A student, DB, pointed me to Car and Driver article, on Ford’s plans to go “make to order”:
Ford recently introduced Ford Express Buy, an online-only way to purchase a Ford vehicle in the U.S. For now, the only model you can purchase this way is the Mustang Mach-E, but Ford’s president of the Americas and International Markets Group, Kumar Galhotra, told Automotive News last month that the system will expand to other models at some point.
“It’s a really exciting way for us to sell vehicles in partnership with our dealers,” Galhotra said. “You can start building your vehicle, pricing it, put it in the cart, and you can go all the way to make a transaction. Ford Credit can approve the customer’s credit in seconds, and you can make the payment and the dealer can deliver the car to your home.”
This kind of move is very much consistent with the transition to “service products” in the industry. Covid and chip-shortage has accelerated the direct to consumer model in the auto-industry.
Three things are at play:
- Chip shortage has reduced the finished good inventory in auto supply chain. See my post on TSMC and Chip shortage. Because, the production has paused in various plants, customers can’t just drive off any model that they want off the lot.
- Customers are increasingly willing to order online and are even willing to wait — for a bit — for the product to arrive.
- Covid has negatively impacted physical test drives and purchasing at dealer ship sites.
So, the auto-selling problem has changed to resource allocation problem of chips. On which models should we put the chips?
Clearly, the models that sell well. [So it makes sense for a Mustang].
If it is really a chip shortage story, the query I have is how late is chip implanted in the production process. My own understanding is that cars can be assembled without the chips. The final assembly of chips can be done but this entire processing takes weeks.
For make to order to work well, the chip implantation can be (and should be) done as late in the assembly process as possible. (Like fixing seats. This is why vegans can have the leather upholstered seats in their car switched out for cloth upholstery). Customers don’t mind ordering online, but they do hate waiting — so the success of Ford really depends on the quick execution of the last minute assembly.
Omnichannel is here.
Another giant pain for Ford is going to be how dealerships are going to respond to this idea. Transitioning from a physical network of high touch service centers to click-and-pick is an “omnichannel” challenge. I am not yet sure that the car companies are there yet. But, this is how Tesla has disrupted the old dealership model. Previously, in Tesla Scales Back, I had written that
Dealership Selling is an Old Business Model
Everyone who has bought a car knows that very few customers love dealerships. Car buyers have increasingly disliked the entire process of buying cars: visiting dealerships, uncomfortable negotiations, and an unshakable feeling being on the short end of the information asymmetry.
It was Tesla that first successfully rethought the automotive supply chain like a retail supply chain. This business model of distribution is Tesla’s remarkable and unorthodox strength. By going directly to the customer through factory-owned stores, Tesla did not over commit like other carmakers to excess inventory and complex contracts at dealerships. For sure, this road has definitely not been easy.
I am probably banging the same drum, but the reason dealerships should exist is for service.
Car companies ought to sell online as customers make more decisions online. But they still need dealerships not to just sell cars, but to keep its customers close. Desired brands such as Tesla and Ford Mustang ought to be thought of as product-service bundles, with service components being an important feature for retaining high-end customers.
So, we are going to be in the brave new online world — whether auto companies are ready or not.