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Martin Gottlieb is an editorial writer and columnist for the Dayton Daily News opinion pages. He focuses on the political process itself and does such national issues as war, the economy, taxes and Social Security, as well as a hodge-podge of local and state issues.Home > Blogs > A Matter of Opinion > Archives > 2009 > May > 12 > Entry
Edward Ryan: Auto industry should retool its business model
Edward Ryan, of Kettering, worked as a project manager for the automotive industry for three years and in the supply chain for 20 years.
It’s not too late to save the American auto industry, if only the car companies would embrace their traditions as innovators by trying a new approach to making and selling cars that might seem radical but, in truth, would make a lot of sense.
Remember, beginning with the moving assembly line, it was automakers who pioneered many of the ideas that have made manufacturing everywhere more efficient.
Even so, the basic business model that underlies today’s auto industry has remained virtually unchanged for a century. It needs an overhaul. By combining forgotten mass-production concepts with new ideas from high-tech industries, the auto companies could revolutionize their businesses and save $4.9 billion a year. For an industry that’s borrowing billions from the federal government, change is overdue. The common problem for car makers is proliferation — too many brands, too many models, too many dealerships, too many parts and too much inventory. With hundreds of models and millions of configurations, car companies gamble that the vehicles they make will be the ones customers demand. When they’re wrong, vehicles stack up and cost big money. The solution would require a major change in the way we buy cars. In the altered business model, you would not be able to walk into a dealership, buy a car and drive it off the lot. But by waiting a day, you’d ensure you get the exact vehicle with the right features, and the dealers won’t have to waste lot space in hopes they have the car you want. Here’s how this would work: • Dealerships would be completely reimagined. The days of massive car lots would end. Buyers would see and test drive a few standards models at the dealer. They’d order a car, specifying options and color, from a regional “finishing” location, to be delivered the next day. • Vehicle engineering would have to change. Borrowing a concept from the computer companies, auto companies could design vehicles to have standard components. If you want to take out your CD player and install a combination GPS/MP3 player, you pop out the old component and put in the new. This concept could be used for everything in the car, including body panels, seats, etc. Following this plan, dealers would need far less inventory, reducing a huge carrying cost and avoiding the problem of end-of-model-year excesses for vehicles that don’t sell. A lot depends on your assumptions, but it’s a conservative estimate that dealers average 60 days worth of cars on their lots (2.7 million vehicles on lots nationwide). Using Toyota’s 2008 vehicle cost of about $22,900, an 8 percent carrying cost would yield more than $4.9 billion in annual savings by eliminating this inventory. These changes wouldn’t be easy. Dealers will wonder if consumers will be willing to wait in an era when buyers expect immediacy. But this process of choosing your options and waiting for delivery is no different than the way many of us buy computers from companies like Dell and Hewlett-Packard. The benefits would be huge — a more responsive auto industry with lower costs, greater customer satisfaction, smaller dealerships, a simpler buying process and better forecasting. The current economic climate is forcing change on the auto industry. This is its best chance to really re-think the way it does business ,which will ultimately make the industry far more efficient.
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By Dave
May 14, 2009 9:40 AM | Link to this
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