Americans are accustomed to buying a car from what the dealership has in stock. We may have a particular car in mind – a certain color, trim level, and set of optional features. But, for generations, we’ve gone into the negotiation process knowing that we might drive out in something that isn’t quite what we wanted. We also, crucially, want to drive a new car home the day we buy it.
Europeans are not like this. They order precisely the car they want, signing the paperwork for the deal, and go home to wait for it. This system gives them exactly the custom vehicle of their dreams but requires patience in getting it.
Ford: We’re Committed to Build-to-Order
Over the last year, though, American car buying has slowly come to resemble the European experience. It happened largely by accident – a combination of coronavirus-related changes to how we shop, and microchip-shortage-related changes to how dealerships stock cars. But Ford would like to make the changes permanent.
“We are really committed to going to an order-based system,” Ford CEO Jim Farley told reporters this week on a conference call discussing the automaker’s second-quarter profits.
Coronavirus Changed Car Shopping Expectations
As Americans dealt with travel restrictions related to the COVID-19 crisis last year, the car shopping experience changed. Negotiations started to take place online. Dealerships arranged touchless test drives. And consumers liked it.
Kelley Blue Book research shows that buyers were happier with the new experience than they had been with sitting in a dealership and talking through inventory with a salesperson.
Microchip Shortage Scaled Back Inventories
Dealerships, meanwhile, saw their inventories grow tighter and tighter. Much of the change came due to a worldwide shortage of microchips that restricted the number of cars automakers could build.
Automakers measure their supply of cars using a metric called days of inventory — how long it would take to sell out of a particular model if they stopped building it today. At the start of July, dealers had an average of just 25 days worth of cars to sell. That’s a record low, according to Cox Automotive, parent company of Kelley Blue Book.
Though much of the inventory shortage is due to the limited supply of microchips, at least some of it may be happening on purpose. Carrying lower inventories saves dealerships money (they’re making payments on the cars on their lots) and keeps automakers from stocking too many examples of a model and needing to discount them to get sales moving again.
Incentives Shrinking
That’s a situation Ford would like to avoid. “I know we are wasting money on incentives,” Farley said this week. But, with supply tight and demand high, incentives are disappearing. The average new car buyer paid 99.9% of sticker price in June.
A build-to-order model would require a mental shift from American buyers. They’d need to accept signing for their new car and then waiting for it to arrive. But there’s some evidence that shift is beginning.
A New Iconic Moment: The New Car Delivery
Used car giants like Carvana and Vroom have built their marketing around images of Americans celebrating the moment a truck pulls up to their driveway to deliver their new car. Carvana ads that feature the delivery truck driver as a hero have punctuated recent Olympic coverage.
None of this has escaped Ford’s notice. The company hasn’t ruled out keeping a supply of cars on dealership lots so that buyers could drive home in a new car the day they set out to buy one. But Farley’s words could signal a cultural change in the way Americans shop for a new car.
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July 30, 2021 at 10:45PM
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Ford Will Build Your Next Car to Your Custom Order - Kelley Blue Book
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