What business owner would ever treat his / her customers like fools? There are whole industries built around screwing customers. Of course, show me an industry that treats its customers like fools, and I will show you an industry in trouble. Let’s take the auto industry for example. The whole auto industry customer experience is built around a Marquis De Sade model of customer torture. The Marquis De Sade had the rack. The auto industry has the car salesman.
When I decide to buy a computer, I go to the Dell internet site. From that site, I can customize and configure virtually component in the computer. I can select the amount of memory. I can select the processor and the speed. I can pick the size of the hard drive and its speed rating. I have all of those choices and many more for a computer costing less than $1,000. When I shop for a car costing $30,000 or more, I have to select from whatever the dealer has on his lot. If the owner of the dealership is an idiot or doesn’t have much standing with the manufacturer, because he isn’t selling enough, there will be lots of white elephant cars on the lot. Why can’t we configure and buy a $30,000 car as easily as we can buy a $1,000 computer?
There are two reasons. The first reason is that state laws protect auto dealerships. The national auto dealership associations bathe state politicians in political contributions. Yes, our state legislators favor car salesmen over constituents. Why is that surprising? In surveys conducted, which rank citizen trust in various occupations, politicians and car salesmen finish in a dead heat – nearly last. In fact, I think prostitutes finish higher. They should. They provide better value – or so I hear.
The second reason has to be stupidity. There are really compelling reasons for auto manufacturers to sell over the internet the way Dell sells computers. The first advantage is inventory management. The manufacturers could build to order. Think about all the unsold cars sitting around on dealership lots. This is a huge industry investment in inventory. That investment costs a lot of money in financing costs. The typical car dealer finances his / her inventory using what is called a floor plan loan. In a floor plan loan, the bank loans the dealer money to buy inventory on a car by car basis. When the dealer sells a car that was financed with a floor plan loan, the dealer must immediately pay back the loan on that car. The longer a car is on the lot, the more interest expense the dealer incurs on a car. The accounting software for dealerships tracks floor plan interest on a car by car basis. This is why you can get a better deal on a car that has been on the lot for awhile than the deal you get on a car that has just arrived. The dealer wants to stop bleeding interest on the white elephant sitting on the lot for ninety days. There are other inventory holding costs as well. The dealer pays rent on the lot. The space the inventory sits on literally costs the dealer money. If you take the inventory holding costs out of the cost of a vehicle, the vehicle would sell for significantly less. Well maybe. In fact the manufacturers would probably pocket a significant portion of the savings. Of course, that should be their motivation to move sales to the internet.
A second reason that internet sales would really work for manufacturers is also related to inventory management. When you know exactly, on a real time basis, what customers want, you can manufacture much more efficiently. Currently, auto manufacturers have to guess what cars are going to sell. Once a car is built, they can’t change their minds and build something else to substitute immediately if demand for that model is weak. They are stuck selling what they have already built. A perfect example of this is the hybrid Ford Fusion. When my wife was looking to replace her five year old Honda Accord, I had a lot of trouble getting her to consider American manufacturers. Yes, she is a little snooty. I finally sold her on the idea of the hybrid Ford Fusion, a highly rated sedan, which has competed well with foreign mid-priced sedans. When we went to a Ford dealership, they didn’t even have a hybrid Fusion to test drive. Other dealers were out of stock as well. Don’t you think Ford would have liked to have manufactured just a few more hybrid Fusions? Unfortunately they had to guess at demand for the car, and they guessed low. My wife bought another Accord. I will have more to say about that unfortunate odyssey.
In case you can’t tell already, I believe auto dealerships should be extinct. They should be extinct like dinosaurs, except that little kids like dinosaurs. No one likes car dealers. I know that tens of thousands of jobs would be lost if dealerships disappeared, but under that logic we should allow murders, because it keeps hit men employed. Now that you know where I stand, I will show you why in my next post. (That means it isn't finished yet.)
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