It’s not easy being a Honda, Toyota, or Nissan dealer these days. At my store, we usually carry about 250 cars This morning, the inventory showed 135 – around the same as our smallest local competitor. Dealer trades are scavenging the rest of the good inventory pickings, leaving less popular models, trims, and colors. The GM hasn’t knocked on my door looking for a 15-car weekend from the Internet Department (AKA me) in quite a while. In our storage lot, the blank spots between cars stretch further and wider than ever before. The AC in the showroom has been out for a week. Salesmen in suits walk through hot, stale air. We pay over book for many pre-owned cars, after the used car managers from Los Angeles and Orange Counties’ Honda, Toyota, and Nissan dealers battle it out at auction to populate the lot and expand their pre-owned department. Used car profits are down and new car profits are up. Many dealers won’t do the national lease specials. If they did, the last of their cars would be gobbled up.
But my dealership’s not the only one.
In a discussion on Twitter about a month ago, a customer explained he was having a hard time getting a simply equipped Audi A4. But the reasons, I found, aren’t the same.
I worked at an Audi dealer last summer. In most cases, we either had what the customer wanted or something very close to their exact specs – plus or minus a feature. Worst case, if you fell short, you’d do a dealer swap. For the rare, very particular customer who wanted a very high line model with an exact configuration, you could pre-order the car and take a deposit. The turnaround time was about three months. I didn’t mind this, because I knew I’d want the unit sale for my bonus later on. I’d just have to work extra hard for the current month, too.
What I’d heard about Audi, over and over again that summer, was that they wanted to overtake BMW as the world’s largest premium automaker by 2015. I was pleased with myself for snuggling in with a winning company. Plus, I had a fancy leather chair, free bottled water, and I never got in trouble for eating freshly baked cookies in the service waiting area. They even gave me a nametag including my hometown, like the Hertz rental car guys. I proudly displayed “Binghamton, NY” and hoped for the day someone would say, “Hey, me too!” That sale would surely close. But no one from Binghamton ever came in. Not only that, but my work shirt began to fit more snugly, probably due to my new habit of 10 cookies per day. I began to relate to my fellow salesmen, who’d complain about their weight while wiping their mouths of cookie crumbs.
But here’s what I didn’t know: By the time I walked in the door, Audi had just closed its best first quarter in company history (beating its previous best from 2009.) Furthermore, Audi had decided in 2009 to reduce U.S. vehicle allocation by 6,000 units in reaction to the economic meltdown and corresponding drop in new car sales. If they’d had an overabundance of inventory and no demand, the dealers and Audi would’ve shared the same pain. The dealers would need to give them away and Audi would have to launch incentives, reducing profits.
This reduction seemed like a smart move at the time – one that many board members would’ve nodded along with as the clever executive stood next to his PowerPoint presentation. But here’s the thing: sales did not drop. In fact, records were set. Audi sold 6,000 more vehicles in the U.S. in early 2010, creating that best first quarter in company history – just as they released the new A8 and just before fall’s release of the new A6.
Then, 2011 hit. And again, they beat their previous first-quarter record.
The only problem with all this, of course, is that they sold all these cars with less allocation. But automakers and dealers can anticipate this. So, to stagger the sales and make more profit, they’d simply scale back the incentives and hope to God the customer doesn’t visit BMW or Mercedes and learn they could get a comparable model and save $100 on their lease payment.
They’d simply go after a customer base that already loves Audi. Maybe it’s the lights. Maybe it’s the look. Maybe the owner loyalty discount makes them feel especially appreciated. The bargain hunters – those who appreciate the deal more than the car – will simply go someplace else. I’ve always wondered if some connection could be drawn between Audi drivers’ other purchase decisions.
For example, at my Audi dealer’s waiting lounge, nearly every customer would sprawl out on our leather couches with their iPads. These weren’t regulars, either – every day drew a new group. One day, I put my nametag in my pocket and walked to the BMW dealer next door. In their service area, people stared at their watches and tapped away on their Blackberrys, looking up every few minutes to check for progress. No iPad’s. No unnecessary, expensive technology. It was pure business.
Like a Monday morning flight from John Wayne airport to San Jose I skedaddled back to the Audi lot and put my “Binghamton, NY” nametag back on. A desk manager jumped out of the alley between the two buildings, where he’d spend half the day smoking. He asked me what I was up to, and I said I’d wanted to say hi to a friend in service next door. He slipped back into the alley, yelling that I was free to go whenever I wanted. Shortly thereafter, I did leave for a Honda dealer.
So where does this leave us? Nowadays, folks are tweeting their disbelief – they can’t get the Audi they want unless they pre-order it. Last summer, I only rarely experienced a pre-order. Today, pre-orders make up a whopping 31% of Audi sales.
How many customers start shopping for a car three months in advance? Their lease may already be up, their wife may have just had a baby, and who knows if the incentives will change during that time. If 31% percent of sales are pre-orders, just how many sales have they lost to these inconveniences? In fact, I wonder if Audi has bolstered sales of other high line cars.
But, Audi isn’t lying on its back. They plan on spending $15.7 billion through 2015 on new plants and new models. They seem serious about their goal, but I have to wonder about those sales lost to BMW or Mercedes, and the damage to Audi’s reputation. In three years (just shy of their goal’s deadline), when that BMW or Mercedes customer’s lease is up, will those dealers let them walk away so easily?
If Audi is willing to take that gamble, if they have the confidence they won’t get in their own way again, maybe savvy shoppers should skip the Audi car and buy a few shares of Audi stock instead.