis' Success with Ordering Method
- Reaching an Equilibrium
- Conclusion
😲 Broken Vehicle Ordering and Allocation System for Dealerships
The current vehicle ordering and allocation system for dealerships is fundamentally flawed. In this article, we'll delve into the shortcomings of this system and explore the two main ways in which dealerships acquire cars: through car allocation and car ordering. While both methods have their advantages and disadvantages, it's evident that the existing system creates a significant gap between manufacturers, dealerships, and customers – ultimately resulting in dissatisfied customers and potential financial losses for dealerships. Let's dive deeper into this complex issue and explore potential solutions.
🚗 The Two Main Ways of Getting Cars: Allocation and Ordering
When it comes to acquiring cars for dealerships, there are two primary methods: car allocation and car ordering. Car allocation refers to the manufacturer informing the dealership about the number of specific models they will receive over a designated time period. The dealership has limited influence over this allocation, with the manufacturer deciding the types and quantities of vehicles. On the other hand, car ordering allows dealerships to provide specific instructions to manufacturers regarding the models, packages, colors, and options they require. This method offers more flexibility and customization, as dealerships can tailor their inventory to meet customer demands.
💡 Car Allocation: Pros and Cons
4.1 Pros of Car Allocation
One advantage of the car allocation method is that it maintains high demand for certain vehicles over an extended period. Manufacturers limit the production of these vehicles, ensuring their exclusivity and desirability in the market. Toyota, for instance, excels in using the allocation method effectively. Their popular TRD Pro models consistently sell at premium prices, commanding a loyal customer base. By controlling the supply, manufacturers can keep these in-demand vehicles highly valued.
4.2 Cons of Car Allocation
The primary drawback of car allocation is the significant gap between manufacturers, dealerships, and customers. Manufacturers dictate what customers should want, leaving limited room for dealerships to cater to specific customer demands. Misjudging market trends can result in overproduction, leading to excess inventory and the need for discounts to move unwanted vehicles. While manufacturers employ market research, occasional miscalculations hinder the efficiency of this allocation method.
💡 Car Ordering: Pros and Cons
5.1 Pros of Car Ordering
Car ordering allows dealerships to directly communicate customer preferences to manufacturers, resulting in a more customer-centric approach. By gathering feedback and insights from customers, dealerships can convey the exact specifications and features desired. This method enhances customer satisfaction, as it ensures they receive the vehicles they want, configured to their liking. Additionally, the ordering process fosters better communication between manufacturers and dealerships, strengthening their partnership.
5.2 Cons of Car Ordering
The downside to car ordering lies in the potential devaluation of the product. When customers can order vehicles with ease and minimal waiting time, the initial demand might diminish quickly. As seen with the accessible ordering process for the Ram TRX, demand has waned once customers acquired their desired vehicles. Sustaining long-term demand becomes challenging when the element of exclusivity diminishes.
🚀 Tesla's Ordering Method
Tesla offers a unique ordering method wherein customers can directly order cars from the manufacturer, bypassing the dealership model entirely. This consumer-to-manufacturer ordering process promises convenience and transparency, eliminating the need for haggling at dealerships. However, replicating Tesla's approach is impractical for most manufacturers due to various reasons. Tesla's substantial capital infusion and focus on luxury, high-profit vehicles enable them to implement this system effectively.
🏭 The Best Approach for Manufacturers
The ideal approach for manufacturers depends on their nature and product offerings. Standardized manufacturers like Toyota may find the allocation method to be suitable, given their limited changes in vehicle specifications over time. This method allows manufacturers to streamline production while ensuring demand for their limited model variations. However, manufacturers with extensive optional equipment, such as many American automakers, are better off adopting the ordering method. This enables them to cater to customers' specific demands and avoid excessive inventory.
📈 The Situation with American Manufacturers
American manufacturers like Ford and GM continue to rely on the allocation method, leading to challenges in matching customer demands. For example, dealerships may be left with a surplus of unpopular vehicle configurations due to limited customization options. This excess inventory often necessitates discounts, negatively affecting profitability. Stalantis, a merging entity of Fiat Chrysler Automobiles (FCA) and Groupe PSA, has successfully transitioned to the ordering method, resulting in increased sales and greater customer satisfaction.
⚖️ Reaching an Equilibrium
While the ideal system may not exist yet, progress can be made towards achieving a balance between manufacturers, dealerships, and customers. Manufacturers must assess their unique product portfolios and customer expectations to determine whether the allocation or ordering method suits them best. Embracing customization and direct customer feedback will enable manufacturers to ensure high satisfaction levels and maximize sales.
💭 Conclusion
The broken vehicle ordering and allocation system for dealerships necessitates a thorough reevaluation. While Tesla's direct ordering approach may seem appealing, it may not be feasible for most manufacturers due to financial constraints and varied product lineups. Standardized manufacturers can benefit from the allocation method, while manufacturers with optional equipment should transition to the ordering method to avoid unnecessary inventory and discounts. By making these adjustments, manufacturers can improve customer satisfaction, strengthen dealership partnerships, and ultimately enhance their bottom line.
Highlights
- The current vehicle ordering and allocation system for dealerships is fundamentally broken, creating a significant gap between manufacturers, dealerships, and customers.
- There are two main ways of getting cars: through car allocation, where the manufacturer determines the number and model variety for the dealership, and car ordering, where dealerships can specify the exact vehicles they require.
- Car allocation ensures high demand for certain vehicles but limits customization and can result in excess inventory and discounts.
- Car ordering allows for greater customization and customer satisfaction, but it may lead to a devaluation of exclusivity over time.
- Tesla's direct ordering method is not suitable for most manufacturers due to financial constraints and product variations.
- Manufacturers should choose the allocation or ordering method based on their product lineup and customization options.
- American manufacturers should consider shifting towards the ordering method to avoid excessive inventory and discounts.
- Stalantis, an emerging automotive giant, has successfully implemented the ordering method, resulting in increased sales and customer satisfaction.
- Reaching an equilibrium requires manufacturers to balance customer demands, profitability, and dealership partnerships.
FAQ
Q: Why is the current vehicle ordering and allocation system for dealerships broken?
A: The current system creates a significant gap between manufacturers, dealerships, and customers, resulting in dissatisfied customers and potential financial losses for dealerships. Manufacturers dictate the vehicles they think customers want, leading to mismatches in demand and inventory.
Q: What is the difference between car allocation and car ordering?
A: Car allocation is when the manufacturer tells the dealership how many of a particular model they will receive over a set time period. Car ordering allows dealerships to specify the exact vehicles they want, including models, packages, options, and colors.
Q: What are the pros and cons of car allocation?
A: The pros of car allocation include maintaining high demand for certain vehicles and streamlining the production process. However, the cons include a lack of customization, potential excess inventory, and the need for discounts on unwanted vehicles.
Q: What are the pros and cons of car ordering?
A: Car ordering allows for greater customization and customer satisfaction. However, it may lead to a devaluation of exclusivity over time as demand diminishes. Additionally, it requires manufacturers to manage a more complex production process.
Q: Can other manufacturers adopt Tesla's direct ordering approach?
A: Tesla's direct ordering method is not feasible for most manufacturers due to financial constraints and product variations. Tesla's luxury, high-profit vehicles enable them to build the necessary infrastructure for this consumer-to-manufacturer ordering process.
Q: Which is the best approach for manufacturers: allocation or ordering?
A: The ideal approach depends on the manufacturer's product lineup. Standardized manufacturers may find the allocation method suitable, while manufacturers with extensive optional equipment are better off adopting the ordering method.
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