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Why don't auto-manufacturers sell cars built to the customers' needs?

Name: Joel Andrew Nagel
City & State: Burlington Junction, Mo.

Question/Comment: As long as I can remember, automobile companies have always pushed their products, by, in one way or another, indicating that they are burdened by surplus inventory. So, given that all the auto-manufacturers now have Web sites where the consumer can "build" a car to their exact specification, why do they not eliminate entirely their surpluses -- and their dealers -- by selling directly to the consumers and building only those cars which have already been paid for? Could they not consolidate former dealerships into company-owned service centers where, instead of having 500 unsold models on the lot, they had only one -- a demonstrator model?

Paul Solman: Well, this is what the Internet visionaries have long foreseen. Consider what Jeffrey Bezos, the founder of Amazon, told us back in 1999, when he said no stores would survive if they didn't provide a "fun" experience. (The piece is up in transcript and audio here.)

The transition to all-digital buying seems to be taking a lot longer than Bezos, or even I thought a decade ago. (See a NewsHour piece called "Virtual Showroom" here.)

Hey, there are a lot of vested interests and old habits in place. But that doesn't mean you won't be right - in time.

Martin Neil Baily, guest vetter Salespeople will usually tell you that you can get a bargain -- but only if you buy today. So don't believe everything you hear. That said: the Detroit auto companies have been pushing product for many years. They have huge fixed costs in the form of the benefits paid to retirees and the development costs for new models. That means they have to keep sending more cars out of the factory as long as they can get a price that is above the extra (or "marginal") cost of making the car, even if that leaves them short of profit, after covering their fixed costs (prices are below or just above average costs). The result has been low profitability and a shortage of money for innovation and new products. Hopefully, they are now turning the corner.

-- Posted January 28, 2008 | Comments (0) | Permalink